<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 1996
REGISTRATION NO. 33301101
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PHP HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 54-1023168
(State or other jurisdiction (I.R.S. Employer
of Identification Number)
incorporation or
organization)
</TABLE>
11440 COMMERCE PARK DRIVE, RESTON, VIRGINIA 22091
(703) 758-3600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JACK M. MAZUR, PRESIDENT
11440 COMMERCE PARK DRIVE, RESTON, VIRGINIA 22091
(703) 758-3600
(Name, address, including zip code, and telephone number, including area code,
of registrant's agent for service)
------------------------------
Please send copies of all communications to:
ANDREW P. VARNEY, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
1001 PENNSYLVANIA AVENUE, N.W., SUITE 800
WASHINGTON, D.C. 20004-2505
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: FROM TIME TO TIME
AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
------------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PHP HEALTHCARE CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-3 ITEM NUMBER HEADING CAPTION OR LOCATION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Front Cover Page; Cross-Reference Sheet; Outside
Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... The Company, Risk Factors, Ratio of Earnings to Fixed
Charges
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Not Applicable
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Selling Securityholders
8. Plan of Distribution................................. Plan of Distribution
9. Description of Securities to be Registered........... Description of Debentures; Description of Capital
Stock
10. Interests of Named Experts and Counsel............... Not Applicable
11. Material Changes..................................... Not Applicable
12. Incorporation of Certain Information by Reference.... Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<TABLE>
<S> <C> <C>
PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 18, 1996
</TABLE>
PHP HEALTHCARE CORPORATION
$69,000,000 PRINCIPAL AMOUNT OF 6 1/2% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2002
(Interest payable June 15 and December 15)
3,499,937 SHARES OF COMMON STOCK
------------------
This Prospectus relates to (i) $69,000,000 aggregate principal amount of
6 1/2% Convertible Subordinated Debentures due 2002 (the "Debentures") of PHP
Healthcare Corporation, a Delaware corporation ("PHP" or the "Company"), (ii)
2,532,110 shares of the Common Stock, par value $.01 per share (the "Common
Stock"), of the Company which are initially issuable upon conversion of the
Debentures plus such additional indeterminate number of shares of Common Stock
as may become issuable upon conversion of the Debentures as a result of
adjustments to the conversion price (the "Conversion Shares"), and (iii) an
additional 967,827 shares of Common Stock (including shares issuable upon the
exercise of options or the conversion of convertible securities) (the
"Additional Shares"). The Conversion Shares and the Additional Shares are
collectively referred to herein as the "Shares." The Debentures, the Conversion
Shares and the Additional Shares that are being registered hereby are to be
offered for the account of the holders thereof (the "Selling Securityholders").
The Debentures were acquired from the Company by Smith Barney Inc. and Dean
Witter Reynolds Inc. (the "Initial Purchasers") in December 1995 in connection
with a private offering (the "Debenture Offering"). See "Description of the
Debentures." The Additional Shares were acquired from the Company by Shamrock
Investments, Charles P. Reilly, Michael E. Gallagher, Jonathan J. Spees and John
P. Cole in September 1994 in connection with the issuance of Common Stock to
Shamrock Investments and the merger of J.P. Cole & Associates, Inc. and Paragon
Ambulatory Surgery, Inc. into the Company.
The Debentures are convertible into Common Stock of the Company at any time
after the 60th day following the date of original issuance of the Debentures and
at or before maturity, unless previously redeemed, at a conversion price of
$27.25 per share, subject to adjustment in certain events. On March 15, 1996,
the closing price of the Common Stock on the New York Stock Exchange was $26 1/4
per share. The Common Stock is traded under the symbol PPH.
The Debentures do not provide for a sinking fund. The Debentures are
redeemable at the option of the Company, in whole or in part, at the redemption
prices set forth in this Prospectus, together with accrued interest, except that
no redemption may be made prior to December 17, 1998. Upon a Repurchase Event
(as defined herein), each holder of Debentures shall have the right, at the
holder's option, to require the Company to repurchase such holder's Debentures
at a purchase price equal to 100% of the principal amount thereof, plus accrued
interest. See "Description of Debentures -- Certain Rights to Require Repurchase
of Debentures."
The Debentures are unsecured obligations of the Company and are subordinated
to all present and future Senior Indebtedness (as defined herein) of the Company
and will be effectively subordinated to all indebtedness and liabilities of
subsidiaries of the Company. The Indenture does not restrict the incurrence of
any other indebtedness or liabilities by the Company or its subsidiaries. See
"Description of Debentures -- Subordination."
The Debentures have been designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market. For a
description of certain income tax consequences to holders of the Debentures, see
"Certain United States Federal Income Tax Consequences." The Initial Purchasers
have advised the Company that they intend to make a market in the Debentures.
The Initial Purchasers, however, are not obligated to do so and any such market
making may be discontinued at any time without notice, in the sole discretion of
the Initial Purchasers. No assurance can be given that any market for the
Debentures will develop or be maintained.
The Debentures and the Conversion Shares are being registered to permit
public secondary trading of the Debentures and, upon conversion, the underlying
Common Stock, by the holders thereof from time to time after the date of this
Prospectus. The Company has agreed, among other things, to bear all expenses
(other than underwriting discounts, selling commissions and fees and the
expenses of counsel and other advisors to the holders of the Debentures or the
underlying Common Stock) in connection with the registration and sale of the
Debentures and the underlying Common Stock covered by this Prospectus. The
holders of the Additional Shares have agreed to pay their own expenses and bear,
on a pro rata basis, all incremental registration expenses that result from the
inclusion of the Additional Shares in the Registration Statement of which this
Prospectus is a part.
The Company will not receive any of the proceeds from the sales of the
Debentures or the Shares by the Selling Securityholders. The Debentures and the
Shares may be offered in negotiated transactions or otherwise, at market prices
prevailing at the time of sale or at negotiated prices. In addition, the Shares
may be offered from time to time through ordinary brokerage transactions on the
New York Stock Exchange. See "Plan of Distribution." The Selling Securityholders
may be deemed to be "Underwriters" as defined in the Securities Act of 1933, as
amended (the "Securities Act"). If any broker-dealers are used by the Selling
Securityholders, any commissions paid to broker-dealers and, if broker-dealers
purchase any Debentures or Shares as principals, any profits received by such
broker-dealers on the resale of the Debentures or Shares may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Securityholders may be deemed to be underwriting
commissions.
------------------------------
SEE "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROSPECTUS IS MARCH , 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and
at the Commission's Regional Offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington D.C. 20549, at prescribed rates. Such materials can also be
inspected at the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission a registration statement on Form
S-3 (such registration statement, together with all amendments and exhibits
thereto, being hereinafter referred to as the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), for the
registration under the Securities Act of the Debentures and Shares offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is hereby made to the
Registration Statement for further information with respect to the Company and
the securities offered hereby. Statements contained herein concerning the
provisions of documents filed as exhibits to the Registration Statement are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
Commission. Copies of the Registration Statement and the exhibits may be
inspected, without charge, at the offices of the Commission, or obtained at
prescribed rates from the Public Reference Section of the Commission at the
address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the Company
pursuant to the Exchange Act are incorporated by reference in this Prospectus
and made a part hereof: the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1995 and the Company's Amendment to that Form 10-K for the
fiscal year ended April 30, 1995 on Form 10-K/A; the Company's Quarterly Reports
on Form 10-Q for the quarters ended July 31, 1995, October 31, 1995 and January
31, 1996; the Company's Current Reports on Form 8-K dated January 17, 1995,
March 22, 1995, December 1, 1995, December 21, 1995, and January 11, 1996; and
the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A dated July 20, 1992, including any amendments
or reports filed for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents which have been incorporated by reference in this
Prospectus, other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into the documents so incorporated.
Requests for such copies should be directed to: Anthony M. Picini, Senior Vice
President, PHP Healthcare Corporation, 11440 Commerce Park Drive, Reston,
Virginia 22091, telephone (703) 758-3600.
2
<PAGE>
THE COMPANY
PHP Healthcare Corporation ("PHP" or the "Company") designs, develops and
operates patient-oriented Integrated Systems of Care ("ISOCs") which serve the
needs of managed care organizations, self-insured employers, health care
providers and provider systems, and government agencies. The Company develops
and operates each integrated system by: (i) developing and maintaining a network
of physicians, hospitals, and other providers; (ii) organizing and managing the
individual and group practices of physicians who participate in the network;
(iii) operating information systems to coordinate and integrate the services,
measure outcomes, and provide financial results of the system; and (iv) entering
into contracts with various third party payors, such as health maintenance
organizations ("HMOs"), insurers, or employee health benefit plans on behalf of
the network. The Company manages ISOCs for its clients, owns a Medicaid HMO
primarily serving the District of Columbia, and manages inpatient and outpatient
health care services under government contracts.
PHP was organized as a Delaware corporation in January 1986 and succeeded to
the business of a predecessor corporation by merger in March 1986. The Company's
corporate headquarters is located at 11440 Commerce Park Drive, Reston,
Virginia, 22091, and its telephone number at that address is (703) 758-3600.
Unless the context otherwise requires, all references herein to the "Company"
include PHP and its subsidiaries.
3
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and in the
documents incorporated herein by reference, prospective purchasers of the
Debentures and the Shares should carefully consider the factors set forth below
before purchasing the Debentures or the Shares.
RECENT ENTRY INTO COMMERCIAL MANAGED HEALTH CARE MARKET
Until fiscal 1994, PHP operated almost exclusively as a provider of health
care services to federal, state and local government agencies. During the past
two fiscal years, however, the Company has invested significant resources in
developing its ISOC product for the commercial managed health care market in
order to refocus its business from that of a government contractor to a full
service managed care company. There can be no assurance that the Company's
strategy will continue to be successful or that modifications to its strategy
will not be required.
HISTORICAL LOSSES
The Company reported net losses of $3,756,000 and $9,334,000 for the fiscal
years ended April 30, 1993 and 1994, respectively. Although the Company was
profitable for the fiscal year ended April 30, 1995 and for the nine months
ended January 31, 1996, there can be no assurance that it will continue to
operate profitably, or have earnings or cash flow sufficient to comply with the
financial covenants to which it is subject or to cover its fixed charges,
including those attributable to the Debentures. As a consequence of the losses
reported in fiscal 1993 and 1994, the Company failed to comply with certain
financial covenants under its credit agreement. The Company obtained waivers for
such noncompliance and the Company's bank modified the applicable financial
covenants. In the future, any failure by the Company to comply with the
financial covenants contained in its credit agreement (or in any replacement
credit facility) could result in a default under such facility which could have
the effect of blocking payments on the Debentures and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON CERTAIN CONTRACTS
For the year ended April 30, 1995, and for the nine months ended January 31,
1996, 39% and 38%, respectively, of the Company's revenues, and an even greater
percentage of the Company's gross profits, were derived from two contracts.
These contracts are with the District of Columbia Department of Human Services
(concerning the Company's Medicaid HMO in the District of Columbia) and with
Medigroup, Inc., a wholly owned subsidiary of Blue Cross and Blue Shield of New
Jersey, Inc. ("BCBSNJ") (concerning the development and management of ten ISOCs
in New Jersey), and accounted for 22% and 17%, respectively, of the Company's
revenues in fiscal 1995. For the nine months ended January 31, 1996, revenues
derived from these contracts represented 29% and 9%, respectively, of the
Company's revenue. The loss of either of these contracts would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The agreement with BCBSNJ provides BCBSNJ the right to terminate the
agreement upon 90 days notice without cause upon the payment of a termination
fee to the Company. The agreement also contains provisions permitting
termination by BCBSNJ for cause in the event of a material breach by PHP or upon
the occurrence of certain other circumstances, including PHP's failure to cause
all ten centers to be fully operational by March 31, 1995. Although nine of the
ten centers were fully operational by March 31, 1995, one center was not fully
operational until September 1995. The Company believes, for various reasons,
that BCBSNJ may not validly terminate the agreement based upon the date of
completion of the tenth center. The parties have also discussed the possibility
of renegotiating the agreement or otherwise altering their relationship on a
mutually agreeable basis, although no specific proposal is presently under
consideration. There can be no assurance that BCBSNJ will not seek to terminate
the agreement based upon the date of completion of the tenth center or on any
other basis or that, if BCBSNJ does seek to do so, the Company will be
successful in preventing such a termination.
4
<PAGE>
The Company's accounts receivable as of January 31, 1996 include amounts due
from the District of Columbia Department of Human Services and the United States
Department of Health and Human Services as follows: approximately $8,000,000
related to the cost settlement for the three-year contract period ended
September 30, 1994, and approximately $4,800,000 related to the cost settlement
for the one-year contract period ended September 30, 1995. These amounts are
subject to audit and the audits are expected to be completed during the current
fiscal year. In addition, at January 31, 1996, as a result of the current
federal budget and the District of Columbia's fiscal difficulties, the Company
has past due amounts from the District of Columbia and the Department of Health
and Human Services of approximately $4.5 million due January 1, 1996, which was
received February 26, 1996, and an additional $4.5 million due February 1, 1996
and $4.5 million due March 1, 1996 currently outstanding. The Company cannot
predict when or whether these amounts will be paid. The failure of the Company
to collect these amounts would have a material adverse effect on the Company's
business, financial condition and results of operations.
CAPITATED NATURE OF REVENUE
The Company provides a portion of its services on a capitated basis, and the
Company intends to negotiate additional capitated agreements with managed care
organizations or assume such contracts in connection with its affiliation with
primary care practices. Such contracts, typically referred to as "shared risk"
contracts, are arrangements between the Company and a managed care organization
under which the Company agrees to provide certain health care services, as
required by members of such managed care organization, in exchange for a fixed
fee per member per month. Under these contracts, the Company bears the risk that
the cost of the services it is required to provide will exceed the fixed fees it
is entitled to receive. In order for such shared-risk contracts to be profitable
for the Company, the Company must effectively manage the utilization rate of
primary care services, specialty physician services, and hospital services
delivered to members of the managed care organization. There can be no assurance
that the Company will receive fees under such shared-risk arrangements which
will permit it to recover the costs of the health care services it will be
required to provide.
DEPENDENCE ON PRIMARY CARE PHYSICIANS
Primary care physicians are a key operating component of the Company's
integrated system of care. The Company competes for exclusive primary care
physician affiliations with a variety of systems including group practices,
individual practice associations ("IPAs"), health maintenance organizations
("HMOs"), practice management companies and hospitals. Most primary care
physicians have traditionally practiced independently or in small single
specialty groups. The competitive and operational disadvantages to the physician
of this type of practice structure have compelled many of these physicians to
evaluate alternatives. The process of negotiating these affiliations is often
competitive, complex and time consuming. There can be no assurance that the
Company will continue to be able to identify and secure affiliations with a
sufficient number of primary care physicians to operate its ISOCs effectively.
LIMITATIONS ON REIMBURSEMENT
A major portion of the Company's revenues are derived from third party
payors, such as governmental programs, private insurance plans and managed care
organizations. In particular, for the year ended April 30, 1995 and the nine
months ended January 31, 1996, approximately 22% and 29%, respectively, of the
Company's revenues were derived from the Medicaid program, a cooperative state-
federal program for medical assistance to the needy. Reflecting a trend in the
health care industry, third party payors increasingly are negotiating with
health care providers such as the Company concerning the prices charged for
medical services, with the goal of lowering reimbursement and utilization rates.
There can be no assurance that any future reduction in reimbursement rates would
be offset through enhanced operating efficiencies, or that any such enhancement
of operating efficiencies would occur. Third party payors may also deny
reimbursement if they determine that a treatment
5
<PAGE>
was not performed in accordance with the cost-effective treatment methods
established by such payors, was experimental, or for other reasons. In addition,
funding for governmental programs, such as Medicaid, is under increased
scrutiny.
The U.S. Congress has passed a fiscal year 1996 budget reconciliation bill
that provides for reductions in the rate of spending increases over the next
seven years of approximately $270 billion in the Medicare program and $165
billion in the Medicaid program. The bill provides for, among other things,
converting the federal share of the Medicaid program to a block grant and
gradually reducing the overall growth of the federal share from approximately
ten percent annually to approximately four percent by fiscal year 2000. The
annual increase in the federal share would vary from state to state based on a
variety of factors. Although the initial reconciliation bill was vetoed by the
President, no assurance can be given that reductions in the rate of increase in
spending for these programs, if ultimately signed into law, would not have a
material adverse effect on the Company's operations. Any loss of revenue caused
by trends in the health care industry toward cost containment and oversight
could have a material adverse effect on the Company's business.
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems are critical to its ability to
manage care efficiently and to be competitive in the market. The Company relies
on these systems to support practice operations and to facilitate the management
and monitoring of clinical performance. Clinical guidelines, practice protocols,
case management and utilization review systems are all essential to the
Company's ability to secure, and operate profitably under, capitated and
shared-risk contracts. There can be no assurance that the Company will be able
to refine and enhance these systems to keep them current and competitive.
DEPENDENCE ON GOVERNMENT CONTRACTS
Contracts with various federal, state and local government agencies
(excluding agreements concerning the Company's Medicaid HMO in the District of
Columbia) account for approximately 50% of the Company's revenues. These
contracts are obtained primarily through the competitive bidding process as
governed by applicable federal and state statutes and regulations, and generally
may be modified or terminated for the convenience of the government agency at
any time during the term of the contract. Contracts are generally awarded for a
base period of less than one year and corresponding with the government agency's
fiscal year, have two-to-four one-year renewals at the option of the government
agency, and are subject to appropriation of funds annually by the appropriate
legislative body. There is, therefore, no assurance that the Company will be
able to retain its contracts or, if retained, that all of such contracts will be
fully funded.
Under the competitive bidding process, unsuccessful bidders may protest the
award of a contract to another bidder in accordance with a government appeals
process if they believe the award was improper. Such protests could result in
the rebidding, delay or loss of contracts. In addition, contracts with
government agencies are generally complex in nature and subject contractors to
extensive regulation under federal, state and local law. For example, government
contractors are subject to audits which can result in adjustments to contract
costs and fees.
The Company believes that it has complied in all material respects with
applicable government regulations. In certain circumstances in which a
contractor has not complied with the terms of a contract or with regulations or
statutes, the contractor may be debarred or suspended from obtaining future
contracts for a specified period of time. Any such suspension or debarment of
the Company could have a material adverse effect upon the Company's business.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the skill and efforts of its senior
management. The loss of key management personnel or the inability to attract,
retain and motivate sufficient numbers of qualified management personnel could
adversely affect the Company's business.
6
<PAGE>
COMPETITION
The managed care industry is highly competitive and is subject to continuing
changes in how services are provided and how providers are selected and paid.
Increased enrollment in prepaid health care plans due to health care reform or
for other reasons, increased participation by physicians in group practices and
other factors may attract new entrants into the managed care industry and result
in increased competition for the Company. Certain of the Company's competitors
are significantly larger and better capitalized, provide a wider variety of
services, may have greater experience in providing health care management
services and may have longer established relationships with payors.
EXPOSURE TO PROFESSIONAL LIABILITY
Due to the nature of the Company's business, there are asserted from time to
time medical malpractice lawsuits and other claims against the Company, some of
which are currently pending, which subjects the Company to the attendant risk of
substantial damage awards. The most significant source of potential liability in
this regard is the negligence of physicians employed or contracted by the
Company. To the extent such physicians are employees of the Company or were
regarded as agents of the Company in the practice of medicine, the Company
would, in most instances, be held liable for their negligence. In addition, the
Company could be found in certain instances to have been negligent in performing
its management services under contractual arrangements, even if no agency
relationship with the physician were found to exist. In some cases, the
Company's contracts with hospitals and third party payors require the Company to
indemnify such other parties for losses resulting from the negligence of
physicians who were employed or managed by or affiliated with the Company.
The Company maintains professional and general liability insurance on a
claims made basis in amounts deemed appropriate by management, based on
historical claims and the nature and risks of its business. There can be no
assurances, however, that an existing or future claim or claims will not exceed
the limits of available insurance coverage, that any insurer will remain solvent
and able to meet its obligations to provide coverage for any such claim or
claims or that such coverage will continue to be available or available with
sufficient limits and at a reasonable cost to adequately and economically insure
the Company's operations in the future. A judgment against the Company in excess
of such coverage could have a material adverse effect on the Company.
HEALTH CARE REGULATION
The health care industry is subject to extensive federal regulation relating
to licensure, conduct of operations and prices for services.
The laws of many states prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from practicing medicine.
These laws vary from state to state, have been subject to limited judicial and
regulatory interpretation, and are enforced by the courts and by regulatory
authorities with broad discretion. Although the Company seeks to structure its
operations so as to comply with these laws, there can be no assurance that the
Company's present or future operations will not be successfully challenged as
violating, or determined to have violated, such laws, or that the enforceability
of the provisions of agreements governing such operations will not be limited.
Any such result could have a material adverse effect on the Company.
The laws in most states also regulate the business of insurance and the
operation of HMOs. Many states also regulate the establishment and operation of
networks of health care providers. Although the Company seeks to structure its
operations so as to comply with these laws in the states in which it does
business, there can be no assurance that future interpretations of insurance
laws and health care network laws by the regulatory authorities in these states
or in the states into which the Company may expand will not require licensure or
a restructuring of some or all of the Company's operations. The Company's
Medicaid HMO is not presently subject to licensure requirements in the District
of Columbia. However, legislation has been proposed which would require the
licensure of HMOs in the District of Columbia and subject the Company to
additional regulatory requirements. The Company is unable to predict what HMO
legislation or regulation, if any, will be adopted in the District of
7
<PAGE>
Columbia and what effect, if any, such legislation or regulation would have on
the Company's business. No assurance can be given that future HMO legislation or
regulation in the District of Columbia or in other states will not have a
material adverse effect on the Company's business, financial condition or
results of operation.
Anti-fraud and abuse amendments codified under the Social Security Act of
1935, as amended (the "Social Security Act"), prohibit certain business
practices and relationships that may affect the provision and cost of health
care services reimbursable under the Medicare and Medicaid programs. These
amendments include anti-kickback provisions prohibiting the solicitation,
payment, receipt or offering of any direct or indirect remuneration for the
referral of Medicare or Medicaid patients or for the ordering or providing of
Medicare or Medicaid covered services, items or equipment. Sanctions for
violating the anti-kickback provisions include criminal penalties and civil
sanctions, including fines and possible exclusion from the Medicare and Medicaid
programs. In addition, Section 1877 of the Social Security Act (the "Stark law")
restricts physician referrals to certain providers, including hospitals, with
which they have a financial arrangement. Sanctions for violation of the Stark
law include civil money penalties and exclusion from the Medicare and Medicaid
programs. The Stark law and the anti-kickback provisions of the Social Security
Act are broadly worded and often vague, and the future interpretation of these
provisions and their applicability to the Company's operations cannot be
predicted with certainty. Although the Company seeks to arrange its business
relationships so as to comply with these laws, there can be no assurance that
the Company's present or future operations will not be accused of violating, or
be determined to have violated, such provisions. Any such result could have a
material adverse effect on the Company.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced in Congress and in some state legislatures that would effect major
changes in the health care system, either nationally or at the state level. The
Company is unable to predict what health care reform legislation, if any, will
be adopted and what effect, if any, such legislation may have on the Company's
business. No assurance can be given that future health care reform legislation
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
Provisions in the fiscal year 1996 reconciliation bill passed by Congress,
if signed into law, would eliminate the federally mandated individual
entitlement to Medicaid benefits and give the states wide latitude in setting
eligibility standards and benefit levels. In addition, the bill would reduce for
a number of states the level of state spending necessary to qualify for the
maximum federal matching. Such changes, if adopted, could result in a reduction
in the number of individuals participating in the Medicaid program. No assurance
can be given that such changes would not have a material adverse effect on the
Company's business.
SUBSTANTIAL INDEBTEDNESS
The Company's indebtedness is substantial in relation to its stockholders'
equity. At January 31, 1996, the Company's total long-term debt, net of current
portion, accounted for 71% of its total capitalization.
SUBORDINATION OF DEBENTURES
The Debentures are subordinate in right of payment to all current and future
Senior Indebtedness of the Company. Senior Indebtedness includes all secured
indebtedness of the Company (other than claims of trade creditors of the
Company), whether existing on or created or incurred after the date of the
issuance of the Debentures, that is not made subordinate to or pari passu with
the Debentures by the instrument creating the indebtedness. At January 31, 1996,
the aggregate amount of Senior Indebtedness outstanding and the aggregate amount
of indebtedness and other liabilities of the Company and its subsidiaries to
which the Debentures are effectively subordinated was approximately $14.2
million. The Indenture does not limit the amount of additional indebtedness,
including Senior Indebtedness, which the Company can create, incur, assume or
guarantee. By reason of such
8
<PAGE>
subordination of the Debentures, in the event of the insolvency, bankruptcy,
liquidation, reorganization, dissolution or winding up of the business of the
Company or upon a default in payment with respect to any Senior Indebtedness of
the Company or an event of default with respect to such indebtedness resulting
in the acceleration thereof, the assets of the Company will be available to pay
the amounts due on the Debentures only after all Senior Indebtedness of the
Company has been paid in full. In addition, holders of the Debentures are
effectively subordinated to the claims of creditors of the Company's
subsidiaries. In the event of the insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of any subsidiary of
the Company, creditors of such subsidiary generally will have the right to be
paid in full before any distribution is made to the Company or the holders of
the Debentures.
LIMITATIONS ON REPURCHASE OF DEBENTURES UPON A REPURCHASE EVENT
In the event of a Repurchase Event, which includes a Change in Control and a
Termination of Trading (each as defined herein) each holder of Debentures will
have the right, at the holder's option, to require the Company to repurchase all
or a portion of such holder's Debentures at a purchase price equal to 100% of
the principal amount thereof plus accrued interest to the repurchase date. The
Company's ability to repurchase the Debentures upon a Repurchase Event may be
limited by the terms of the Company's Senior Indebtedness and the subordination
provisions of the Indenture. Further, the ability of the Company to repurchase
Debentures upon a Repurchase Event will be dependent on the availability of
sufficient funds and compliance with applicable securities laws. Accordingly,
there can be no assurance that the Company will be able to repurchase the
Debentures upon a Repurchase Event. The term "Repurchase Event" is limited to
certain specified transactions and may not include other events that might
adversely affect the financial condition of the Company or result in a downgrade
of the credit rating of the Debentures, nor would the requirement that the
Company offer to repurchase the Debentures upon a Repurchase Event necessarily
afford holders of the Debentures protection in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving the
Company. See "Description of Debentures."
ABSENCE OF PUBLIC MARKET
There is no existing market for the Debentures and there can be no assurance
as to the liquidity of any markets that may develop for the Debentures, the
ability of the holders to sell their Debentures or the price at which holders of
the Debentures may be able to sell their Debentures. Future trading prices of
the Debentures will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results, the price of the
Common Stock and the market for similar securities. The Initial Purchasers have
informed the Company that the Initial Purchasers intend to make a market in the
Debentures; however, the Initial Purchasers are not obligated to do so and any
such market making activity may be terminated at any time without notice to the
holders of the Debentures. See "Description of the Debentures -- Registrations
Rights; Liquidated Damages." The Debentures are eligible for trading in the
PORTAL Market; however, the Company does not intend to apply for listing of the
Debentures on any securities exchange.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has experienced a high degree of
volatility. There can be no assurance that such volatility will not continue or
become more pronounced. In addition, recently the stock market has experienced,
and is likely to experience in the future, significant price and volume
fluctuations which could adversely affect the market price of the Common Stock
without regard to the operating performance of the Company. The Company believes
that factors such as quarterly fluctuations in the financial results of the
Company or its competitors and general conditions in the industry, the overall
economy and the financial markets could cause the price of the Common Stock to
fluctuate substantially.
CONTROL BY MANAGEMENT AND CERTAIN STOCKHOLDERS
Certain of the Company's executive officers and directors and related
entities (collectively, the "Voting Group") currently hold an aggregate of
approximately 25% of the outstanding Common Stock
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<PAGE>
(excluding shares issuable upon the exercise of options or the conversion of
convertible securities) and have entered into a voting agreement (the "Voting
Agreement") under which they have agreed to act together under certain
circumstances. Assuming full conversion of the Debentures, the Voting Group will
hold approximately 21% of the outstanding Common Stock. The Voting Agreement
currently provides that it will terminate on October 7, 1996. If the Voting
Group acts together, they may exercise a controlling influence over the outcome
of matters submitted to the Company's stockholders for approval. Moreover, the
Voting Group collectively may have the power to delay, defer or prevent a change
in control of the Company.
ANTI-TAKEOVER EFFECT OF DELAWARE LAW AND CHARTER AND BY-LAW PROVISIONS
Certain provisions of the Company's certificate of incorporation, by-laws
and Delaware law could, together or separately, discourage potential acquisition
proposals, delay or prevent a change in control of the Company and limit the
price that certain investors might be willing to pay in the future for shares of
the Common Stock. These provisions include a classified Board of Directors, the
ability of the Board of Directors to authorize the issuance, without further
stockholder approval, of preferred stock with rights and privileges which could
be senior to the Common Stock, elimination of the stockholders' ability to take
any action without a meeting, and establishment of certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at stockholders' meetings. In addition,
the Company has distributed preferred stock purchase rights which could cause
substantial dilution to a person or group that attempts to acquire a controlling
interest in the Company. The Company is also subject to Section 203 of the
Delaware General Corporation Laws which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with any "interested stockholder" for a period of three
years following the date that such stockholder became an "interested
stockholder." See "Description of Capital Stock."
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sales of the
Debentures or the Shares by the Selling Securityholders. See "Selling
Securityholders" for a list of those persons and entities receiving the proceeds
from the sales of the Debentures or the Shares.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for each of the periods
indicated is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED APRIL 30 JANUARY 31
- ----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
4.36x 7.15x (1.58)x (1.89)x 1.41x 1.27x 4.10x
</TABLE>
The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes, minority interest
and extraordinary items plus fixed charges. Fixed charges consist of interest
expense, amortization of financing costs and the estimated interest component of
rent expense.
10
<PAGE>
DESCRIPTION OF DEBENTURES
The Debentures were issued under an indenture dated as of December 15, 1995
(the "Indenture"), between the Company and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee"). The following summaries of certain provisions of the
Indenture do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Indenture,
including the definition therein of certain terms. Wherever particular sections
or defined terms of the Indenture are referred to, such sections or defined
terms are incorporated herein by reference. Copies of the Indenture are
available from the Company upon request at the address provided on page 3
herein.
GENERAL
The Debentures are unsecured obligations of the Company, are limited to
$69,000,000 in aggregate principal amount (including the Initial Purchasers'
over-allotment option) and mature on December 15, 2002. The Debentures bear
interest at the rate per annum shown on the front cover of this Prospectus from
the date of original issuance of Debentures pursuant to the Indenture or from
the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on June 15 and December 15 of each year,
commencing June 15, 1996, to the Person in whose name the Debenture (or any
predecessor Debenture) is registered at the close of business on the preceding
June 1 or December 1, as the case may be. Interest on the Debentures will be
paid on the basis of a 360-day year of twelve 30-day months.
Principal of, premium, if any, and interest on, the Debentures is payable
(i) in respect of Debentures held of record by the Depository Trust Company
("DTC") or its nominee in same day funds on or prior to the payment dates with
respect to such amounts and (ii) in respect of Debentures held of record by
holders other than DTC or its nominee, at the office of the Trustee in New York,
New York, and the Debentures may be surrendered for transfer, exchange or
conversion at the office of the Trustee in New York, New York. In addition, with
respect to Debentures held of record by holders other than DTC or its nominee,
payment of interest may be made, at the option of the Company, by check mailed
to the address of the persons entitled thereto as it appears in the register for
the Debentures on the Regular Record Date for such interest.
The Debentures are issued only in registered form, without coupons and in
denominations of $1,000 or any integral multiple thereof. No service charge will
be made for any transfer or exchange of the Debentures, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge and any other expenses (including the fees and expenses of the Trustee)
payable in connection therewith. The Company is not required (i) to issue,
register the transfer of or exchange any Debentures during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of
redemption and ending at the close of business on the day of such mailing, or
(ii) to register the transfer of or exchange any Debenture selected for
redemption in whole or in part, except the unredeemed portion of Debentures
being redeemed in part.
All moneys paid by the Company to the Trustee or any Paying Agent for the
payment of principal of and premium and interest on any Debenture which remain
unclaimed for two years after such principal, premium or interest become due and
payable may be repaid to the Company. Thereafter, the Holder of such Debenture
may, as an unsecured general creditor, look only to the Company for payment
thereof.
The Indenture does not contain any provisions that would provide protection
to Holders of the Debentures against a sudden and dramatic decline in credit
quality of the Company resulting from any takeover, recapitalization or similar
restructuring, except as described below under "Certain Rights to Require
Repurchase of Debentures."
CONVERSION RIGHTS
The Debentures are convertible into Common Stock at any time after the 60th
day following the date of original issuance of the Debentures and prior to
redemption or final maturity, initially at the
11
<PAGE>
conversion price of $27.25 per share. The right to convert Debentures which have
been called for redemption will terminate at the close of business on the second
business day preceding the Redemption Date. See "Optional Redemption" below.
The conversion price is subject to adjustment upon the occurrence of any of
the following events: (i) the subdivision, combination or reclassification of
outstanding shares of Common Stock; (ii) the payment in shares of Common Stock
of a dividend or distribution on any class of capital stock of the Company;
(iii) the issuance of rights or warrants to all holders of Common Stock
entitling them to acquire shares of Common Stock at a price per share less than
the Current Market Price; (iv) the distribution to holders of Common Stock of
shares of capital stock other than Common Stock, evidences of indebtedness, cash
or assets (including securities, but excluding dividends or distributions paid
exclusively in cash and dividends, distributions, rights and warrants referred
to above); (v) a distribution consisting exclusively of cash (excluding any cash
distributions referred to in (iv) above) to all holders of Common Stock in an
aggregate amount that, together with (A) all other cash distributions (excluding
any cash distributions referred to in (iv) above) made within the 12 months
preceding such distribution and (B) any cash and the fair market value of other
consideration payable in respect of any tender offer by the Company or a
subsidiary of the Company for the Common Stock consummated within the 12 months
preceding such distribution, exceeds 12.5 percent of the Company's market
capitalization (being the product of the Current Market Price times the number
of shares of Common Stock then outstanding) on the date fixed for determining
the stockholders entitled to such distribution; and (vi) the consummation of a
tender offer made by the Company or any subsidiary of the Company for the Common
Stock which involves an aggregate consideration that, together with (X) any cash
and other consideration payable in respect of any tender offer by the Company or
a subsidiary of the Company for the Common Stock consummated within the 12
months preceding the consummation of such tender offer and (Y) the aggregate
amount of all cash distributions (excluding any cash distributions referred to
in (iv) above) to all holders of the Common Stock within the 12 months preceding
the consummation of such tender offer, exceeds 12.5 percent of the Company's
market capitalization at the date of consummation of such tender offer. No
adjustment of the conversion price will be required to be made until cumulative
adjustments amount to at least one percent of the conversion price, as last
adjusted. Any adjustment that would otherwise be required to be made shall be
carried forward and taken into account in any subsequent adjustment.
In addition to the foregoing adjustments, the Company will be permitted to
reduce the conversion price as it considers to be advisable in order that any
event treated for federal income tax purposes as a dividend of stock or stock
rights will not be taxable to the holders of the Common Stock or, if that is not
possible, to diminish any income taxes that are otherwise payable because of
such event. In the case of any consolidation or merger of the Company with any
other corporation (other than one in which no change is made in the Common
Stock), or any sale or transfer of all or substantially all of the assets of the
Company, the Holder of any Debenture then outstanding will, with certain
exceptions, have the right thereafter to convert such Debenture only into the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Debenture might have been converted immediately
prior to such consolidation, merger, sale or transfer; and adjustments will be
provided for events subsequent thereto that are as nearly equivalent as
practical to the conversion price adjustments described above.
Fractional shares of Common Stock will not be issued upon conversion, but,
in lieu thereof, the Company will pay a cash adjustment based upon the then
Closing Price at the close of business on the day of conversion. If any
Debentures are surrendered for conversion during the period from the close of
business on any Regular Record Date through and including the next succeeding
Interest Payment Date (except any such Debentures called for redemption), such
Debentures when surrendered for conversion must be accompanied by payment in
next day funds of an amount equal to the interest thereon which the registered
Holder on such Regular Date is to receive. Except as described in the
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<PAGE>
preceding sentence, no interest will be payable by the Company on converted
Debentures with respect to any Interest Payment Date subsequent to the date of
conversion. No other payment or adjustment for interest or dividends is to be
made upon conversion.
The Indenture provides that, in the event of the occurrence of certain
events affecting the rights (the "Rights") distributed pursuant to the Company's
Rights Agreement, dated as of April 10, 1992, with Riggs National Bank, NA (the
"Rights Agreement"), appropriate adjustments to the conversion price will be
made. In lieu of any such adjustment, the Company may amend the Rights Agreement
to provide that upon conversion of the Debentures the holder thereof will
receive, in addition to the Common Stock issuable upon such conversion, the
Rights which attached to such shares of Common Stock or would have attached to
such shares if the Rights had not become separated from the Common Stock
pursuant to the provisions of the Rights Agreement.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
Debentures are, to the extent set forth in the Indenture, subordinated in right
of payment to the prior payment in full of all Senior Indebtedness. If there is
a payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of all Senior Indebtedness will be
entitled to receive payment in full of all amounts due or to become due thereon
or provision for such payment in money or money's worth before the Holders of
the Debentures will be entitled to receive any payment in respect of the
principal of or premium, if any, or interest on the Debentures. In the event of
the acceleration of the Maturity of the Debentures, the holders of all Senior
Indebtedness will first be entitled to receive payment in full in cash of all
amounts due thereon or provision for such payment in money or money's worth
before the Holders of the Debentures will be entitled to receive any payment for
the principal of or premium, if any, or interest on the Debentures. No payments
on account of principal of or premium, if any, or interest on the Debentures or
on account of the purchase or acquisition of Debentures may be made if there has
occurred and is continuing a default in any payment with respect to Senior
Indebtedness, any acceleration of the maturity of any Senior Indebtedness of if
any judicial proceeding is pending with respect to any such default.
Senior Indebtedness is defined in the Indenture as (a) all secured
indebtedness of the Company for money borrowed, excluding the claims of trade
creditors of the Company, whether outstanding on the date of execution of the
Indenture or thereafter created, incurred or assumed, except any such other
indebtedness that by the terms of the instrument or instruments by which such
indebtedness was created or incurred expressly provides that it (i) is junior in
right of payment to the Debentures or (ii) ranks PARI PASSU in right of payment
with the Debentures, and (b) any amendments, renewals, extensions,
modifications, refinancings and refundings of any of the foregoing. The term
"indebtedness for money borrowed" when used with respect to the Company is
defined to mean (i) any obligation of, or any obligation guaranteed by, the
Company for the repayment of borrowed money (including without limitation fees,
penalties and other obligations in respect thereof), whether or not evidenced by
bonds, debentures, notes or other written instruments, (ii) any deferred payment
obligation of, or any such obligation guaranteed by, the Company for the payment
of the purchase price of property or assets evidenced by a note or similar
instrument, and (iii) any obligation of, or any such obligation guaranteed by,
the Company for the payment of rent or other amounts under a lease of property
or assets which obligation is required to be classified and accounted for as a
capitalized lease on the balance sheet of the Company under generally accepted
accounting principles.
The Debentures are obligations exclusively of the Company. A portion of the
operations of the Company are currently conducted through subsidiaries, which
are separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Debentures or to make any
funds available therefor, whether by dividends, loans or other payments. In
addition,
13
<PAGE>
the payment of dividends and certain loans and advances to the Company by such
subsidiaries may be subject to certain statutory or contractual restrictions,
are contingent upon the earnings of such subsidiaries and are subject to various
business considerations.
The Debentures are effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's subsidiaries. Any right of the Company to receive assets of any
such subsidiary upon the liquidation or reorganization of any such subsidiary
(and the consequent right of the Holders of the Debentures to participate in
those assets) will be effectively subordinated to the claims of that
subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such subsidiary, in which case the claims of the
Company would still be subordinate to any security interest in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
the Company.
The Indenture does not limit or prohibit the incurrence of Senior
Indebtedness. At January 31, 1996, the aggregate amount of Senior Indebtedness
outstanding and the aggregate amount of indebtedness and other liabilities of
the Company and its subsidiaries to which the Debentures are effectively
subordinated was approximately $14.2 million. The Company also expects to incur
Senior Indebtedness from time to time in the future.
OPTIONAL REDEMPTION
The Debentures are redeemable, at the Company's option, in whole or from
time to time in part, at any time on or after December 17, 1998, upon not less
than 15 nor more than 60 days' notice mailed to each Holder of Debentures to be
redeemed at its address appearing in the Security Register and prior to Maturity
at the following Redemption Prices (expressed as percentages of the principal
amount) plus accrued interest to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date to receive interest due on
an Interest Payment Date that is on or prior to the Redemption Date).
If redeemed during the 12-month period beginning December 15, in the year
indicated (December 17, in the case of 1998), the redemption price shall be:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------ ----------------
<S> <C>
1998.............................................................. 103.71%
1999.............................................................. 102.79%
2000.............................................................. 101.86%
2001.............................................................. 100.93%
</TABLE>
No sinking fund is provided for the Debentures.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, or permit any Person to consolidate with or merge into the
Company or convey, transfer or lease its properties substantially as an entirety
to the Company, unless (a) if applicable, the Person formed by such
consolidation or into which the Company is merged or the Person or corporation
which acquires the properties and assets of the Company substantially as an
entirety is a corporation, partnership or trust organized and validly existing
under the laws of the United States or any state thereof or the District of
Columbia and expressly assumes payment of the principal of and premium, if any,
and interest on the Debentures and performance and observance of each obligation
of the Company under the Indenture, (b) after consummating such consolidation,
merger, transfer or lease, no Default or Event of Default will occur and be
continuing, (c) such consolidation, merger or acquisition does not adversely
affect the validity or enforceability of the Debentures and (d) the Company has
delivered to the Trustee an Officer's Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, conveyance, transfer or lease
complies with the provisions of the Indenture.
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<PAGE>
CERTAIN RIGHTS TO REQUIRE REPURCHASE OF DEBENTURES
In the event of any Repurchase Event (as defined below) occurring after the
date of issuance of the Debentures and on or prior to Maturity, each Holder of
Debentures will have the right, at the Holder's option, to require the Company
to repurchase all or any part of the Holder's Debentures on the date (the
"Repurchase Date") that is 30 days after the date the Company gives notice of
the Repurchase Event as described below at a price (the "Repurchase Price")
equal to 100% of the principal amount thereof, together with accrued and unpaid
interest to the Repurchase Date. On or prior to the Repurchase Date, the Company
shall deposit with the Trustee or a Paying Agent an amount of money sufficient
to pay the Repurchase Price of the Debentures which are to be repaid on the
Repurchase Date.
Failure by the Company to provide timely notice of a Repurchase Event, as
provided for below, or to repurchase the Debentures when required under the
preceding paragraph will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture.
On or before the 15th day after the occurrence of a Repurchase Event, the
Company is obligated to mail to all Holders of Debentures a notice of the
occurrence of such Repurchase Event, the Repurchase Date, the date by which the
repurchase right must be exercised, the Repurchase Price for Debentures and the
procedures which the Holder must follow to exercise this right. To exercise the
repurchase right, the Holder of a Debenture must deliver, on or before the close
of business on the Repurchase Date, irrevocable written notice to the Company
(or an agent designated by the Company for such purpose) and to the Trustee of
the Holder's exercise of such right, together with the certificates evidencing
the Debentures with respect to which the right is being exercised, duly endorsed
for transfer.
A "Repurchase Event" shall have occurred upon the occurrence of a Change in
Control (as defined below) or a Termination of Trading (as defined below).
A "Change in Control" shall occur when: (i) all or substantially all of the
Company's assets are sold as an entirety to any person or related group of
persons; (ii) there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving corporation
(other than a consolidation or merger with a wholly owned subsidiary of the
Company in which all shares of Common Stock outstanding immediately prior to the
effectiveness thereof are changed into or exchanged for the same consideration)
or (B) pursuant to which the Common Stock would be converted into cash,
securities or other property, in each case, other than a consolidation or merger
of the Company in which the holders of the Common Stock immediately prior to the
consolidation or merger have, directly or indirectly, at least a majority of the
total voting power of all classes of capital stock entitled to vote generally in
the election of directors of the continuing or surviving corporation immediately
after such consolidation or merger in substantially the same proportion as their
ownership of Common Stock immediately before such transaction; (iii) any person,
or any persons acting together which would constitute a "group" for purposes of
Section 13(d) of the Exchange Act, together with any affiliates thereof, shall
beneficially own (as defined in Rule 13d-3 under the Exchange Act) at least 50%
of the total voting power of all classes of capital stock of the Company
entitled to vote generally in the election of directors of the Company; (iv) at
any time during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of 662 3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (v) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution.
15
<PAGE>
A "Termination of Trading" shall occur if the Common Stock (or other common
stock into which the Debentures are then convertible) is neither listed for
trading on a U.S. national securities exchange nor approved for trading on an
established automated over-the-counter trading market in the United States.
The right to require the Company to repurchase Debentures as a result of the
occurrence of a Repurchase Event could create an event of default under Senior
Indebtedness of the Company, as a result of which any repurchase could, absent a
waiver, be blocked by the subordination provisions of the Debentures. See
"Subordination." Failure by the Company to repurchase the Debentures when
required will result in an Event of Default with respect to the Debentures
whether or not such repurchase is permitted by the subordination provisions. The
Company's ability to pay cash to the Holders of Debentures upon a repurchase may
be limited by certain financial covenants contained in the Company's Senior
Indebtedness.
In the event a Repurchase Event occurs and the Holders exercise their rights
to require the Company to repurchase Debentures, the Company intends to comply
with applicable tender offer rules under the Exchange Act, including Rules 13e-4
and 14e-1, as then in effect, with respect to any such purchase.
The foregoing provisions would not necessarily afford Holders of the
Debentures protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect Holders. In addition, the
foregoing provisions may discourage open market purchases of the Common Stock or
a non-negotiated tender or exchange offer for such stock and, accordingly, may
limit a stockholder's ability to realize a premium over the market price of the
Common Stock in connection with any such transaction.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to the
Debentures: (a) default in the payment of principal of or any premium on any
Debenture when due (even if such payment is prohibited by the subordination
provisions of the Indenture); (b) default in the payment of any interest on any
Debenture when due, which default continues for 30 days (even if such payment is
prohibited by the subordination provisions of the Indenture); (c) failure to
provide timely notice of a Repurchase Event as required by the Indenture; (d)
default in the payment of the Repurchase Price in respect of any Debenture on
the Repurchase Date therefor (even if such payment is prohibited by the
subordination provisions of the Indenture); (e) default in the performance of
any other covenant of the Company in the Indenture continued for 60 days after
written notice by the Trustee or Holders of at least 25% in aggregate principal
amount of the Outstanding Debentures as provided in the Indenture; (f) default
under any bond, debenture, note or other evidence of indebtedness for money
borrowed by the Company or any subsidiary of the Company or under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company or any
subsidiary of the Company, whether such indebtedness now exists or shall
hereafter be created, which default shall constitute a failure to pay the
principal of indebtedness in excess of $5,000,000 when due and payable after the
expiration of any applicable grace period with respect thereto or shall have
resulted in indebtedness in excess of $5,000,000 becoming or being declared due
and payable prior to the date on which it would otherwise have become due and
payable, without such indebtedness having been discharged, or such acceleration
having been rescinded or annulled, within a period of 30 days after there shall
have been given to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% in aggregate principal amount of the Outstanding
Debentures a written notice specifying such default and requiring the Company to
cause such indebtedness to be discharged or cause such acceleration to be
rescinded or annulled; and (g) certain events in bankruptcy, insolvency or
reorganization of the Company or any subsidiary of the Company.
If an Event of Default with respect to the Debentures shall occur and be
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Debentures may
16
<PAGE>
declare the principal of and premium, if any, on all such Debentures to be due
and payable immediately, but if the Company cures all Events of Default (except
the nonpayment of interest on, premium, if any, and principal of any Notes) and
certain other conditions are met, such declaration may be canceled and past
defaults may be waived by the Holders of a majority in principal amount of
Outstanding Debentures. If an Event of Default shall occur as a result of an
event of bankruptcy, insolvency or reorganization of the Company or any
subsidiary of the Company, the aggregate principal amount of the Debentures
shall automatically become due and payable. The Company is required to furnish
to the Trustee annually a statement as to the performance by the Company of
certain of its obligations under the Indenture and as to any default in such
performance. The Indenture provides that the Trustee may withhold notice to the
Holders of the Debentures of any continuing default (except in the payment of
the principal of or premium, if any, or interest on any Debentures) if the
Trustee considers it in the interest of Holders of the Debentures to do so.
MODIFICATION, AMENDMENTS AND WAIVERS
Modifications and amendments of the Indenture may be made by the Company and
the Trustee without the consent of the Holders to: (a) cause the Indenture to be
qualified under the Trust Indenture Act; (b) evidence the succession of another
Person to the Company and the assumption by any such successor of the covenants
of the Company herein and in the Debentures; (c) add to the covenants of the
Company for the benefit of the Holders or an additional Event of Default, or
surrender any right or power conferred upon the Company; (d) secure the
Debentures; (e) make provision with respect to the conversion rights of Holders
in the event of a consolidation, merger or sale of assets involving the Company,
as required by the Indenture; (f) evidence and provide for the acceptance of
appointment by a successor Trustee with respect to the Debentures; or (g) cure
any ambiguity, correct or supplement any provision which may be defective or
inconsistent with any other provision, or make any other provisions with respect
to matters or questions arising under the Indenture which shall not be
inconsistent with the provisions of the Indenture, PROVIDED, HOWEVER, that no
such modification or amendment may adversely affect the interest of the Holders
in any material respect.
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Outstanding Debentures; PROVIDED, HOWEVER, that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Debenture, (a) change the Stated Maturity of the principal of, or
any installment of interest on, such Debenture, (b) reduce the principal amount
of, or premium, if any, or interest on, such Debenture, (c) adversely affect the
right to convert such Debenture or modify the subordination provisions in the
Indenture in a manner adverse to the Holders, (d) change the place or currency
of payment of principal of, or premium, if any, or interest on, such Debenture,
(e) adversely affect the right to require the Company to repurchase Debentures,
(f) impair the right to institute suit for the enforcement of any such payment
on or with respect to such Debenture, or (g) reduce the percentage in principal
amount of Outstanding Debentures, the consent of whose Holders is required for
modification or amendment of the Indenture or for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults.
The Holders of a majority in aggregate principal amount of the Outstanding
Debentures may, on behalf of all Holders of Debentures, waive compliance by the
Company with certain restrictive provisions of the Indenture. The Holders of a
majority in aggregate principal amount of the Outstanding Debentures may, on
behalf of all Holders of Debentures, waive any past default under the Indenture
with respect to the Debentures, except a default in the payment of principal of,
or premium, if any, or interest or in respect of a provision which under the
Indenture cannot be modified or amended without consent of the Holder of each
Outstanding Debenture.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while
Debentures remain Outstanding if (a) all Outstanding Debentures will become due
and payable at their scheduled
17
<PAGE>
maturity within one year or (b) all Outstanding Debentures are scheduled for
redemption within one year, and in either case the Company has deposited with
the Trustee an amount sufficient to pay and discharge all Outstanding Debentures
on the date of their scheduled maturity or the scheduled date of redemption.
DELIVERY AND FORM OF DEBENTURES
The Debentures were sold to Qualified Institutional Buyers (each, a "QIB")
in reliance on Rule 144A under the Securities Act and were initially deposited
with, or on behalf of, The Depository Trust Company ("DTC") and registered in
the name of Cede & Co., as DTC's nominee, in the form of a global Debenture (the
"Rule 144A Global Debenture"). Interests in the Rule 144A Global Debenture will
be shown in, and transfers thereof will be effected only through, records
maintained by DTC and its participants ("participants"). Only QIBs may elect to
hold Debentures through the Depository. Debentures purchased by (i)
institutional accredited investors that are not QIBs and (ii) persons outside
the United States in offshore transactions pursuant to Regulation S under the
Securities Act ("Regulation S Purchasers") are represented by Debentures issued
in definitive registered form without coupons (the "Certificated Debentures").
Only Debentures held by Qualified Institutional Buyers may be represented by the
Rule 144A Global Debenture. The Rule 144A Global Debenture will be (i) reduced
in principal amount to reflect the subsequent transfer by owners of beneficial
interest in the Rule 144A Global Debenture to a Regulation S Purchaser or
another person who is not a Qualified Institutional Buyer or (ii) increased in
principal amount to reflect the subsequent transfer of a Certificated Debenture
to a Qualified Institutional Buyer from a Regulation S Purchaser or another
person who is not a Qualified Institutional Buyer. Transfer of the Debentures,
whether as an interest in the Rule 144A Global Debenture or as Certificated
Debentures, must be made in accordance with the Indenture.
PAYMENTS OF PRINCIPAL AND INTEREST
The Indenture requires that payments in respect of the Debentures (including
principal, premium, if any, and interest) held of record by DTC (including
Debentures evidenced by the Rule 144A Global Debenture) be made in same day
funds. Payments in respect of the Debentures held of record by holders other
than DTC may, at the option of the Company, be made by check and mailed to such
holders of record as shown on the register for the Debentures.
GOVERNING LAW
The Indenture and Debentures are governed by and construed in accordance
with the laws of the State of New York, without giving effect to such State's
conflicts of laws principles.
INFORMATION CONCERNING THE TRUSTEE
The Company and its subsidiaries may maintain deposit accounts and conduct
other banking transactions with the Trustee in the ordinary course of business.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement between the Company and the
Initial Purchasers, the Company has filed with the Commission a registration
statement on Form S-3 (the "Shelf Registration Statement"), of which this
Prospectus is a part, to cover resales of Transfer Restricted Securities (as
defined below) by the holders thereof who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. For purposes of the foregoing, "Transfer Restricted Securities" means
each Debenture and any underlying share of Common Stock until the date on which
such Debenture or underlying share of Common Stock has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, the date on which such Debenture or underlying share of
Common Stock is distributed to the public pursuant to Rule 144 under the
Securities Act or on the date such Debenture or share of Common Stock may be
sold or transferred pursuant to Rule 144(k) (or any similar provisions then in
force).
18
<PAGE>
The Registration Rights Agreement provides that if (i) the applicable Shelf
Registration Statement is not filed with the Commission on or prior to 60 days
after the Closing Date, or the applicable Shelf Registration Statement has not
been declared effective by the Commission within 90 days after the Closing Date
or (ii) the Shelf Registration Statement shall cease to be effective without
being succeeded immediately by an additional registration statement filed and
declared effective (each such event referred to in clauses (i) and (ii), a
("Registration Default"), the Company will pay liquidated damages to each Holder
of Transfer Restricted Securities. The amount of liquidated damages payable
during any period during which a Registration Default shall have occurred and be
continuing is that amount which is equal to one-quarter of one percent (25 basis
points) per annum per $1,000 principal amount of Debentures or $.07 per annum
per share of Common Stock (subject to adjustment in the event of stock splits,
stock recombinations, stock dividends and the like) constituting Transfer
Restricted Securities. All accrued liquidated damages shall be paid to holders
of Debentures by wire transfer of immediately available funds or by federal
funds check by the Company on each Damages Payment Date (as defined in the
Registration Rights Agreement). Following the cure of a Registration Default,
liquidated damages will cease to accrue with respect to such Registration
Default.
Holders of the Debentures will be required to make certain representations
to the Company (as described in the Registration Rights Agreement) in connection
with the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Debentures and Common Stock
included in the Shelf Registration Statement.
The Company shall cause the Shelf Registration Statement to be effective for
a period of three years from the effective date thereof or such shorter period
that will terminate when each of the Transfer Restricted Securities covered by
the Registration Statement ceases to be a Transfer Restricted Security.
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the Registration Rights
Agreement. Copies of the Registration Rights Agreement are available from the
Company upon request.
ABSENCE OF PUBLIC MARKET
There is no existing market for the Debentures and there can be no assurance
as to the liquidity of any markets that may develop for the Debentures, the
ability of the holders to sell their Debentures or at what price holders of the
Debentures will be able to sell their Debentures. Future trading prices of the
Debentures will depend upon many factors including, among other things,
prevailing interest rates, the Company's operating results, the price of the
Common Stock and the market for similar securities. The Initial Purchasers have
informed the Company that they intend to make a market in the Debentures offered
hereby; however, the Initial Purchasers are not obligated to do so and any such
market making activity may be terminated at any time without notice to the
holders of the Debentures. See "Registration Rights; Liquidated Damages." The
Debentures have been designated for trading in the PORTAL Market; however, the
Company does not intend to apply for listing of the Debentures on any securities
exchange.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, par value $.01 per share, and 500,000 shares of Preferred Stock,
par value $.01 per share. No shares of Preferred Stock are outstanding. Certain
Preferred Stock Purchase Rights were distributed pursuant to a dividend
distribution declared April 10, 1992, and 50,000 shares of Preferred Stock were
designated and reserved as Series A Junior Participating Preferred Stock for
issuance upon exercise of such rights. As of January 31, 1996, 10,976,790 shares
of Common Stock (including 88,572 shares held in escrow) were outstanding and
held by approximately 950 shareholders of record.
19
<PAGE>
COMMON STOCK
Subject to the prior rights of any shares of Preferred Stock which may be
issued in the future, the holders of the Common Stock are entitled to receive
dividends as and when declared by the Board of Directors out of funds legally
available for dividends, and, in the event of liquidation, dissolution or
winding up of the Company, to share ratably in all assets remaining after
payment of liabilities. The holders of the Common Stock are entitled to one vote
for each share of Common Stock held of record on all matters submitted to a vote
of shareholders. Since holders of Common Stock do not have cumulative voting
rights, holders of more than 50% of the outstanding shares of Common Stock
present and voting at an annual meeting at which a quorum is present can elect
all the directors of the Company. The holders of Common Stock have no preemptive
rights or conversion rights and are not subject to further calls or assessments
by the Company. There are no redemption or sinking fund provisions applicable to
the Common Stock.
The Transfer Agent for the Company's Common Stock is The Bank of New York.
PREFERRED STOCK
The Board of Directors is authorized to issue shares of Preferred Stock from
time to time in one or more classes or series and to fix by resolution or
resolutions (without further stockholder action) the voting rights, if any, and
the designations, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions thereof,
including, without limitation, the dividend rights, conversion rights, rights
and terms of redemption (including sinking fund provisions) and liquidation
rights of each such class or series. In addition, the Board of Directors is
empowered to determine the number of shares constituting each class and series
of Preferred Stock and, subject to compliance with applicable law, to increase
or decrease the number of shares of each such class or series. The Board of
Directors may, without shareholder approval, issue Preferred Stock with voting
and conversion rights which could adversely affect the voting power of holders
of Common Stock.
PREFERRED STOCK PURCHASE RIGHTS
The description of certain Preferred Stock Purchase Rights distributed
pursuant to a dividend distribution declared by the Company's Board of Directors
on April 10, 1992, and of the shares of Series A Junior Participating Preferred
Stock reserved for issuance upon exercise of such Rights, is incorporated by
reference to Item 1 of the Company's Form 8-A, dated April 10, 1992, filed with
the Securities and Exchange Commission on April 13, 1992.
The Preferred Stock Purchase Rights have certain anti-takeover effects. The
Rights will cause substantial dilution to a person or group that attempts to
acquire the Company without conditioning the offer on a substantial number of
the Rights being acquired. The Rights should not interfere with any merger or
other business combination approved by the Board of Directors since the Rights
may be redeemed by the Company.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND BY-LAWS
The Company's Certificate of Incorporation (as amended, the "Certificate")
provides that the Board of Directors consists of three classes of directors
serving for staggered three-year terms. As a result, one-third of the Company's
Board of Directors will be elected each year. The classified board provision
could prevent a party who acquires control of a majority of the outstanding
voting stock of the Company from obtaining control of the Board of Directors
until the second annual stockholders meeting following the date the acquirer
obtains the controlling interest. Subject to the rights of holders of Preferred
Stock of the Company, any vacancy on the Board of Directors may be filled only
by the remaining directors then in office.
The Company has 500,000 authorized and unissued shares of Preferred Stock.
The Certificate grants the Board of Directors broad power to establish the
designations, powers, preferences and rights of any series of Preferred Stock.
Such stock could be used by the Board of Directors for defensive purposes,
including its issuance or sale to third parties or use in recapitalization
transactions.
20
<PAGE>
In order for a stockholder to nominate a candidate for director, under the
Company's By-laws, timely notice of the nomination must be given to the Company
in advance of the meeting. Such notice must be given in respect to an election
to be held at an annual meeting of stockholders not less than 90 days before the
anniversary of the immediately preceding annual meeting, and must be given in
respect to an election to be held at a special meeting of stockholders within 10
days after the notice of the meeting is given to stockholders. The stockholder
filing the notice of nomination must describe various matters regarding the
nominee, including such information as name, address, occupation and shares
held.
In order for a stockholder to bring other business before an annual
stockholder meeting, timely notice must be received by the Company not less than
60 days nor more than 90 days before the meeting (but if the Company gives less
than 70 days notice of the meeting, then such notice must be received within 10
days after the notice of the meeting is mailed or other public disclosure of the
meeting is made). Such notice must include a description of the proposed
business, the reasons therefore, and other specified matters.
Under the By-laws, special meetings of stockholders may be called only by
the Board of Directors or the President of the Company, and may not be called by
stockholders. In addition, the Certificate provides that any action required or
permitted to be taken by the stockholders of the Company at an annual or special
meeting of stockholders must be effected at a duly called meeting and may not be
taken or effected by a written consent of the stockholders in lieu thereof.
The By-laws may be amended by the Board of Directors or by affirmative vote
of the holders of two-thirds of the stock issued and outstanding and entitled to
vote thereon. Certain provisions of the Certificate, including provisions
concerning the classified Board of Directors and the ability of stockholders to
take action only at an annual or special meeting of stockholders, may only be
amended by the affirmative vote of the holders of two-thirds of the stock issued
and outstanding and entitled to vote thereon. The foregoing summary is qualified
in its entirety by reference to the full text of the Company's Certificate and
By-laws.
These provisions are designed in part to make it more difficult and
time-consuming to obtain majority control of the Board of Directors of the
Company or otherwise to bring a matter before stockholders without the Board's
consent, and thus reduce the vulnerability of the Company to an unsolicited
takeover proposal. These provisions are designed to enable the Company to
develop its business in a manner which will foster its long-term growth, with
the threat of a takeover not deemed by the Board to be in the best interest of
the Company and its stockholders and the potential disruption entailed by such a
threat reduced to the extent practicable. On the other hand, these provisions
may have an adverse effect on the ability of stockholders to influence the
governance of the Company and the possibility of stockholders receiving a
premium above market price for their securities from a potential acquiror who is
unfriendly to management.
DELAWARE GENERAL CORPORATION LAW SECTION 203
As a corporation organized under the laws of the State of Delaware, the
Company is subject to Section 203 of the Delaware General Corporation Law which
restricts certain business combinations between the Company and an "interested
stockholder" (in general, a stockholder owning 15% or more of the Company's
outstanding voting stock) or its affiliates or associates for a period of three
years following the date on which the stockholder becomes an "interested
stockholder." The restrictions do not apply if (i) prior to an interested
stockholder becoming such, the Board of Directors approves either the business
combination or the transaction in which the stockholder becomes an interested
stockholder (ii) upon consummation of the transaction in which any person
becomes an interested stockholder, such interested stockholder owns at least 85%
of the voting stock of the Company outstanding at the time the transaction
commences (excluding shares owned by certain employee stock ownership plans and
persons who are both directors and officers of the Company) or (iii) on or
subsequent to the date an interested stockholder becomes such, the business
combination is both
21
<PAGE>
approved by the Board of Directors and authorized at an annual or special
meeting of the Company's stockholders, not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock not owned
by the interested stockholder.
REGISTRATION RIGHTS
In September 1994, the Company entered into registration rights agreements
with certain stockholders in connection with the issuance of common stock to
Shamrock Investments and the merger of J.P. Cole & Associates, Inc. and Paragon
Ambulatory Surgery, Inc. into the Company. Under these registration rights
agreements, Shamrock Investments has the right to demand one registration on
Form S-3 of the shares of Common Stock held by it. In addition, Shamrock
Investments, Charles P. Reilly, Michael E. Gallagher, Jonathan Spees and John P.
Cole have certain "piggy-back" registration rights under the Securities Act with
respect to the Common Stock held by such stockholders. Accordingly, if the
Company proposes to effect certain registrations of its securities under the
Securities Act, the Company is required to notify such stockholders and to
include in such registration all of the shares of Common Stock requested to be
included by such stockholders, subject to the right of an underwriter
participating in the offering to limit the number of shares included in such
registration. The Company shall not be required to include such shares in an
underwriting unless the holders thereof enter into an underwriting agreement
upon terms and conditions agreed upon by the Company and the underwriter (except
as to monetary obligations of the holders not contemplated by the registration
rights agreements). Any such stockholders requesting registration shall pay
their own expenses and shall bear, on a pro rata basis with other requesting
stockholders, all incremental registration expenses that result from the
inclusion of such shares in a registration.
The Company may delay, suspend or withdraw any registration or qualification
of securities required pursuant to the registration rights agreements for a
period not exceeding 120 days if the Company determines in good faith that any
such registration would adversely affect an offering or contemplated offering of
any securities of the Company or any other contemplated material corporate
event. In addition, the Company shall not be required to effect more than one
registration in any twelve-month period in which such stockholders were afforded
the opportunity to register securities.
The holders of such registration rights, covering in the aggregate 967,827
shares of Common Stock (including shares issuable upon the exercise of options
or the conversion of convertible securities), may request that the Company
include some or all of the registrable securities held by them in the Shelf
Registration Statement. See "Description of Debentures -- Registration Rights;
Liquidated Damages."
SELLING SECURITYHOLDERS
The following table sets forth certain information as of March 14, 1996
(except as otherwise indicated) as to the security ownership of the Selling
Securityholders. Except as set forth below, none of the Selling Securityholders
has had a material relationship with the Company or any of its predecessors or
affiliates within the past three years.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT SHARES OF COMMON
OF DEBENTURES STOCK
BENEFICIALLY OWNED PRINCIPAL BENEFICIALLY OWNED
PRIOR TO OFFERING AMOUNT OF PRIOR TO OFFERING
---------------------------- DEBENTURES ------------------------------
NAME AMOUNT PERCENT BEING SOLD NUMBER PERCENT
- ------------------------------------------ --------------- ----------- --------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
General Motors Employees Domestic Group
Trust.................................... $ 13,300,000 19.28 $ 13,300,000 488,073 4.26
Bankers Trust Company (1)................. $ 5,780,000 8.38 $ 5,780,000 212,110 1.90
Oppenheimer Main Street Income & Growth
Fund..................................... $ 5,000,000 7.25 $ 5,000,000 183,486 1.64
Allstate Insurance Company................ $ 4,000,000 5.80 $ 4,000,000 146,789 1.32
Forest Fulcrum Fund LP.................... $ 2,850,000 4.13 $ 2,850,000 104,587 *
Oregon Equity Fund........................ $ 2,500,000 3.62 $ 2,500,000 91,743 *
<CAPTION>
SHARES OF COMMON
STOCK UNDERLYING
DEBENTURES BEING
SOLD AND
NAME ADDITIONAL SHARES
- ------------------------------------------ -----------------
<S> <C>
General Motors Employees Domestic Group
Trust.................................... 488,073
Bankers Trust Company (1)................. 212,110
Oppenheimer Main Street Income & Growth
Fund..................................... 183,486
Allstate Insurance Company................ 146,789
Forest Fulcrum Fund LP.................... 104,587
Oregon Equity Fund........................ 91,743
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT SHARES OF COMMON
OF DEBENTURES STOCK
BENEFICIALLY OWNED PRINCIPAL BENEFICIALLY OWNED
PRIOR TO OFFERING AMOUNT OF PRIOR TO OFFERING
---------------------------- DEBENTURES ------------------------------
NAME AMOUNT PERCENT BEING SOLD NUMBER PERCENT
- ------------------------------------------ --------------- ----------- --------------- ----------------- -----------
Tennessee Consolidated Retirement......... $ 2,500,000 3.62 $ 2,500,000 91,743 *
<S> <C> <C> <C> <C> <C>
JMG Convertible Investments, L.P.......... $ 2,325,000 3.37 $ 2,325,000 85,321 *
Paul Berkman and Company.................. $ 1,800,000 2.61 $ 1,800,000 66,055 *
OCM Convertible Trust..................... $ 1,580,000 2.29 $ 1,580,000 57,981 *
SAIF Corporation.......................... $ 1,550,000 2.25 $ 1,550,000 56,880 *
Societe Generale Bonafide Arbitrage....... $ 1,500,000 2.17 $ 1,500,000 57,981 *
Delaware State Employees' Retirement
Fund..................................... $ 1,260,000 1.83 $ 1,260,000 46,238 *
Forest Fulcrum Fd Ltd..................... $ 1,150,000 1.66 $ 1,150,000 42,201 *
Offshore Strategies, Ltd.................. $ 1,100,000 1.59 $ 1,100,000 40,367 *
Commonwealth Life Insurance Co. Stock TRAC
(Teamsters 1)............................ $ 1,000,000 1.45 $ 1,000,000 36,697 *
Delta Airlines Master Trust............... $ 920,000 1.33 $ 920,000 33,761 *
Nicholas-Applegate Income & Growth........ $ 900,000 1.30 $ 900,000 33,027 *
San Diego County Employees Retirement
Acct..................................... $ 800,000 1.16 $ 800,000 29,537 *
Templeton Global Hedged Convert Ltd....... $ 800,000 1.16 $ 800,000 29,537 *
Central State Southeast & Southwest
Pension Fund............................. $ 790,000 1.14 $ 790,000 28,990 *
McMahan Securities Co. L.P................ $ 750,000 1.09 $ 750,000 27,523 *
State of Delaware Retirement.............. $ 750,000 1.09 $ 750,000 27,523 *
Massachusetts Pension Reserve Investment
Management Board......................... $ 670,000 * $ 670,000 24,587 *
31 West Fund L.P.......................... $ 500,000 * $ 500,000 18,348 *
Templeton Global Hedged Convert L.P....... $ 450,000 * $ 450,000 16,513 *
Weirton Convertible....................... $ 430,000 * $ 430,000 15,779 *
Declaration of Trust for Defined Benefit
Plan of ICI American Holdings............ $ 390,000 * $ 390,000 14,312 *
ICI American Holdings Pension............. $ 350,000 * $ 350,000 12,844 *
Zeneca Holdings Pension................... $ 350,000 * $ 350,000 12,884 *
State Employees' Retirement Fund of the
State of Delaware........................ $ 330,000 * $ 330,000 12,110 *
Harris Trust & Savings Bank, Trustee for
the Harris Trust and Savings Bank Trust
for Collective Investment of Employee
Benefit Accounts -- Convertible Fund..... $ 300,000 * $ 300,000 11,009 *
Declaration of Trust for Defined Benefit
Plan of Zeneca Holdings Inc.............. $ 255,000 * $ 255,000 9,357 *
Laterman & Co............................. $ 250,000 * $ 250,000 9,174 *
<CAPTION>
SHARES OF COMMON
STOCK UNDERLYING
DEBENTURES BEING
SOLD AND
NAME ADDITIONAL SHARES
- ------------------------------------------ -----------------
Tennessee Consolidated Retirement......... 91,743
<S> <C>
JMG Convertible Investments, L.P.......... 85,321
Paul Berkman and Company.................. 66,055
OCM Convertible Trust..................... 57,981
SAIF Corporation.......................... 56,880
Societe Generale Bonafide Arbitrage....... 57,981
Delaware State Employees' Retirement
Fund..................................... 46,238
Forest Fulcrum Fd Ltd..................... 42,201
Offshore Strategies, Ltd.................. 40,367
Commonwealth Life Insurance Co. Stock TRAC
(Teamsters 1)............................ 36,697
Delta Airlines Master Trust............... 33,761
Nicholas-Applegate Income & Growth........ 33,027
San Diego County Employees Retirement
Acct..................................... 29,537
Templeton Global Hedged Convert Ltd....... 29,537
Central State Southeast & Southwest
Pension Fund............................. 28,990
McMahan Securities Co. L.P................ 27,523
State of Delaware Retirement.............. 27,523
Massachusetts Pension Reserve Investment
Management Board......................... 24,587
31 West Fund L.P.......................... 18,348
Templeton Global Hedged Convert L.P....... 16,513
Weirton Convertible....................... 15,779
Declaration of Trust for Defined Benefit
Plan of ICI American Holdings............ 14,312
ICI American Holdings Pension............. 12,844
Zeneca Holdings Pension................... 12,884
State Employees' Retirement Fund of the
State of Delaware........................ 12,110
Harris Trust & Savings Bank, Trustee for
the Harris Trust and Savings Bank Trust
for Collective Investment of Employee
Benefit Accounts -- Convertible Fund..... 11,009
Declaration of Trust for Defined Benefit
Plan of Zeneca Holdings Inc.............. 9,357
Laterman & Co............................. 9,174
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT SHARES OF COMMON SHARES OF COMMON
OF DEBENTURES STOCK STOCK UNDERLYING
BENEFICIALLY OWNED PRINCIPAL BENEFICIALLY OWNED DEBENTURES BEING
PRIOR TO OFFERING AMOUNT OF PRIOR TO OFFERING SOLD AND
------------------------- DEBENTURES ------------------------------ ADDITIONAL
NAME AMOUNT PERCENT BEING SOLD NUMBER PERCENT SHARES
- --------------------------------- ------------ ----------- ------------ ----------------- ----------- ----------------
Laterman Strategies 90's L.P.............. $ 250,000 * $ 250,000 9,174 *
<S> <C> <C> <C> <C> <C> <C>
WAFRA Discretionary.............. $ 250,000 * $ 250,000 9,174 * 9,174
Thermo Electron Balanced
Investment Fund................. $ 175,000 * $ 175,000 6,422 * 6,422
San Diego City Employees
Retirement System............... $ 170,000 * $ 170,000 6,238 * 6,238
Firebird Overseas, Ltd........... $ 150,000 * $ 150,000 5,804 * 5,504
Bank of America Convertible
Securities Fund................. $ 150,000 * $ 150,000 5,504 * 5,504
NALCO Chemical Retirement
Trust........................... $ 150,000 * $ 150,000 5,504 * 5,504
Wachovia Bank of NC, Custodian
for Wake Forest University...... $ 135,000 * $ 135,000 4,954 * 4,954
Magus Int'l Limited.............. $ 100,000 * $ 100,000 3,669 * 3,669
Kapiolani Medical Center......... $ 100,000 * $ 100,000 3,669 * 3,669
Bankers Trust FBO Presbyterian
Healthcare...................... $ 100,000 * $ 100,000 3,669 * 3,669
Hillside Capital................. $ 85,000 * $ 85,000 3,119 * 3,119
Occidental College............... $ 50,000 * $ 50,000 1,834 * 1,834
Teepak, Inc. Master Trust........ $ 35,000 * $ 35,000 1,284 * 1,284
Fleet Bank of MA, Custodian for
Museum of Fine Arts............. $ 20,000 * $ 20,000 733 * 733
Other Selling Securityholders
(2)............................. $ 7,900,000 11.45 $ 7,900,000 289,908 2.57 289,908
Voting Group (3)(4)(5)
Charles H. Robbins and Ellen E.
Robbins; Jack M. Mazur and Lynn
Mazur, VACHR, Inc.; Michael D.
Starr; Shamrock Investments;
Charles P. Reilly; Michael E.
Gallagher....................... -- -- -- 3,808,089(6) 31.73 755,717(7)(10)
Shamrock Group (3)(5)(8) Charles
P. Reilly; Michael E. Gallagher;
Shamrock Investments............ -- -- -- 1,075,675(9) 9.43 755,717(10)
Charles P. Reilly (3)(5)(11)..... -- -- -- 508,545(12)(13) 4.54 313,945(13)
Michael E. Gallagher (3)(5)(14).. -- -- -- 338,457(15)(16) 3.05 235,599(16)
Shamrock Investments (3)(5)...... -- -- -- 228,673(17)(18) 2.09 206,173(18)
John P. Cole (3)(5)(19).......... -- -- -- 350,000(20)(21) 3.18 200,000(21)
Jonathan J. Spees (3)(22)........ -- -- -- 12,110 * 12,110
<CAPTION>
Laterman Strategies 90's L.P.............. 9,174
<S> <C>
</TABLE>
- ------------------------
* Less than 1%.
(1) $5,780,000 aggregate principal amount of Debentures are beneficially owned
by clients of Bankers Trust Company and held by Bankers Trust Company as
custodian for these clients. Information regarding these clients will be
added by supplement to this Prospectus.
(2) Information regarding these persons or entities will be added by supplement
to this Prospectus.
(3) Information is as of February 19, 1996.
(4) The persons listed are parties to a Voting Agreement dated as of October 7,
1994, pursuant to which they have agreed to act together under certain
circumstances. See "Risk Factors --
24
<PAGE>
Control by Management and Certain Stockholders." These persons constitute a
group (the "Voting Group") within the meaning of Section 13(d)(3) of the
Exchange Act and have jointly filed a Schedule 13D with the Securities and
Exchange Commission. For additional information regarding the relationship
between the members of the Voting Group and the Company, see Items 10-13 of
the Company's Annual Report on Form 10-K/A for the fiscal year ended April
30, 1995, which is incorporated herein by reference.
(5) Each member of the Voting Group and certain other officers and directors of
the Company (including Mr. Cole) have agreed that prior to April 12, 1996,
they will not, without the prior written consent of Smith Barney Inc.,
sell, offer to sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exchangeable for any
shares of Common Stock.
(6) For additional information regarding the beneficial ownership of shares by
members of the Voting Group, see Item 12 ("Security Ownership of Certain
Beneficial Owners and Management") of the Company's Annual Report on Form
10-K/A for the fiscal year ended April 30, 1995, which is incorporated
herein by reference.
(7) Does not include any shares beneficially owned by Charles H. Robbins, Ellen
E. Robbins, Jack M. Mazur, Lynn Mazur, VACHR, Inc. or Michael D. Starr,
other than the shares referred to in note 10 in which such persons have no
pecuniary interest.
(8) Shamrock Investments, Charles P. Reilly and Michael E. Gallagher constitute
a group (separate from the Voting Group, the "Shamrock Group") within the
meaning of Section 13(d)(3) of the Exchange Act and have jointly filed a
Schedule 13D with the Securities and Exchange Commission. For additional
information regarding the relationship between members of the Shamrock
Group and the Company, see Item 13 ("Certain Transactions and Business
Relationships") of the Company's Annual Report on Form 10-K/A for the
fiscal year ended April 30, 1995, which is incorporated herein by
reference.
(9) Includes 508,545 shares beneficially owned by Mr. Reilly (see notes 12 and
13 below), 338,457 shares beneficially owned by Mr. Gallagher (see notes 15
and 16 below) and 228,673 shares beneficially owned by Shamrock Investments
(see notes 17 and 18 below). Excludes additional shares referred to in note
6 deemed to be beneficially owned by the members of the Shamrock Group by
virtue of their participation in the Voting Group.
(10) Includes 313,945 shares beneficially owned by Mr. Reilly (see note 13
below), 235,599 shares beneficially owned by Mr. Gallagher (see note 16
below) and 206,173 shares beneficially owned by Shamrock Investments (see
note 18 below).
(11) Mr. Reilly joined the Company as a Director in 1991. He is the managing
general partner of Shamrock Investments. From August 1994 to August 1995,
Mr. Reilly was an employee of the Company, serving as chairman of the
Company's Executive Council.
(12) Includes 137,142 shares issuable upon the exercise of stock options granted
to Mr. Reilly in connection with his employment agreement and an additional
52,500 shares issuable upon the exercise of stock options granted to Mr.
Reilly.
(13) Includes 205,074 shares issued to Mr. Reilly and 59,963 shares issuable
upon the conversion of convertible notes issued to Mr. Reilly in connection
with the merger of Paragon Ambulatory Surgery, Inc. into the Company (the
"Paragon Merger"). Also includes 24,454 shares issued to Mr. Reilly and
24,454 shares issuable upon the exercise of stock options granted to Mr.
Reilly in connection with the merger of J.P. Cole & Associates, Inc. into
the Company (the "Cole Merger"). Of the shares and options issued to Mr.
Reilly in connection with the Cole Merger, 15,162 shares are held in escrow
subject to forfeiture unless certain performance conditions are met, and
15,162 options will become exercisable only if certain performance
conditions are met by December 30, 1996 or a change of control of the
Company occurs prior to that date. Excludes additional shares referred to
in notes 6, 15, 16, 17 and 18 deemed to be beneficially owned by Mr. Reilly
by virtue of his participation in the Voting Group.
(14) Mr. Gallagher is a general partner of Shamrock Investments. From August
1994 to August 1995, Mr. Gallagher was employed by the Company as a member
of its Executive Council. He previously served as Chief Executive Officer
of Paragon Ambulatory Surgery, Inc., which was merged into the Company on
September 29, 1994.
25
<PAGE>
(15) Includes 102,858 shares issuable upon the exercise of stock options granted
to Mr. Gallagher in connection with his employment agreement.
(16) Includes 153,816 shares to Mr. Gallagher and 44,975 shares issuable upon
the conversion of convertible notes issued to Mr. Gallagher in connection
with the Paragon Merger. Also includes 18,404 shares issued to Mr.
Gallagher and 18,404 shares issuable upon the exercise of stock options
granted to Mr. Gallagher in connection with the Cole Merger. Of the shares
and options issued to Mr. Gallagher in connection with the Cole Merger,
11,410 shares are held in escrow subject to forfeiture unless certain
performance conditions are met, and 11,410 options will become exercisable
only if certain performance conditions are met by December 30, 1996 or a
chance of control of the Company occurs prior to that date. Excludes
additional shares referred to in notes 6, 12, 13, 17, and 18 deemed to be
beneficially owned by Mr. Gallagher by virtue of his participation in the
Shamrock Group and the Voting Group.
(17) Includes 22,500 shares issuable upon the exercise of stock options granted
to Shamrock Investments.
(18) Inclues 6,173 shares issuable upon conversion of convertible promissory
notes held by Shamrock Investments. Also includes 200,000 shares issued to
Shamrock Investments pursuant to the Stock Purchase Agreement, dated as of
September 29, 1994, by and between the Company and Shamrock Investments.
Excludes additional shares referred to in notes 6, 12, 13, 15, and 16
deemed to be beneficially owned by Shamrock Investments by virtue of its
participation in the Voting Group.
(19) Mr. Cole joined the Company in 1993. On September 29, 1994, Mr. Cole
entered into an employment agreement with the Company pursuant to which he
serves as an Executive Vice President of the Company and heads the
marketing of the Company's commercial products and services. He previously
served as President of J.P. Cole and Associates, Inc., a health care
marketing firm, which was merged into PHP Family Healthcare Corporation, a
wholly-owned subsidiary of the Company, on October 3, 1994.
(20) Includes 30,000 shares issuable upon the exercise of stock options granted
to Mr. Cole in connection with his employment agreement. Also includes
84,000 shares held by Mr. Cole's spouse, and 74,000 shares held jointly by
Mr. Cole and his spouse.
(21) Includes 100,000 shares issued to Mr. Cole and 100,000 shares issuable upon
the exercise of stock options granted to Mr. Cole in connection with the
Cole Merger. Of the shares and options issued to Mr. Cole in connection
with the Cole Merger, 62,000 shares are held in escrow subject to
forfeiture unless certain performance conditions are met, and 62,000
options will become exercisable only if certain performance conditions are
met by December 30, 1996 or a change of control of the Company occurs prior
to that date.
(22) Mr. Spees has been an employee of Shamrock Investments for each of the last
three years.
The preceding table has been prepared based upon information furnished to
the Company by The Depository Trust Company ("DTC"), IBJ Schroder Bank & Trust
Company, trustee under the Indenture, and by or on behalf of the Selling
Securityholders.
Information concerning the Selling Securityholders may change from time to
time and will be set forth in Supplements to this Prospectus. As of the date of
this Prospectus, the aggregate principal amount of Debentures outstanding is
$69,000,000.
Because the Selling Securityholders may offer all or some of the Debentures
and shares of Common Stock issued upon conversion thereof pursuant to the
offering contemplated by this Prospectus, and because there are currently no
agreements, arrangements or understandings with respect to the sale of any of
the Debentures or shares of Common Stock that will be held by the Selling
Securityholders after completion of this offering, no estimate can be given as
to the principal amount of Debentures or shares of Common Stock that will be
held by the Selling Securityholders after completion of this offering. See "Plan
of Distribution."
26
<PAGE>
PLAN OF DISTRIBUTION
The Debentures and the Shares are being registered to permit public
secondary trading of such securities by the holders thereof from time to time
after the date of this Prospectus. The Company has agreed, among other things,
to bear all expenses (other than underwriting discounts, selling commissions and
fees and expenses of counsel and other advisors to holders of the Debentures and
the underlying Common Stock) in connection with the registration and sale of the
Debentures and the Conversion Shares covered by this Prospectus. The holder of
the Additional Shares have agreed to pay their own expenses and to bear, on a
pro rata basis, with other Selling Securityholders, all investment expenses that
result from the inclusion of the Additional Shares.
The Company will not receive any of the proceeds from the offering of
Debentures and the Shares by the Selling Securityholders. The Company has been
advised by the Selling Securityholders that the Selling Securityholders may sell
all or a portion of the Debentures and Shares beneficially owned by them and
offered hereby from time to time on any exchange on which the securities are
listed on terms to be determined at the times of such sales. The Selling
Securityholders may also make private sales directly or through a broker or
brokers. Alternatively, any of the Selling Securityholders may from time to time
offer the Debentures or shares of Common Stock beneficially owned by them
through underwriters, dealers or agents, who may receive compensation in the
form of underwriting discounts, commissions or concessions from the Selling
Securityholders and the purchasers of the Debentures or shares or Common Stock
from whom they may act as agent. The aggregate proceeds to the Selling
Securityholders from the sale of the Debentures of shares or Common Stock
offered by them hereby will be the purchase price of such Debentures or shares
of Common Stock less discounts and commissions, if any.
The Debentures and the Shares may be sold from time to time in one or more
transactions at fixed offering prices, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the holders of such securities or by agreement between such
holders and underwriters or dealers who may receive fees or commissions in
connection therewith.
The outstanding Common Stock is listed for trading on the New York Stock
Exchange, and the Shares of Common Stock have been approved for listing on the
New York Stock Exchange. The Initial Purchasers have advised the Company that
they are making and currently intend to continue making a market in the
Debentures; however, they are not obligated to do so and any such market-making
may be discontinued at any time without notice, in the sole discretion of the
Initial Purchasers. The Company does not intend to apply for listing of the
Debentures on any securities exchange. Accordingly, no assurance can be given as
to the development of liquidity of any trading market that may develop for the
Debentures. See "Risk Factors -- No Prior Public Market for the Debentures."
In order to comply with the securities laws of certain states, if
applicable, the Debentures and Shares will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the Debentures and Shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
The Selling Securityholders and any broker and any broker-dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the Debentures or the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act, in which event any commissions
received by such broker-dealers, agents or underwriters any profit on the resale
of the Debentures or the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to
27
<PAGE>
this Prospectus. There is no assurance that any Selling Securityholder will sell
any or all of the Debentures or Shares described herein, and any Selling
Securityholder may transfer, devise or gift such securities by other means not
described herein.
The Debentures were originally sold to Smith Barney Inc. and Dean Witter
Reynolds Inc. in December 1995 in a private placement. The Company agreed to
indemnify and hold Smith Barney Inc. and Dean Witter Reynolds Inc. harmless
against certain liabilities under the Securities Act that could arise in
connection with the sale of the Debentures by Smith Barney Inc. and Dean Witter
Reynolds Inc. The Company and the Selling Securityholders are obligated to
indemnify each other against certain liabilities arising under the Securities
Act.
The Company will use its best efforts to cause the registration statement to
which this Prospectus relates to become effective as promptly as is practicable
and to keep the registration statement effective for a period of three years
from the effective date thereof, or until the Shelf Registration Statement is no
longer required for transfer of the Debentures or the underlying Common Stock.
The Company is permitted to suspend the use of this Prospectus in connection
with the sales of Debentures and Conversion Shares by holders upon the happening
of an event or if there exists any fact that makes any statement of material
fact made in this Prospectus untrue or that requires the making of additions to
or changes in the Prospectus in order to make the statements herein not
misleading until such time as the Company advises the Selling Securityholders
that use of the Prospectus may be resumed, in which case the period of time
during which the Company is required to maintain the effectiveness of the Shelf
Registration Statement shall be extended. Expenses of preparing and filing the
registration statement and all post-effective amendments will be borne by the
Company.
28
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Debentures. This discussion
is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, Internal Revenue Service ("IRS") rulings, and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations.
This discussion does not deal with all aspects of United States federal
income taxation that may be relevant to holders of the Debentures or shares of
Common Stock and does not deal with tax consequences arising under the laws of
any foreign, state or local jurisdiction. This discussion is for general
information only, and does not purport to address all of the tax consequences
that may be relevant to particular purchasers in light of their personal
circumstances, or to certain types of purchasers (such as certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities or
persons who hold the Debentures or Common Stock in connection with a straddle)
who may be subject to special rules. This discussion assumes that each holder
holds the Debentures and the shares of Common Stock received upon conversion
thereof as capital assets.
For the purpose of this discussion, a "Non-U.S. Holder" refers to any holder
who is not a United States person. The term "United States person" means a
citizen or resident of the United States, a corporation or partnership created
or organized in the United States or any state thereof, or an estate or trust,
the income of which is includible in income for United States federal income tax
purposes regardless of its source.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR PARTICIPATION IN
THIS OFFERING, OWNERSHIP AND DISPOSITION OF THE DEBENTURES, INCLUDING CONVERSION
OF THE DEBENTURES, AND THE EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE
ON SUCH TAX CONSEQUENCES.
OWNERSHIP OF THE DEBENTURES
INTEREST ON DEBENTURES. Interest paid on a Debenture will be taxable to a
holder as ordinary interest income in accordance with the holder's method of tax
accounting at the time that such interest is accrued or (actually or
constructively) received. The Company anticipates that the Debentures will not
be issued with original issue discount ("OID") within the meaning of the Code.
CONSTRUCTIVE DIVIDEND. Certain corporate transactions, such as
distributions of cash to holders of Common Stock, may cause a deemed
distribution to the holders of the Debentures if the conversion price or
conversion ratio of the Debentures is adjusted to reflect such corporate
transaction. Such deemed distributions will be taxable as a dividend, return of
capital, or capital gain in accordance with the earnings and profits rules
discussed under "Dividends on Shares of Common Stock."
SALE OR EXCHANGE OF DEBENTURES OR SHARES OF COMMON STOCK. In general, a
holder of a Debenture will recognize gain or loss upon the sale, redemption,
retirement or other disposition of the Debenture measured by the difference
between the amount of cash and the fair market value of any property received
(except to the extent attributable to the payment of accrued interest) and the
holder's adjusted tax basis in the Debenture. A holder's tax basis in a
Debenture generally will equal the cost of the Debenture to the holder increased
by the amount of market discount, if any, previously taken into income by the
holder or decreased by any bond premium theretofore amortized by the holder with
respect to the Debenture. (For the basis and holding period of shares of Common
Stock, see "Conversion of Debentures.") In general, each holder of Common Stock
into which the Debentures have been converted will recognize gain or loss upon
the sale, exchange, redemption, or other disposition of the Common Stock under
rules similar to those applicable to the Debentures. Special rules may apply to
redemptions of Common Stock which may result in the amount paid being treated as
a dividend. Subject to the market discount rules discussed below, the gain or
loss on the disposition of the
29
<PAGE>
Debentures or shares of Common Stock will be capital gain or loss and will be
long-term gain or loss if the Debentures or shares of Common Stock have been
held for more than one year at the time of such disposition.
CONVERSION OF DEBENTURES. A holder of a Debenture will not recognize gain
or loss on the conversion of the Debenture into shares of Common Stock, except
to the extent that the Common Stock issued upon the conversion is attributable
to accrued interest on the Debenture. The holder's aggregate tax basis in the
shares of Common Stock received upon conversion of the Debenture will be equal
to the holder's aggregate basis in the Debenture exchanged therefor (less any
portion thereof allocable to cash received in lieu of a fractional share). The
holding period of the shares of Common Stock received by the holder upon
conversion of the Debenture will include the period during which the holder held
the Debenture prior to the conversion.
Cash received in lieu of a fractional share of Common Stock should be
treated as a payment in exchange for such fractional share. Gain or loss
recognized on the receipt of cash paid in lieu of such fractional shares
generally will equal the difference between the amount of cash received and the
amount of tax basis allocable to the fractional shares.
MARKET DISCOUNT. The resale of a Debenture may be affected by the "market
discount" provisions of the Code. For this purpose, the market discount on a
Debenture will generally be equal to the amount, if any, by which the stated
redemption price at maturity of the Debenture immediately after its acquisition
exceeds the holder's tax basis in the debenture. Subject to a de minimis
exception, these provisions generally require a holder of a Debenture acquired
at a market discount to treat as ordinary income any gain recognized on the
disposition of such Debenture to the extent of the "accrued market discount" on
such Debenture at the time of disposition. In general, market discount on a
Debenture will be treated as accruing on a straight-line basis over the term of
such Debenture, or, at the election of the holder, under a constant yield
method.
In addition, any holder of a Debenture acquired at a market discount may be
required to defer the deduction of a portion of the interest on any indebtedness
incurred or maintained to purchase or carry the Debenture until the Debenture is
disposed of in a taxable transaction. The foregoing rule will not apply if the
holder elects to include accrued market discount in income currently.
If a holder acquires the Debenture at a market discount and receives Common
Stock upon conversion of the Debenture, the amount of accrued market discount
with respect to the converted Debenture through the date of the conversion will
be treated, under regulations to be issued, as ordinary income on the
disposition of the Common Stock.
DIVIDENDS ON SHARES OF COMMON STOCK. Distributions on shares of Common
Stock will constitute dividends for United States federal income tax purposes to
the extent of current or accumulated earnings and profits of the Company as
determined under United States federal income tax principles. Dividends paid to
holders that are United States corporations may qualify for the
dividends-received deduction. Individuals, partnerships, trusts, and certain
corporations, including certain foreign corporations, are not entitled to the
dividends-received deduction.
To the extent, if any, that a holder receives a distribution on shares of
Common Stock that would otherwise constitute a dividend for United States
federal income tax purposes but that exceeds current and accumulated earnings
and profits of the Company, such distribution will be treated first as a
non-taxable return of capital reducing the holder's basis in the shares of
Common Stock. Any such distribution in excess of the holder's basis in the
shares of Common Stock will be treated as a capital gain.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
INTEREST ON DEBENTURES. Generally, interest paid on the Debentures to a
Non-U.S. Holder will not be subject to United States federal income tax if: (i)
such interest is not effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Holder; (ii) the Non-U.S.
30
<PAGE>
Holder does not actually or constructively own 10% or more of the total voting
power of all classes of stock of the Company entitled to vote and is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code; and (iii) the beneficial owner, under
penalty of perjury, certifies that he or she is not a United States person and
provides his or her name and address. If certain requirements are satisfied, the
certification described in paragraph (iii) above may be provided by a securities
clearing organization, a bank, or other financial institution that holds
customers' securities in the ordinary course of its trade or business. For this
purpose, the holder of a Debenture would be deemed to own constructively the
Common Stock into which it could be converted. If a holder is not exempt from
tax under these rules, he or she will be subject to United States federal income
tax withholding at a rate of 30% unless the interest is effectively connected
with the conduct of a United States trade or business, in which case the
interest will be subject to the United States federal income tax on net income
that applies to United States persons generally. Non-U.S. Holders should consult
applicable income tax treaties, which may provide different rules.
SALE OR EXCHANGE OF DEBENTURES OR SHARES OF COMMON STOCK. A Non-U.S. Holder
generally will not be subject to United States federal income tax on gain
recognized upon the sale or other disposition (including a redemption) of a
Debenture or shares of Common Stock received upon conversion thereof (including
the receipt of cash in lieu of a fractional share upon such conversion) unless
(i) the gain is effectively connected with the conduct of a trade or business
within the United States by the Non-U.S. Holder, or (ii) in the case of a
Non-U.S. Holder who is a nonresident alien individual and holds the Common Stock
as a capital asset, such holder is present in the United States for 183 or more
days in the taxable year and certain other circumstances are present. If the
Company is a "United States real property holding corporation," a Non-U.S.
Holder may be subject to federal income tax with respect to gain realized on the
disposition of such Debentures or Common Stock, and the proceeds of disposition
would be subject to withholding. Any amount withheld pursuant to these rules
will be creditable against such Non-U.S. Holder's United States federal income
tax liability and may entitle such Non-U.S. Holder to a refund upon furnishing
the required information to the Internal Revenue Service. Non-U.S. Holders
should consult applicable income tax treaties, which may provide different
rules.
CONVERSION OF DEBENTURES. A Non-U.S. Holder generally will not be subject
to United States federal income tax on the conversion of a Debenture into shares
of Common Stock. To the extent a Non-U.S. Holder receives cash in lieu of a
fractional share on conversion, such cash may give rise to gain that would be
subject to the rules described above with respect to the sale or exchange of a
Debenture or Common Stock.
DIVIDENDS ON SHARES OF COMMON STOCK. Generally, any distribution on shares
of Common Stock to a Non-U.S. Holder will be subject to United States federal
income tax withholding at a rate of 30% unless the dividend is effectively
connected with the conduct of a trade or business within the United States by
the Non-U.S. Holder, in which case the dividend will be subject to the United
States federal income tax on net income that applies to United States persons
generally (and, with respect to corporate holders and under certain
circumstances, the branch profits tax). Non-U.S. Holders should consult any
applicable income tax treaties, which may provide for a lower rate of
withholding or other rules different from those described above. A Non-U.S.
Holder may be required to satisfy certain certification requirements in order to
claim treaty benefits or otherwise claim a reduction of or exemption from
withholding under the foregoing rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. HOLDERS. Information reporting and backup withholding may apply to
payments of interest or dividends on or the proceeds of the sale or other
disposition of the Debentures or shares of Common Stock made by the Company with
respect to certain noncorporate U.S. holders. Such U.S. holders generally will
be subject to backup withholding at a rate of 31% unless the recipient of such
payment supplies a taxpayer identification number, certified under penalties of
perjury, as well as certain other
31
<PAGE>
information, or otherwise establishes, in the manner prescribed by law, an
exemption from backup withholding. Any amount withheld under backup withholding
is allowable as a credit against the U.S. holder's federal income tax, upon
furnishing the required information.
NON-U.S. HOLDERS. Generally, information reporting and backup withholding
of United States federal income tax at a rate of 31% may apply to payments of
principal, interest and premium (if any) to Non-U.S. Holders if the payee fails
to certify that he or she is a Non-U.S. person or if the Company or any of its
paying agents has actual knowledge that the payee is a United States person.
The 31% backup withholding tax generally will not apply to dividends paid to
foreign holders outside the United States that are subject to 30% withholding
discussed above or that are not so subject because a tax treaty applies that
reduces or eliminates such withholding. In that regard, under temporary
regulations, dividends payable at an address located outside of the United
States to a foreign holder are not subject to the backup withholding rules.
The payment of the proceeds on the disposition of Debentures or shares of
Common Stock to or through the United States office of a United States or
foreign broker will be subject to information reporting and backup withholding
at a rate of 31% unless the owner provides the certification described above or
otherwise establishes an exemption. The proceeds of the disposition by a
Non-U.S. Holder of Debentures or shares of Common Stock to or through a foreign
office of a broker will not be subject to backup withholding. However, if such
broker is a U.S. person, a controlled foreign corporation for United States tax
purposes, or a foreign person 50% or more of whose gross income from all sources
for certain periods is from activities that are effectively connected with a
United States trade or business, information reporting will apply unless such
broker has documentary evidence in its files of the owner's foreign status and
has no actual knowledge to the contrary or unless the owner otherwise
establishes an exemption. Both backup withholding and information reporting will
apply to the proceeds from such dispositions if the broker has actual knowledge
that the payee is a U.S. holder.
LEGAL MATTERS
The validity of the issuance of the Debentures and the Shares offered hereby
will be passed upon for the Company by Fried, Frank, Harris, Shriver & Jacobson
(a partnership including professional corporations), Washington, D.C. 20004.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company as of and for the year
ended April 30, 1995, incorporated by reference in this Prospectus and in the
Registration Statement from the Company's 1995 Form 10-K and Form 8-K/A dated
January 11, 1996, have been audited by Coopers & Lybrand L.L.P., independent
certified public accountants, as stated in its reports incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. Coopers & Lybrand L.L.P.'s report included in the Company's Form 8-K/A
dated January 11, 1996 includes an explanatory paragraph regarding the
adjustments described in the first paragraph of Note 8 to those consolidated
financial statements that were applied to retroactively restate the 1995, 1994
and 1993 consolidated financial statements and footnotes thereto included in
that Form 8-K/A for the effects of a two-for-one stock split effected as a stock
dividend in November 1995. With respect to the unaudited interim financial
information as of January 31, 1996, and for the three-month and nine-month
periods then ended incorporated by reference in this Prospectus and Registration
Statement, Coopers & Lybrand L.L.P. has reported that it has applied limited
procedures in accordance with professional standards for a review of such
information. However, its separate report included in the Company's quarterly
report on Form 10-Q for the quarter ended January 31, 1996, and incorporated by
reference herein, states that Coopers & Lybrand L.L.P. did not audit and it does
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on its report on such information should be restricted in
light of the limited nature of the review procedures applied. Coopers & Lybrand
L.L.P. is not subject to the liability provisions of Section 11 of the
Securities Act for its report on unaudited
32
<PAGE>
interim financial information because that report is not a "report" or "part" of
the Prospectus or Registration Statement prepared or certified by Coopers &
Lybrand L.L.P. within the meaning of Sections 7 and 11 of the Securities Act.
The consolidated financial statements of the Company as of April 30, 1994
and 1993 and for each of the years in the two-year period ended April 30, 1994,
incorporated by reference in this Prospectus and in the Registration Statement
from the Company's 1995 Form 10-K, have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as stated in their report incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing. The consolidated financial statements of the Company as
of April 30, 1994 and 1993 and for each of the years in the two-year period
ended April 30, 1994, incorporated by reference in this Prospectus and
Registration Statement from the Company's Form 8-K/A dated January 11, 1996, but
prior to the adjustments described in the first paragraph of Note 8 to those
consolidated financial statements that were applied to retroactively restate the
1994 and 1993 consolidated financial statements and footnotes thereto for the
effects of a 2-for-1 stock split effected as a stock dividend in November 1995,
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as stated in their report appearing therein, and upon the authority
of said firm as experts in accounting and auditing.
On January 9, 1995, the Company solicited Statements of Qualifications from
several independent accounting firms, including KPMG Peat Marwick LLP, the
Company's public accountants for the fiscal years ended April 30, 1994 and April
30, 1993, to provide audit services for its consolidated financial statements
for the year ended April 30, 1995. On January 11, 1995, KPMG Peat Marwick LLP
indicated that it had decided not to stand for re-appointment and, therefore,
would not submit a Statement of Qualifications. The decision to solicit
proposals to perform audit services was recommended by the Audit Committee and
approved by the Board of Directors.
The audit reports of KPMG Peat Marwick LLP on the Company's consolidated
financial statements as of and for the fiscal years ended April 30, 1994 and
1993 did not contain an adverse opinion or a disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting principle
except with respect to the Company's adoption of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, in fiscal year ended April 30, 1994. In addition,
during fiscal year 1993 and 1994 and any subsequent interim period during which
KPMG Peat Marwick LLP served as the Company's independent public accountants,
there were no disagreements with KPMG Peat Marwick LLP on any matter of
accounting principles, or practices, financial statement disclosure, or auditing
scope or procedures which, if not satisfied to KPMG Peat Marwick LLP's
satisfaction, would have caused it to make a reference to the subject matter of
the disagreement in connection with its reports. In connection with its audit of
the Company's consolidated financial statements for the fiscal year ended April
30, 1994, KPMG Peat Marwick LLP issued a letter relating to internal controls to
the Board of Directors that identified what KPMG Peat Marwick LLP considered to
be a reportable condition relating to timely financial reporting and the
Company's accounting decision-making process.
On March 17, 1995, the Company engaged Coopers & Lybrand L.L.P. as the
Company's independent accounting firm to provide audit services for the
Company's consolidated financial statements.
33
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
The Company.................................... 3
Risk Factors................................... 4
Use of Proceeds................................ 10
Ratio of Earnings to Fixed Charges............. 10
Description of Debentures...................... 11
Description of Capital Stock................... 19
Selling Securityholders........................ 22
Plan of Distribution........................... 27
Certain United States Federal Income Tax
Consequences................................. 29
Legal Matters.................................. 32
Independent Public Accountants................. 32
</TABLE>
PHP HEALTHCARE
CORPORATION
$69,000,000
6 1/2% CONVERTIBLE
SUBORDINATED DEBENTURES
DUE 2002
AND
3,499,937 SHARES OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MARCH , 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Debentures and the Common Stock being registered. All amounts are estimates
except the registration fee.
<TABLE>
<S> <C>
Commission Registration Fee................................... $ 32,470.17
Printing and engraving expenses............................... $ 20,000.00
Legal fees and expenses....................................... $ 50,000.00
Trustee's fees (including counsel fees)....................... $ 3,700.00
Accounting fees and expenses.................................. $ 20,000.00
Miscellaneous................................................. $ 20,000.00
-----------
Total..................................................... $146,170.17
-----------
-----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of the State of
Delaware (the "DGCL") empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceedings, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; that indemnification provided for by Section
145 shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of such
II-1
<PAGE>
persons' heirs, executors and administrators; and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
Section 145.
Article IX of the Company's By-laws provides that the Company shall
indemnify its directors and officers to the fullest extent authorized by the
DGCL.
Section 102(b)(7) of DGCL provides that a certificate of incorporation may
contain a provision eliminating or limiting the personal liability of a director
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director provided that such provision shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which
the director derived an improper personal benefit. Article X of the Company's
Certificate of Incorporation limits the liability of directors to the fullest
extent permitted by Section 102(b)(7).
ITEM 16. EXHIBITS.
The following exhibits are filed herewith or incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
.14 Indenture dated as of December 15, 1995 between the Company and IBJ Schroder Bank & Trust Company.
4.2 Form of 6 1/2% Convertible Subordinated Debentures due 2002 (included in Indenture filed as Exhibit
4.1).
4.3 Registration Rights Agreement, dated as of December 13, 1995, between the Company and Smith Barney
Inc. and Dean Witter Reynolds Inc.
4.4 Stock Purchase Agreement, dated as of September 29, 1994, by and between the Company and Shamrock
Investments.
4.5 Pledge and Security Agreement, dated as of September 29, 1994, by Charles P. Reilly, Michael E.
Gallagher, and Shamrock Investments in favor of the Company.
4.6 Stock Purchase Note, dated September 29, 1994, from Shamrock Investments to the Company.
4.7 Registration Rights Agreement, dated as of September 29, 1994 between the Company and Shamrock
Investments.
4.8 Convertible Note, dated September 29, 1994, from the Company to Charles P. Reilly.
4.9 Convertible Note, dated September 29, 1994, from the Company to Michael E. Gallagher.
4.10 Convertible Note, dated September 29, 1994, from the Company to Jonathan J. Spees.
4.11 Registration Rights Agreement, dated as of September 29, 1994, between the Company and Charles P.
Reilly, Michael E. Gallagher and Jonathan J. Spees.
4.12 Stock Option, dated as of October 3, 1994, between the Company and Charles P. Reilly.
4.13 Stock Option, dated as of October 3, 1994, between the Company and Michael E. Gallagher.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
4.14 Stock Option, dated as of October 3, 1994, between the Company and John P. Cole.
<C> <S>
4.15 Escrow Agreement, dated as of September 29, 1994, by and among PHP Family Healthcare Corporation,
J.P. Cole & Associates, Inc., John P. Cole, Charles P. Reilly, Michael E. Gallagher, the Company,
and William F. Bavinger, III.
4.16 Registration Rights Agreement, dated as of September 29, 1994, between the Company and John P. Cole,
Charles P. Reilly, and Michael E. Gallagher.
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.
12.1 Statement re computation of ratios.
15.1 Letter of Coopers & Lybrand L.L.P. re unaudited interim financial information.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1).
24.1 Power of Attorney.
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of IBJ
Schroder Bank & Trust Company.
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements of filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Reston, Commonwealth of Virginia, on this 18th day of
March, 1996.
PHP HEALTHCARE CORPORATION
(Registrant)
By: /s/ ANTHONY M. PICINI
-----------------------------------
Name: Anthony M. Picini
Title:Senior Vice President
and Chief Finanical
Officer (Chief
Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed below by the following persons in the capacities
indicated on this 18th day of March, 1996.
<TABLE>
<C> <S> <C>
SIGNATURE
- ------------------------------------ TITLE
------------------------------------
Charles H. Robbins Chairman of the Board and
Chief Executive Officer
Jack M. Mazur President and Director
Michael D. Starr Senior Executive Vice President
Julien J. Lavoie Senior Vice President,
Information Systems and
Director
By: /s/ ANTHONY M. PICINI
George E. Schafer, M.D. --------------------------------
Anthony M. Picini
Attorney-in-Fact
Senior Vice President, Medical March 18, 1996
Affairs and Director
Paul T. Cuzmanes Director
Joseph G. Mathews Director
Charles P. Reilly Director
Donald J. Ruffing Director
An original power of attorney authorizing, among others, Anthony M. Picini to execute this Registration
Statement, and Amendments thereto, for each of the officers and directors of the Registrant on whose behalf this
Registration Statement is filed, has been executed and filed with the Securities and Exchange Commission.
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
4.1 Indenture dated as of December 15, 1995 between the Company and IBJ Schroder Bank & Trust Company
(filed as Exhibit 4.1 to the Company's Current Report on Form 8-K/A dated January 11, 1996 (File No.
001-11780) and incorporated herein by reference).
4.2 Form of 6 1/2% Convertible Subordinated Debentures due 2002 (included in Indenture filed as Exhibit
4.1 to the Company's Current Report on Form 8-K/A dated January 11, 1996 (File No. 001-11780) and
incorporated herein by reference).
4.3 Registration Rights Agreement, dated as of December 13, 1995, between the Company and Smith Barney
Inc. and Dean Witter Reynolds Inc. (filed as Exhibit 4.2 to the Company's Current Report on Form
8-K/A dated January 11, 1996
(File No. 001-11780) and incorporated herein by reference).
4.4 Stock Purchase Agreement, dated as of September 29, 1994, by and between the Company and Shamrock
Investments (filed as Exhibit 4 to the Company's Current Report on Form 8-K dated October 3, 1994
(File No. 0-16235)).
4.5 Pledge and Security Agreement, dated as of September 29, 1994, by Charles P. Reilly, Michael E.
Gallagher, and Shamrock Investments in favor of the Company.*
4.6 Stock Purchase Note, dated September 29, 1994, from Shamrock Investments to the Company.*
4.7 Registration Rights Agreement, dated as of September 29, 1994 between the Company and Shamrock
Investments.*
4.8 Convertible Note, dated September 29, 1994, from the Company to Charles P. Reilly.*
4.9 Convertible Note, dated September 29, 1994, from the Company to Michael E. Gallagher.*
4.10 Convertible Note, dated September 29, 1994, from the Company to Jonathan J. Spees.*
4.11 Registration Rights Agreement, dated as of September 29, 1994, between the Company and Charles P.
Reilly, Michael E. Gallagher and Jonathan J. Spees.*
4.12 Stock Option, dated as of October 3, 1994, between the Company and Charles P. Reilly.*
4.13 Stock Option, dated as of October 3, 1994, between the Company and Michael E. Gallagher.*
4.14 Stock Option, dated as of October 3, 1994, between the Company and John P. Cole.*
4.15 Escrow Agreement, dated as of September 29, 1994, by and among PHP Family Healthcare Corporation,
J.P. Cole & Associates, Inc., John P. Cole, Charles P. Reilly, Michael E. Gallagher, the Company, and
William F. Bavinger, III.*
4.16 Registration Rights Agreement, dated as of September 29, 1994, between the Company and John P. Cole,
Charles P. Reilly, and Michael E. Gallagher.*
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.
12.1 Statement re computation of ratios.
15.1 Letter of Coopers & Lybrand L.L.P. re unaudited interim financial information.*
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of KPMG Peat Marwick LLP.*
23.3 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1).*
24.1 Power of Attorney.*
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of IBJ
Schroder Bank & Trust Company.*
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 5.1
[FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LETTERHEAD]
March 18, 1996
PHP HEALTHCARE CORPORATION
11440 Commerce Park Drive
Suite 300
Reston, Virginia 20091
Gentlemen:
We are acting as counsel to PHP Healthcare Corporation, a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 (as amended, the "Registration Statement") under the Securities Act of
1933 (the "Act"), covering (i) $69,000,000 aggregate principal amount of 6 1/2%
Convertible Subordinated Debentures due 2002 (the "Debentures") of the Company,
(ii) 2,532,110 shares of Common Stock, par value $.01 per share, of the Company
("Common Stock") initially issuable upon conversion of the Debentures plus an
indeterminate number of shares of Common Stock as may become issuable upon
conversion of the Debentures by means of an adjustment in the conversion price
(the "Conversion Shares"), (iii) 713,858 outstanding shares of Common Stock
issued by the Company to Shamrock Investments and certain former shareholders of
Paragon Ambulatory Surgery, Inc. and J.P. Cole & Associates, Inc. (the "Paragon
Shares"), (iv) 111,111 shares of Common Stock (the "Note Shares") issuable upon
conversion of the Company's Convertible Notes, dated September 29, 1994, in the
aggregate principal amount of $500,000 payable to certain former shareholders of
Paragon Ambulatory Surgery, Inc. (the "Convertible Notes"), and (v) 142,858
shares of Common Stock (the "Option Shares") issuable upon exercise of stock
options granted pursuant to Stock Option Agreements dated October 3, 1994 (the
"Stock Option Agreements") between the Company and certain former stockholders
of J.P. Cole & Associates, Inc.
In connection with this opinion, we have (i) investigated such questions of
law, (ii) examined originals or certified, conformed or reproduced copies of
such agreements, instruments, documents and records of the Company and its
subsidiaries, such certificates of public officials and such other documents and
(iii) reviewed such information from officers and representatives of the Company
and its subsidiaries and others as we have deemed necessary or appropriate for
the purposes of this opinion.
<PAGE>
LETTER TO PHP HEALTHCARE CORPORATION
MARCH 18, 1996
PAGE 2
In all such examinations, we have assumed the legal capacity of all
natural persons executing documents, the genuineness of all signatures, the
authenticity of all original or certified documents, and the conformity to
original or certified documents of all copies submitted to us as conformed or
reproduced copies. As to various questions of fact relevant to the opinions
expressed herein, we have relied upon, and assume the accuracy of, the
statements made in the certificate of an officer of the Company (the "Officers'
Certificate") attached hereto as Annex A and certificates and oral or written
statements and other information of or from public officials and officers and
representatives of the Company, its subsidiaries and others.
To the extent that it may be relevant to the opinion expressed herein, we
have assumed, for purposes of the opinions expressed herein, that (i) the
trustee for the Debentures (the "Trustee") has the power and authority to enter
into and perform the indenture for the Debentures (the "Indenture"), (ii) the
Indenture has been duly authorized, executed and delivered by the Trustee and is
a valid and binding obligation of the Trustee, enforceable against the Trustee
in accordance with its terms, and (iii) the Debentures have been duly
authenticated and delivered by the Trustee.
Based upon the foregoing, and subject to the limitations, qualifications
and assumptions set forth herein, we are of the opinion that:
1. The Debentures have been duly authorized, executed and delivered by
the Company and constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms.
2. The Conversion Shares have been duly authorized and, when issued upon
the conversion of the Debentures in accordance with the terms of the Indenture,
will be validly issued, fully paid and non-assessable.
3. The Paragon Shares have been duly authorized and validly issued and
are fully paid and nonassessable.
4. The Note Shares have been duly authorized, and, when issued upon
conversion of the applicable Convertible Note in accordance with the terms
thereof, will be validly issued, fully paid and non-assessable.
5. The Option Shares have been duly authorized, and, when issued upon
exercise of the Options in accordance with the terms of the applicable Stock
Option Agreement, will be validly issued, fully paid and non-assessable.
The opinions set forth above are subject to:
<PAGE>
LETTER TO PHP HEALTHCARE CORPORATION
MARCH 18, 1996
PAGE 3
(i) applicable bankruptcy, insolvency, reorganization, moratorium
or other laws now or hereafter in effect affecting creditors' rights
generally; and
(ii) general principles of equity (including, without limitation,
standards of materiality, good faith, fair dealing and reasonableness)
whether such principles are considered in a proceeding in equity or at law.
The opinions expressed herein are limited to the federal laws of the United
States and the laws of the State of New York and, to the extent relevant hereto,
the Delaware General Corporation Law.
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
In giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Andrew P. Varney
______________________________
Andrew P. Varney
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12.1
PHP HEALTHCARE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS OF DOLLARS, EXCEPT RATIO DATA)
Nine Months Ended
Year ended April 30 January 31
-------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations
before income taxes $ 6,150 $ 7,074 $ (5,562) $ (12,469) $ 1,487 $ 779 $ 8,968
Add:
Interest charges and
bank charges 1,061 283 1,071 3,288 2,209 1,760 2,076
Interest portion of
rentals 767 867 1,083 1,033 1,433 1,075 816
------- ------- ------- ------- ------- ------- -------
Income available for fixed
charges $ 7,978 $ 8,224 $ (3,408) $ (8,148) $ 5,129 $ 3,614 $11,860
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Fixed charges
Interest and bank
charges 1,061 283 1,071 3,288 2,209 1,760 2,076
Interest portion of
rentals 767 867 1,083 1,033 1,433 1,075 816
------- ------- ------- ------- ------- ------- -------
Total fixed charges $ 1,828 $ 1,150 $ 2,154 $ 4,321 $ 3,642 $ 2,235 $ 2,892
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Ratio of earnings (loss)
to fixed charges 4.36 7.15 (1.58) (1.89) 1.41 1.27 4.10
------- ------- ------- ------- ------- ------- -------
</TABLE>
