<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 21, 1995
PHP HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)
State or other jurisdiction of incorporation: Delaware
Commission File No.: 0-16235
I.R.S. Employer Identification No.: 54-1023168
Address of principal executive offices: 11440 Commerce Park Drive
Reston, VA 22091
Registrant's telephone number, including area code: (703) 758-3600
Former name or former address, if changed since last report: Not applicable
Page 1 of 215 Pages
Exhibit Index at Page 4
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This Form 8-K/A amends and supplements the Current Report on Form 8-K,
dated December 21, 1995 (the "Form 8-K"), filed by PHP Healthcare Corporation, a
Delaware corporation (the "Company").
Items 5 and 7 of the Form 8-K are hereby amended to read as follows:
ITEM 5. OTHER EVENTS.
On December 21, 1995, the Company completed a private offering of $69
million in aggregate principal amount of its 6 1/2% Convertible Subordinated
Debentures due 2002 (the "Debentures"). The Debentures were issued under an
Indenture, dated as of December 15, 1995, between the Company and IBJ Schroder
Bank & Trust Company, as Trustee (the "Indenture"). Copies of (i) the Indenture,
(ii) the Offering Memorandum, which sets forth certain information relating to
the Debentures and the Company, (iii) the Registration Rights Agreement, dated
December 13, 1995, between the Company and the Initial Purchasers, and (iv) the
press release issued by the Company on December 21, 1995, are filed as exhibits
to this report and incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits. The following exhibits are furnished as part of this report.
Exhibit Description
------- -----------
4.1 Indenture dated as of December 15, 1995 between the
Company and IBJ Schroder Bank & Trust Company.
4.2 Registration Rights Agreement, dated as of December 13,
1995, between the Company and the Initial Purchasers.
99.1 Press Release dated December 21, 1995.
99.2 Form of Offering Memorandum of the Company, dated
December 13, 1995
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHP HEALTHCARE CORPORATION
By: /s/ Anthony M. Picini
------------------------------------
Name: Anthony M. Picini
Title: Senior Vice President and
Chief Financial Officer
Dated: January 8, 1996
3
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EXHIBIT INDEX
Sequentially
Numbered
Exhibit Description Page
------- ----------- ----
4.1 Indenture dated as of December 15, 1995
between the Company and IBJ Schroder
Bank & Trust Company.
4.2 Registration Rights Agreement, dated as
of December 13, 1995, between the
Company and the Initial Purchasers.
99.1* Press Release dated December 21, 1995.
99.2 Form of Offering Memorandum of the
Company, dated December 13, 1995.
* Previously filed
4
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- --------------------------------------------------------------------------------
PHP HEALTHCARE CORPORATION
and
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
----------------------------
INDENTURE
Dated as of December 15, 1995
----------------------------
$69,000,000
6 1/2% Convertible Subordinated Debentures due 2002
- --------------------------------------------------------------------------------
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Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Section 310 (a)(1) . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . Not Applicable
(a)(5) . . . . . . . . . . . . . . . . . . 609
(b) . . . . . . . . . . . . . . . . . . 608
Section 311 (a) . . . . . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . . . . 613
Section 312 (a) . . . . . . . . . . . . . . . . . . 701
. . . . . . . . . . . . . . . . . . 702(a)
(b) . . . . . . . . . . . . . . . . . . 702(b)
(c) . . . . . . . . . . . . . . . . . . 702(c)
Section 313 (a) . . . . . . . . . . . . . . . . . . 703(a)
(b) . . . . . . . . . . . . . . . . . . 703(a)
(c) . . . . . . . . . . . . . . . . . . 703(a)
(d) . . . . . . . . . . . . . . . . . . 703(b)
Section 314 (a) . . . . . . . . . . . . . . . . . . 704
(a)(4) . . . . . . . . . . . . . . . . . . 1004
(b) . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . 102
Section 315 (a) . . . . . . . . . . . . . . . . . . 601
(b) . . . . . . . . . . . . . . . . . . 602
(c) . . . . . . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . . . . . . 601
(e) . . . . . . . . . . . . . . . . . . 514
Section 316 (a)(1)(A) . . . . . . . . . . . . . . . . . . 502
. . . . . . . . . . . . . . . . . . 512
(a)(1)(B) . . . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . . . . 104(c)
Section 317 (a)(1) . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . 1003
Section 318 (a) . . . . . . . . . . . . . . . . . . 107
- ------------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
i
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TABLE OF CONTENTS*
Page
----
Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recitals of the Company. . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
Definitions and Other Provisions
of General Application. . . . . . . . . . . . . 1
SECTION 101. Definitions. . . . . . . . . . . . . . . . . . . . . . 1
"Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Authenticating Agent". . . . . . . . . . . . . . . . . . . . . . . . 2
"Beneficial Owner". . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Board of Directors" . . . . . . . . . . . . . . . . . . . . . . . . 2
"Board Resolution". . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Business Day". . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Change in Control" . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Commission". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Common Stock". . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Company Request" . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Corporate Trust Office". . . . . . . . . . . . . . . . . . . . . . . 3
"Corporation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Current Market Price". . . . . . . . . . . . . . . . . . . . . . . . 3
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Defaulted Interest". . . . . . . . . . . . . . . . . . . . . . . . . 3
"Definitive Security" or "Definitive Securities". . . . . . . . . . . 3
"Depositary". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Event of Default". . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Exchange Act". . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Global Security or "Global Securities" . . . . . . . . . . . . . . . 4
"Holder". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Initial Purchasers". . . . . . . . . . . . . . . . . . . . . . . . . 4
"Interest Payment Date" . . . . . . . . . . . . . . . . . . . . . . . 4
"Maturity". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
- ----------------------
*Note: This table of contents shall not, for any purposes, be deemed to be
a part of the Indenture.
ii
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"Officers' Certificate" . . . . . . . . . . . . . . . . . . . . . . . 4
"Opinion of Counsel". . . . . . . . . . . . . . . . . . . . . . . . . 4
"Outstanding" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Paying Agent". . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Person". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Predecessor Security". . . . . . . . . . . . . . . . . . . . . . . . 5
"Purchase Agreement". . . . . . . . . . . . . . . . . . . . . . . . . 5
"Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Redemption Date" . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Redemption Price". . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Registration Rights Agreement" . . . . . . . . . . . . . . . . . . . 6
"Regular Record Date" . . . . . . . . . . . . . . . . . . . . . . . . 6
"Repurchase Date" . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Repurchase Event". . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Repurchase Price". . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Resale Restriction Termination Date" . . . . . . . . . . . . . . . . 6
"Responsible Officer" . . . . . . . . . . . . . . . . . . . . . . . . 6
"Rights". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Rights Agreement". . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Securities Custodian". . . . . . . . . . . . . . . . . . . . . . . . 6
"Security Register" and "Security Registrar". . . . . . . . . . . . . 6
"Senior Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . 7
"Shelf Registration Statement . . . . . . . . . . . . . . . . . . . . 7
"Special Record Date" . . . . . . . . . . . . . . . . . . . . . . . . 7
"Stated Maturity" . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Subsidiary". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Termination of Trading". . . . . . . . . . . . . . . . . . . . . . . 7
"Transfer Restricted Securities". . . . . . . . . . . . . . . . . . . 7
"Trust Indenture Act" . . . . . . . . . . . . . . . . . . . . . . . . 7
"Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Vice President". . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 102. Compliance Certificates and Opinions. . . . . . . . . 8
SECTION 103. Form of Documents Delivered to Trustee. . . . . . . . 8
SECTION 104. Acts of Holders; Record Dates . . . . . . . . . . . . 9
SECTION 105. Notices, Etc., to Trustee and Company . . . . . . . . 10
SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . 11
SECTION 107. Conflict with Trust Indenture Act . . . . . . . . . . 11
SECTION 108. Effect of Headings and Table of Contents. . . . . . . 11
SECTION 109. Successors and Assigns. . . . . . . . . . . . . . . . 11
SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . 11
SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . 12
SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . 12
SECTION 113. Legal Holidays. . . . . . . . . . . . . . . . . . . . 12
SECTION 114. No Security Interest Created. . . . . . . . . . . . . 12
SECTION 115. Limitation on Individual Liability. . . . . . . . . . 12
iii
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ARTICLE TWO
Security Forms. . . . . . . . . . . . . . . 13
SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . 13
SECTION 202. Form of Face of Security. . . . . . . . . . . . . . . 14
SECTION 203. Form of Reverse of Security . . . . . . . . . . . . . 17
SECTION 204. Form of Trustee's Certificate of Authentication . . . 25
ARTICLE THREE
The Securities. . . . . . . . . . . . . . . 26
SECTION 301. Title and Terms . . . . . . . . . . . . . . . . . . . 26
SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . 27
SECTION 303. Execution, Authentication, Delivery and Dating. . . . 27
SECTION 304. Temporary Securities. . . . . . . . . . . . . . . . . 27
SECTION 305. Registration, Registration of Transfer and Exchange . 28
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. . . 34
SECTION 307. Payment of Interest; Interest Rights Preserved. . . . 35
SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . 36
SECTION 309. Cancellation. . . . . . . . . . . . . . . . . . . . . 37
SECTION 310. Computation of Interest . . . . . . . . . . . . . . . 37
ARTICLE FOUR
Satisfaction and Discharge. . . . . . . . . . . . 37
SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . 37
SECTION 402. Application of Trust Money. . . . . . . . . . . . . . 38
SECTION 403. Reinstatement . . . . . . . . . . . . . . . . . . . . 39
ARTICLE FIVE
Remedies . . . . . . . . . . . . . . . . 39
SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . 39
SECTION 502. Acceleration of Maturity; Rescission and Annulment. . 41
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee. . . . . . . . . . . . . . . . . . . . . . 43
SECTION 504. Trustee May File Proofs of Claim. . . . . . . . . . . 43
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities. . . . . . . . . . . . . . . . . . . . . . 44
SECTION 506. Application of Money Collected. . . . . . . . . . . . 44
SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . 45
iv
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SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert . . . . . . . . . 45
SECTION 509. Restoration of Rights and Remedies. . . . . . . . . . 46
SECTION 510. Rights and Remedies Cumulative. . . . . . . . . . . . 46
SECTION 511. Delay or Omission Not Waiver. . . . . . . . . . . . . 46
SECTION 512. Control by Holders. . . . . . . . . . . . . . . . . . 46
SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . 47
SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . 47
SECTION 515. Waiver of Stay or Extension Laws. . . . . . . . . . . 48
ARTICLE SIX
The Trustee . . . . . . . . . . . . . . . 48
SECTION 601. Certain Duties and Responsibilities . . . . . . . . . 48
SECTION 602. Notice of Defaults. . . . . . . . . . . . . . . . . . 49
SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . 49
SECTION 604. Not Responsible for Recitals or Issuance of Securities.50
SECTION 605. May Hold Securities . . . . . . . . . . . . . . . . . 50
SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . 50
SECTION 607. Compensation and Reimbursement. . . . . . . . . . . . 51
SECTION 608. Disqualification; Conflicting Interests . . . . . . . 52
SECTION 609. Corporate Trustee Required; Eligibility . . . . . . . 52
SECTION 610. Resignation and Removal; Appointment of Successor . . 52
SECTION 611. Acceptance of Appointment by Successor. . . . . . . . 54
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business. . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 613. Preferential Collection of Claims Against Company . . 54
SECTION 614. Appointment of Authenticating Agent . . . . . . . . . 55
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company. . . . . . 57
SECTION 701. Company to Furnish Trustee Names and Addresses of
Holders . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 702. Preservation of Information; Communication to Holders 57
SECTION 703. Reports by Trustee. . . . . . . . . . . . . . . . . . 57
SECTION 704. Reports by Company. . . . . . . . . . . . . . . . . . 58
SECTION 705. Rule 144A Information Requirement . . . . . . . . . . 58
v
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ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease . . . . . 58
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. 58
SECTION 802. Successor Substituted . . . . . . . . . . . . . . . . 59
ARTICLE NINE
Supplemental Indentures . . . . . . . . . . . . 59
SECTION 901. Supplemental Indentures Without Consent of Holders. . 59
SECTION 902. Supplemental Indentures with Consent of Holders . . . 60
SECTION 903. Execution of Supplemental Indentures. . . . . . . . . 61
SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . 61
SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . 61
SECTION 906. Reference in Securities to Supplemental Indentures. . 61
SECTION 907. Notice of Supplemental Indenture. . . . . . . . . . . 62
ARTICLE TEN
Covenants. . . . . . . . . . . . . . . . 62
SECTION 1001. Payment of Principal, Premium and Interest. . . . . . 62
SECTION 1002. Maintenance of Office or Agency . . . . . . . . . . . 62
SECTION 1003. Money for Security Payments to Be Held in Trust . . . 63
SECTION 1004. Statement by Officers as to Default . . . . . . . . . 64
SECTION 1005. Existence . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 1006. Waiver of Certain Covenants . . . . . . . . . . . . . 64
ARTICLE ELEVEN
Redemption of Securities . . . . . . . . . . . . 65
SECTION 1101. Right of Redemption . . . . . . . . . . . . . . . . . 65
SECTION 1102. Applicability of Article. . . . . . . . . . . . . . . 65
SECTION 1103. Election to Redeem; Notice to Trustee . . . . . . . . 65
SECTION 1104. Selection by Trustee of Securities to be Redeemed . . 65
SECTION 1105. Notice of Redemption. . . . . . . . . . . . . . . . . 66
SECTION 1106. Deposit of Redemption Price . . . . . . . . . . . . . 67
SECTION 1107. Securities Payable on Redemption Date . . . . . . . . 67
SECTION 1108. Securities Redeemed in Part . . . . . . . . . . . . . 67
vi
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ARTICLE TWELVE
Subordination of Securities . . . . . . . . . . . 68
SECTION 1201. Securities Subordinated to Senior Indebtedness. . . . 68
SECTION 1202. Payment Over of Proceeds Upon Dissolution, Etc. . . . 68
SECTION 1203. Prior Payment to Senior Indebtedness upon
Acceleration of Securities. . . . . . . . . . . . . . 69
SECTION 1204. No Payment When Senior Indebtedness in Default. . . . 69
SECTION 1205. Payment Permitted If No Default . . . . . . . . . . . 70
SECTION 1206. Subrogation to Rights of Holders of Senior
Indebtedness. . . . . . . . . . . . . . . . . . . . . 70
SECTION 1207. Provisions Solely to Define Relative Rights . . . . . 71
SECTION 1208. Trustee to Effectuate Subordination . . . . . . . . . 71
SECTION 1209. No Waiver of Subordination Provisions . . . . . . . . 71
SECTION 1210. Notice to Trustee . . . . . . . . . . . . . . . . . . 72
SECTION 1211. Reliance on Judicial Order or Certificate of
Liquidating Agent . . . . . . . . . . . . . . . . . . 72
SECTION 1212. Trustee Not Fiduciary for Holders of Senior
Indebtedness. . . . . . . . . . . . . . . . . . . . . 73
SECTION 1213. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights. . . . . . . . . . . 73
SECTION 1214. Article Applicable to Paying Agents . . . . . . . . . 73
SECTION 1215. Certain Conversions Deemed Payment. . . . . . . . . . 74
SECTION 1216. No Suspension of Remedies . . . . . . . . . . . . . . 74
ARTICLE THIRTEEN
Conversion of Securities . . . . . . . . . . . . 74
SECTION 1301. Conversion Privilege and Conversion Price . . . . . . 74
SECTION 1302. Exercise of Conversion Privilege. . . . . . . . . . . 75
SECTION 1303. Fractions of Shares . . . . . . . . . . . . . . . . . 75
SECTION 1304. Adjustment of Conversion Price. . . . . . . . . . . . 76
SECTION 1305. Notice of Adjustments of Conversion Price . . . . . . 82
SECTION 1306. Notice of Certain Corporate Action. . . . . . . . . . 83
SECTION 1307. Company to Reserve Common Stock . . . . . . . . . . . 84
SECTION 1308. Taxes on Conversions. . . . . . . . . . . . . . . . . 84
SECTION 1309. Covenant as to Common Stock . . . . . . . . . . . . . 84
SECTION 1310. Cancellation of Converted Securities. . . . . . . . . 84
SECTION 1311. Provisions of Consolidation, Merger or Sale of Assets 84
SECTION 1312. Trustee's Disclaimer. . . . . . . . . . . . . . . . . 85
vii
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ARTICLE FOURTEEN
Right to Require Repurchase . . . . . . . . . . . 86
SECTION 1401. Right to Require Repurchase . . . . . . . . . . . . . 86
SECTION 1402. Notice; Method of Exercising Repurchase Right . . . . 86
SECTION 1403. Deposit of Repurchase Price . . . . . . . . . . . . . 87
SECTION 1404. Securities Not Repurchased on Repurchase Date . . . . 87
SECTION 1405. Securities Repurchased in Part. . . . . . . . . . . . 87
SECTION 1406. Certain Definitions . . . . . . . . . . . . . . . . . 88
viii
<PAGE>
INDENTURE, dated as of December 15, 1995 between PHP HEALTHCARE
CORPORATION, a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal executive
offices at 11440 Commerce Park Drive, Suite 300, Reston, Virginia 22091, and IBJ
Schroder Bank & Trust Company, a New York banking corporation, as Trustee
(herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 6 1/2%
Convertible Subordinated Debentures due 2002 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required and permitted hereunder shall mean
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such accounting principles as are generally accepted and accepted and adopted by
the Company at the date of this Indenture; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms used in Articles Twelve, Thirteen and Fourteen are
defined in such Articles.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
The term "Beneficial Owner" is determined in accordance with Rule 13d-
3, promulgated by the Commission under the Exchange Act.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York or
the city in which the Corporate Trust Office is located are authorized or
obligated to close by law or executive order.
"Change in Control" has the meaning specified in Section 1406.
"Commission" means the Securities and Exchange Commission as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
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"Common Stock" includes any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Company and which is not subject to redemption by the Company. However, subject
to the provisions of Section 1311, shares issuable on conversion of Securities
shall include only shares of the class designated as Common Stock of the Company
at the date of this Indenture or shares of any class or classes resulting from
any reclassification or reclassifications thereof and which have no preference
in respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; PROVIDED, that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Corporate Trust Office" means the office of the Trustee in New York,
New York, which initially shall be One State Street, New York, New York 10004,
at which at any particular time its corporate trust business shall principally
be administered.
"Corporation" means a corporation, association, company, joint-stock
company or business trust.
"Current Market Price" has the meaning specified in Section 1304.
"DTC" has the meaning specified in Section 305.
"Defaulted Interest" has the meaning specified in Section 307.
"Definitive Security" or "Definitive Securities" means a Security or
Securities that are in the form of the Security set forth in Sections 202 and
203 hereof, containing the legend specified for a Definitive Security and not
including the additional language referred to in footnote 1 or the additional
schedule referred to in footnote 2.
"Depositary" has the meaning specified in Section 305.
"Event of Default" has the meaning specified in Section 501.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Global Security or "Global Securities" means a Security or Securities
in the form of the Security set forth in Sections 202 and 203 hereof containing
the legend specified for a Global Security, the additional language referred to
in footnote 1 and the additional schedule referred to in footnote 2.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Initial Purchasers" means _________________ and ____________________.
"Interest Payment Date" means the Stated Maturity of an instalment of
interest on the Securities.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity thereof or by declaration of
acceleration, redemption or otherwise.
"Officers' Certificate" means a certificate, in form reasonably
satisfactory to the Trustee, signed by the Chairman of the Board, the Chief
Executive Officer, the President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company,
and delivered to the Trustee. One of the officers signing an Officers'
Certificate given pursuant to Section 1004 shall be the principal executive,
financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion, in form reasonably
satisfactory to the Trustee, of counsel, who may be counsel for or an employee
of the Company, and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered
to the Trustee for cancellation;
(ii) Securities, or portions thereof, for the payment or
redemption of which moneys in the necessary amount have been theretofore
deposited with the Trustee or any Paying Agent (other than the Company) in
trust or set aside and segregated in
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trust by the Company (if the Company shall act as its own Paying Agent) for
the Holders of such Securities; PROVIDED, that if such Securities, or
portions thereof, are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made; and
(iii) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands such Securities are valid obligations of the
Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Securities and
that the pledgee is not the Company or any other obligor upon the Securities or
any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of and premium, if any, or interest on any Securities on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Purchase Agreement" means that certain Purchase Agreement dated
December 13, 1995 between the Company and the Initial Purchasers.
"Record Date" means either a Regular Record Date or a Special Record
Date, as applicable.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
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"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture on the applicable Redemption Date.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of December 13, 1995 between the Company and the Initial
Purchasers.
"Regular Record Date", for the interest payable on any Interest
Payment Date means the June 1 or December 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Repurchase Date" has the meaning specified in Section 1401.
"Repurchase Event" has the meaning specified in Section 1406.
"Repurchase Price" has the meaning specified in Section 1401.
"Resale Restriction Termination Date" means, with respect to any
Security, the date which is three years after the later of (i) the original
issue date of such Security and (ii) the last date on which the Company or any
Affiliate of the Company was the owner of such Security (or any Predecessor
Security).
"Responsible Officer" means, when used with respect to the Trustee,
the chairman of the Board of Directors, any vice chairman of the Board of
Directors, the chairman of the trust committee, the chairman of the executive
committee, any vice chairman of the executive committee, the president, any vice
president (whether or not designated by numbers or words added before or after
the title "vice president"), the cashier, the secretary, the treasurer, any
trust officer, any assistant trust officer, any assistant cashier, any assistant
secretary, any assistant treasurer, or any other officer or assistant officer of
the Trustee customarily performing functions similar to those performed by the
Persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Rights" means "Rights" as such term is defined in the Rights
Agreement.
"Rights Agreement" means that certain Rights Agreement, dated as of
April 10, 1992, between the Company and Riggs National Bank, N.A.
"Securities Custodian" means the Trustee, as custodian with respect to
the Securities in global form, or any successor entity thereto.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
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"Senior Indebtedness" means the principal of and premium, if any, and
interest on (a) all secured indebtedness of the Company for money borrowed,
excluding the claims of trade creditors, whether outstanding on the date of
execution of this Indenture or thereafter created, incurred or assumed, except
any such 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 Securities or (ii) ranks PARI PASSU
with the Securities, and (b) amendments, renewals, extensions, modifications,
refinancings and refundings of any such indebtedness. For the purposes of this
definition, "indebtedness for money borrowed" when used with respect to the
Company means (i) any obligation of, or any obligation guaranteed by, the
Company for the repayment of borrowed money (including without limitation fees,
penalties or 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.
"Shelf Registration Statement" means the Registration Statement with
respect to the Common Stock the Issuer is required to file pursuant to the
Registration Rights Agreement.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
instalment of interest thereon, means the date specified in such Security as the
fixed date on which the principal of such Security or such instalment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries or by the Company and one or more other Subsidiaries.
For the purposes of this definition, "voting stock" means stock which ordinarily
has voting power for the election of directors, whether at all times or only so
long as no senior class of stock has such voting power by reason of any
contingency.
"Termination of Trading" has the meaning specified in Section 1406.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 305 hereof.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; PROVIDED, HOWEVER,
that in the event the Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.
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"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Vice President", when used with respect to the Company means any vice
president, whether or not designated by a number or a word or words added before
or after the title "vice president".
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of
an Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual or firm signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual or such
firm, he has or they have made such examination or investigation as is
necessary to enable him or them to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual
or such firm, such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any Person may certify to
give an opinion as to such matters in one or several documents.
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Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certification or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate of public officials or upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. ACTS OF HOLDERS; RECORD DATES.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders
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required to be provided pursuant to Section 701) prior to such first
solicitation or vote, as the case may be. With regard to any record date, only
the Holders on such date (or their duly designated proxies) shall be entitled to
give or take, or vote on, the relevant action. Notwithstanding the foregoing,
the Company shall not set a record date for, and the provisions of this
paragraph shall not apply with respect to, any Act by the Holders pursuant to
Section 501, 502 or 512.
(d) The ownership of Securities shall be proved by the Security
Register.
(e) Any Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
registration of transfer therefor or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(f) Without limiting the foregoing, a Holder entitled hereunder to
give or take any action hereunder with regard to any particular Security may do
so with regard to all or any part of the principal amount of such Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any different part of such principal amount.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any Act of Holders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Administration, or at any other address previously furnished in
writing to the Holders and the Company by the Trustee; or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to the Company,
addressed to it at the address of its principal executive offices specified
in the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
All such notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; five Business Days after
being deposited in the mail, registered or certified with postage prepaid, if
mailed; when answered back if telexed; when receipt acknowledged, if telecopied;
and the next Business Day after timely delivery to the courier, if sent by
nationally recognized overnight air courier guaranteeing next day delivery.
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SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders
is given by mail, neither the failure to mail any notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act or another provision that would be required
or deemed under such Act to be a part of and govern this Indenture if this
Indenture were subject thereto, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the Holders of Securities and, with respect to Article Twelve, the
holders of Senior Indebtedness, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 112. GOVERNING LAW.
This Indenture and the Securities shall be governed by and construed
in accordance with the laws of the State of New York, but without regard to the
principles of conflicts of laws thereof.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security or the last date on which a Holder has the right to
convert his Securities shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal and premium if any, or conversion of the Securities need not be made
on such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the Interest Payment Date or Redemption Date, or
at the Stated Maturity, or on such last day for conversion; PROVIDED, that no
interest shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity, as the case may be, to the next succeeding
Business Day.
SECTION 114. NO SECURITY INTEREST CREATED.
Nothing in this Indenture or in the Securities, express or implied,
shall be construed to constitute a security interest under the Uniform
Commercial Code or similar legislation, as now or hereafter enacted and in
effect in any jurisdiction where property of the Company or its Subsidiaries is
or may be located.
SECTION 115. LIMITATION ON INDIVIDUAL LIABILITY.
No recourse under or upon any obligation, covenant or agreement
contained in this Indenture or in any Security, or for any claim based thereon
or otherwise in respect thereof, shall be had against any incorporator,
shareholder, officer or director, as such, past, present or future, of the
Company or any successor corporation, either directly or through the Company,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Indenture and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatever shall attach
to, or is or shall be incurred by, the incorporators, shareholders, officers or
directors, as such, of the Company or any successor Person, or any of them,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any Security or implied therefrom; and
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that any and all such personal liability of every name and nature, either at
common law or in equity or by constitution or statute, of, and any and all such
rights and claims against, every such incorporator, shareholder, officer or
director, as such, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Indenture or in any Security or implied therefrom, are hereby
expressly waived and released as a condition of, and as a consideration for, the
execution of this Indenture and the issuance of such Security.
ARTICLE TWO
Security Forms
SECTION 201. FORMS GENERALLY.
The Securities and the Trustee's certificate of authentication shall
be in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with any organizational document, any applicable law or with
the rules of any securities exchange on which the Securities are listed or as
may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of the Securities.
The Securities will initially be issued either in the form of one or
more Global Securities or in the form of Definitive Securities or a combination
thereof, in any case, substantially in the form set forth in Sections 202 and
203 below (including the additional language and schedule referred to in
footnote 1 and 2, respectively).
Each Global Security shall represent such of the outstanding
Securities as shall be specified therein and each shall provide that it shall
represent the aggregate amount of outstanding Securities from time to time
endorsed thereon and that the aggregate amount of outstanding Securities
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Security to reflect the amount of any increase or decrease in the amount of
outstanding Securities represented thereby shall be made by the Trustee or the
Securities Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof.
The Definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
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SECTION 202. FORM OF FACE OF SECURITY.
LEGENDS FOR GLOBAL SECURITY:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"),
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY) UNLESS SUCH OFFER, SALE OR OTHER TRANSFER IS (A)
TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON THE HOLDER REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D)
14
<PAGE>
PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE THEN HOLDER OF
THIS SECURITY AFTER THE RESALE RESTRICTION TERMINATION DATE.
LEGENDS FOR DEFINITIVE SECURITY:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY) UNLESS SUCH OFFER, SALE OR OTHER TRANSFER IS (A)
TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON THE HOLDER REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION
15
<PAGE>
SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE
OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF
THE THEN HOLDER OF THIS SECURITY AFTER THE RESALE RESTRICTION TERMINATION DATE.
PHP HEALTHCARE CORPORATION
6 1/2% Convertible Subordinated Debentures due 2002
No. ________ $___________
PHP Healthcare Corporation, a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to __________________________, or
registered assigns, the principal sum of ________________ Dollars [OR SUCH
GREATER OR LESSER AMOUNT AS INDICATED ON THE SCHEDULE OF EXCHANGES OF DEFINITIVE
SECURITIES ON THE REVERSE HEREOF](1) on December 15, 2002, and to pay interest
thereon from the date of original issuance of Securities pursuant to the
Indenture or from and including the most recent Interest Payment Date to which
interest has been paid or duly provided for, semi-annually on June 15 and
December 15 in each year, commencing June 15, 1996, at the rate of 6 1/2% per
annum, until the principal hereof is paid or made available for payment and
promises to pay any liquidated damages which may be payable pursuant to Section
4 of the Registration Rights Agreement on the Interest Payment Dates. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the June 1 or December 1 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture. Notice of a Special
Record Date shall be given to Holders of Securities not less than 10 days prior
to such Special Record Date. Payment of the principal of and premium, if any,
and interest on this Security will be made (i) in respect of Securities held of
record by the Depositary or its nominee in same day funds on or prior to the
respective Interest Payment Dates and (ii) in respect of Securities held of
record by Holders other than the Depositary or its nominee at the office or
agency of the Company maintained for that purpose pursuant to Section 1002 of
the Indenture, in each case in such coin or currency of the United
- -------------
(1) This phrase should be included only if the Security is issued in global
form.
16
<PAGE>
States of America as of the time of payment is legal tender for payment of
public and private debts; PROVIDED, HOWEVER, that at the option of the Company
payment of interest in respect of Securities held of record by Holders other
than the Depositary or its nominee may be made by check mailed to the address of
the Person entitled thereto as such address shall appear in the Security
Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: PHP HEALTHCARE CORPORATION
-----------------
By
-------------------------
Attest:
- ------------------------
SECTION 203. FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of Securities of the
Company designated as its 6 1/2% Convertible Subordinated Debentures due 2002
(herein called the "Securities"), limited in aggregate principal amount to
$69,000,000 (including Securities issuable pursuant to the Initial Purchasers'
over-allotment option, as provided for in the Purchase Agreement dated December
13, 1995 between the Company and the Initial Purchasers), issued and to be
issued under an Indenture, dated as of December 15, 1995 (herein called the
"Indenture"), between the Company and IBJ Schroder Bank & Trust Company, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee, the
holders of Senior Indebtedness and the Holders of the Securities and of the
terms upon which the Securities are, and are to be, authenticated and delivered.
17
<PAGE>
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Security is entitled, at his option, at any time on or after
the 60th day following the date of original issuance of Securities pursuant to
the Indenture and on or before the close of business on December 15, 2002, or in
case this Security or a portion hereof is called for redemption, then in respect
of this Security or such portion hereof until and including, but (unless the
Company defaults in making the payment due upon redemption) not after, the close
of business on the second business day preceding the Redemption Date, to convert
this Security (or any portion of the principal amount hereof which is $1,000 or
an integral multiple thereof), at the principal amount hereof, or of such
portion, into fully paid and non-assessable shares (calculated as to each
conversion to the nearest 1/100th of a share) of Common Stock at a conversion
price equal to $27.25 principal amount for each share of Common Stock (or at the
current adjusted conversion price if an adjustment has been made as provided in
the Indenture) by surrender of this Security, duly endorsed or assigned to the
Company or in blank, to the Company at its office or agency maintained for that
purpose pursuant to Section 1002 of the Indenture, accompanied by written notice
to the Company in the form provided in this Security (or such other notice as is
acceptable to the Company) that the Holder hereof elects to convert this
Security, or if less than the entire principal amount hereof is to be converted,
the portion hereof to be converted, and, in case such surrender shall be made
during the period from the opening of business on any Regular Record Date next
preceding any Interest Payment Date to the close of business on such Interest
Payment Date (unless this Security or the portion thereof being converted has
been called for redemption), also accompanied by payment in New York Clearing
House funds, or other funds acceptable to the Company of an amount equal to the
interest payable on such Interest Payment Date on the principal amount of this
Security then being converted. Subject to the aforesaid requirement for payment
and, in the case of a conversion after the Regular Record Date next preceding
any Interest Payment Date and on or before such Interest Payment Date, to the
right of the Holder of this Security (or any Predecessor Security) of record at
such Regular Record Date to receive an instalment of interest (with certain
exceptions provided in the Indenture), no payment or adjustment is to be made
upon conversion on account of any interest accrued hereon or on account of any
dividends on the Common Stock issued upon conversion. No fractional shares or
scrip representing fractions of shares will be issued on conversion, but instead
of any fractional share the Company shall pay a cash adjustment as provided in
the Indenture. The conversion price is subject to adjustment as provided in the
Indenture. In addition, the Indenture provides that in case of certain
consolidations or mergers to which the Company is a party or the sale or
transfer of all or substantially all of the assets of the Company, the Indenture
shall be amended, without the consent of any Holders of Securities, so that this
Security, if then outstanding, will be convertible thereafter, during the period
this Security shall be convertible as specified above, only into the kind and
amount of securities, cash and other property receivable upon the consolidation,
merger, sale or transfer by a holder of the number of shares of Common Stock
into which this Security might have been converted immediately prior to such
consolidation, merger, sale or transfer (assuming such holder of Common Stock
failed to exercise any rights of election and received per share the kind and
amount received per share by a plurality of non-electing shares).
18
<PAGE>
The Securities are subject to redemption upon not less than 15 and not
more than 60 days' notice by mail, at any time on or after December 17, 1998, as
a whole or in part, at the election of the Company, at the Redemption Prices set
forth below (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:
Redemption Redemption
Year Price Year Price
---- ---------- ---- ----------
1998 . . . . 103.71% 2000 . . . 101.86%
1999 . . . . 102.79% 2001 . . . 100.93%
In certain circumstances involving the occurrence of a Repurchase
Event (as defined in the Indenture), the Holder hereof shall have the right to
require the Company to repurchase this Security at 100% of the principal amount
hereof, together with accrued interest to the Repurchase Date, but interest
instalments whose Stated Maturity is on or prior to such Repurchase Date will be
payable to the Holders of such Securities, or one or more Predecessor
Securities, of record at the close of business on the relevant Record Dates
referred to on the face hereof, all as provided in the Indenture.
In the event of redemption or conversion of this Security in part
only, a new Security or Securities for the unredeemed or unconverted portion
hereof will be issued in the name of the Holder hereof upon the cancellation
hereof.
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payment to the prior
payment in full of all Senior Indebtedness, and this Security is issued subject
to the provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided, and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount of the
19
<PAGE>
Securities at the time Outstanding, and, under certain limited circumstances, by
the Company and the Trustee without the consent of the Holders. The Indenture
also contains provisions permitting the Holders of specified percentages in
aggregate principal amount of the Securities at the time Outstanding, on behalf
of the Holders of all the Securities, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed or to convert this Security as provided in the
Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities are issuable only in fully registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like aggregate principal amount of Securities
of a different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of transfer
or exchange except as provided in the Indenture, and the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, except as provided in this Security, whether or not
this Security be overdue, and neither the Company, the Trustee nor any such
agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture. The Company will
furnish to any Holder upon written request and without charge a copy of the
Indenture and/or the Registration Rights Agreement.
20
<PAGE>
[FORM OF CONVERSION NOTICE]
TO PHP HEALTHCARE CORPORATION
The undersigned registered owner of this Security hereby irrevocably
exercises the option to convert this Security, or the portion hereof (which is
$1,000 or a multiple thereof) designated below, into shares of Common Stock in
accordance with the terms of the Indenture referred to in this Security, and
directs that the shares issuable and deliverable upon the conversion, together
with any check in payment for a fractional share and any Security representing
any unconverted principal amount hereof, be issued and delivered to the
registered owner hereof unless a different name has been provided below. If
this Notice is being delivered on a date after the close of business on a
Regular Record Date and prior to the close of business on the related Interest
Payment Date, this Notice is accompanied by payment in New York Clearing House
funds, or other funds acceptable to the Company, of an amount equal to the
interest payable on such Interest Payment Date on the principal of this Security
to be converted (unless this Security has been called for redemption). If
shares or any portion of this Security not converted are to be issued in the
name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. Any amount required to be paid by
the undersigned on account of interest accompanies this Security.
Dated:
-------------------------
-------------------------
Signature(s)
Signature(s) must be guaranteed by a commercial bank or trust company or a
member firm of a national stock exchange if shares of Common Stock are to be
delivered, or Securities to be issued, other than to and in the name of the
registered owner.
- ------------------------------
Signature Guarantee
Fill in for registration of shares of Common Stock if they are to be delivered,
or Securities if they are to be issued, other than to and in the name of the
registered owner:
- ------------------------------
(Name)
- ------------------------------
(Street Address)
21
<PAGE>
- ------------------------------
(City, State and zip code)
(Please print name and address)
Register: _____ Common Stock
_____ Securities
(Check appropriate line(s)).
Principal amount to be converted (if less than all):
$__________,000
- ---------------------------
Social Security or other Taxpayer
Identification Number of owner
22
<PAGE>
[ASSIGNMENT FORM]
If you the holder want to assign this Security, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date: Your signature:
------------------------ ----------------------------------
(Sign exactly as your name appears
on the face of this Security)
Signature Guarantee:
------------------------------------------------------------
23
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you wish to have this Security purchased by the Company pursuant to
Section 1401 of the Indenture, check the Box: [ ]
If you wish to have a portion of this Security (which is $1,000 or an
integral multiple thereof) purchased by the Company pursuant to Section 1401 of
the Indenture, state the amount you wish to have purchased:
$
--------------------
Date: Your Signature(s):
-------------------- ------------------------
Tax Identification No.:
------------------------
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:
-------------------------------------
24
<PAGE>
[FORM OF SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES(2)]
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
Principal
Amount of Signature
this Global of
Amount of Amount of Security authorized
decrease in increase in following signatory
Principal Principal such of Trustee
Amount of Amount of decrease or
Date of this Global this Global (or Securities
Exchange Security Security increase) Custodian
-------- -------- -------- --------- ---------
1.
2.
3.
4.
5.
SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificate of authentication shall be in substantially
the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By
----------------------------
Authorized Signatory
- ---------------
(2) This Schedule should be included only if the Security is issued in
global form.
25
<PAGE>
ARTICLE THREE
The Securities
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $69,000,000
(including $9,000,000 aggregate principal amount of Securities that may be sold
to the Initial Purchasers by the Company upon exercise of the over-allotment
option granted pursuant to the Purchase Agreement), except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 906,
1108, 1302 or 1405.
The Securities shall be known and designated as the "6 1/2%
Convertible Subordinated Debentures due 2002" of the Company. Their Stated
Maturity shall be December 15, 2002 and they shall bear interest at the rate of
6 1/2% per annum, from the date of original issuance of Securities pursuant to
this Indenture or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, as the case may be, payable semi-annually on
June 15 and December 15, commencing June 15, 1996, until the principal thereof
is paid or made available for payment.
The principal of and premium, if any, and interest on the Securities
shall be payable (i) in respect of Securities held of record by the Depositary
or its nominee in same day funds on or prior to the respective Interest Payment
Dates and (ii) in respect of Securities held of record by Holders other than the
Depositary or its nominee at the office or agency of the Company maintained for
such purpose pursuant to Section 1002; PROVIDED, HOWEVER, that at the option of
the Company payment of interest to Holders of record other than the Depositary
may be made by check mailed to the address of the Person entitled thereto as
such address shall appear in the Security Register.
The Securities shall be subject to the transfer restrictions set forth
in Section 305.
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Twelve.
The Securities shall be convertible as provided in Article Thirteen.
The Securities shall be subject to repurchase at the option of the
Holder as provided in Article Fourteen.
26
<PAGE>
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in fully registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Chief Executive Officer, its President or one of its
Vice Presidents, under its corporate seal or a facsimile thereof reproduced
thereon attested by its Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall either at one time or from time to time pursuant
to such instructions as may be described therein authenticate and deliver such
Securities as in this Indenture provided and not otherwise. Such Company Order
shall specify the amount of Securities to be authenticated and the date on which
the original issue of Securities is to be authenticated, and shall certify that
all conditions precedent to the issuance of such Securities contained in this
Indenture have been complied with. The aggregate principal amount of Securities
Outstanding at any time may not exceed the amount set forth above except as
provided in Section 306.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder and is entitled to the
benefits of the Indenture. The Trustee may appoint an Authenticating Agent
pursuant to the terms of Section 614.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of Definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized
27
<PAGE>
denomination, substantially of the tenor of the Definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities. Every such
temporary Security shall be executed by the Company and shall be authenticated
and delivered by the Trustee upon the same conditions and in substantially the
same manner, and with the same effect, as the Definitive Security or Securities
in lieu of which it is issued.
If temporary Securities are issued, the Company will cause Definitive
Securities to be prepared without unreasonable delay. After the preparation of
Definitive Securities, the temporary Securities shall be exchangeable for
Definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor one or more Definitive Securities of a like
principal amount of authorized denominations. Until so exchanged the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as Definitive Securities.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
(a) The Company shall cause to be kept at the Corporate Trust Office
of the Trustee a register (the register maintained in such office and in any
other office or agency designated pursuant to Section 1002 being herein
sometimes collectively referred to as the "Security Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Securities and of transfers of Securities. The Trustee
is hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided. At all reasonable
times the Security Register shall be open for inspection by the Company.
The Company initially appoints The Depository Trust Company ("DTC") to
act as depositary (the "Depositary") with respect to the Global Security(ies).
The Company initially appoints the Trustee to act as Securities
Custodian with respect to the Global Security(ies).
(b) With respect to the transfer and exchange of Definitive
Securities, when Definitive Securities are presented to the Security Registrar
with the request (x) to register the transfer of the Definitive Securities or
(y) to exchange such Definitive Securities for an equal principal amount of
Definitive Securities of other authorized denominations, the Security Registrar
shall register the transfer or make the exchange as requested if its
requirements for such transactions are met; PROVIDED, HOWEVER, that the
Definitive Securities presented or surrendered for register of transfer or
exchange:
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(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Security Registrar
duly executed by the Holder thereof or by its attorney, duly
authorized in writing; and
(ii) shall, in the case of Transfer Restricted Securities
that are Definitive Securities, be accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being delivered
to the Security Registrar by a Holder for registration in the
name of such Holder, without transfer, a certification from such
Holder to that effect (in substantially the form of Exhibit A
hereto); or
(B) if such Transfer Restricted Security is being
transferred to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in reliance on Rule 144A
under the Securities Act or pursuant to an exemption from
registration in accordance with Rule 144 or Regulation S under
the Securities Act or pursuant to an effective registration
statement under the Securities Act, a certification to that
effect (in substantially the form of Exhibit A hereto) and, in
the case of a transfer in accordance with Rule 144 or Regulation
S under the Securities Act, an Opinion of Counsel reasonably
acceptable to the Company and to the Security Registrar to the
effect that such transfer is in compliance with the Securities
Act; or
(C) if such Transfer Restricted Security is being
transferred in reliance on another exemption from the
registration requirements of the Securities Act, a certification
to that effect (in substantially the form of Exhibit A hereto)
and an Opinion of Counsel reasonably acceptable to the Company
and to the Security Registrar to the effect that such transfer is
in compliance with the Securities Act.
(c) The following restrictions apply to any transfer of a Definitive
Security for a beneficial interest in a Global Security. A Definitive Security
may not be exchanged for a beneficial interest in a Global Security except until
and upon satisfaction of the requirements set forth below. Upon receipt by the
Trustee of a Definitive Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Trustee, together with:
(i) if such Definitive Security is a Transfer Restricted
Security, certification, substantially in the form of Exhibit A
hereto, that such Definitive Security is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A; and
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(ii) whether or not such Definitive Security is a Transfer
Restricted Security, written instructions directing the Trustee to
make, or to direct the Securities Custodian to make, an endorsement on
the Global Security to reflect an increase in the aggregate principal
amount of the Securities represented by the Global Security,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Securities are then outstanding, the
Company shall execute and, upon receipt of an authentication order in the form
of a Company Order in accordance with Section 303, the Trustee shall
authenticate a new Global Security in the appropriate principal amount.
(d) The transfer and exchange of Global Securities or beneficial
interests therein shall be effected through the Depositary, in accordance with
this Indenture (including the restrictions on transfer set forth herein) and the
procedures of the Depositary therefor.
(e) With respect to the transfer of a beneficial interest in a Global
Security for a Definitive Security:
(i) Any person having a beneficial interest in a Global
Security may upon request exchange such beneficial interest for a
Definitive Security. Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary for
the Depositary or its nominee on behalf of any person having a
beneficial interest in a Global Security constituting a Transfer
Restricted Security only, and receipt by the Trustee of the following
additional information and documents (all of which may be submitted by
facsimile):
(A) if such beneficial interest is being transferred to the
person designated by the Depositary as being the beneficial
owner, a certification from such person to that effect (in
substantially the form of Exhibit A hereto); or
(B) if such beneficial interest is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act or pursuant to an exemption from registration in
accordance with Rule 144 or Regulation S under the Securities Act
or pursuant to an effective registration statement under the
Securities Act, a certification to that effect from the
transferor (in substantially the form of Exhibit A hereto) and,
in the case of a transfer in accordance with Rule 144 or
Regulation S under the Securities Act, an Opinion of Counsel
reasonably acceptable to the Company and to the Security
Registrar to the effect that such transfer is in compliance with
the Securities Act; or
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(C) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements
of the Securities Act, a certification to that effect from the
transferee or transferor (in substantially the form of Exhibit A
hereto) and an Opinion of Counsel from the transferee or
transferor reasonably acceptable to the Company and to the
Security Registrar to the effect that such transfer is in
compliance with the Securities Act,
then the Trustee or the Securities Custodian, at the direction of the
Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities
Custodian, the aggregate principal amount of the Global Security to be
reduced and, following such reduction, the Company will execute and,
upon receipt of an authentication order in the form of a Company Order
in accordance with Section 303, the Trustee will authenticate and
deliver to the transferee a Definitive Security.
(ii) Definitive Securities issued in exchange for a
beneficial interest in a Global Security pursuant to this Section 305
shall be registered in such names and in such authorized denominations
as the Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The
Trustee shall deliver such Definitive Securities to the persons in
whose names such Securities are so registered.
(f) Notwithstanding any other provisions of this Indenture (other
than the provisions set forth in subsection (g) of this Section 305), a Global
Security may not be transferred as a whole except by the Depositary to a nominee
of the Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(g) The following relates to the authentication of Definitive
Securities in absence of the Depositary. If at any time: (i) the Depositary
for the Securities notifies the Company that the Depositary is unwilling or
unable to continue as Depositary for the Global Securities and a successor
Depositary for the Global Securities is not appointed by the Company within 90
days after delivery of such notice; or (ii) the Company, at its sole discretion,
notifies the Trustee in writing that it elects to cause the issuance of
Definitive Securities under this Indenture, then the Company will execute, and
the Trustee, upon receipt of a Company Order in accordance with Section 303
requesting the authentication and delivery of Definitive Securities, will
authenticate and deliver Definitive Securities, in an aggregate principal amount
equal to the principal amount of the Global Securities, in exchange for such
Global Securities.
(h) (i) Except as permitted by the following paragraph (ii), each
Security certificate evidencing the Global Securities and the Definitive
Securities (and all Securities issued in exchange therefor or substitution
thereof) shall bear a legend in substantially the following form:
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THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) UNLESS SUCH OFFER, SALE
OR OTHER TRANSFER IS (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT,
(C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A, TO A PERSON THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY
TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED
UPON THE REQUEST OF THE THEN HOLDER OF THIS SECURITY AFTER THE RESALE
RESTRICTION TERMINATION DATE.
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act or an
effective registration statement under the Securities Act (including
the Shelf Registration Statement):
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(A) in the case of any Transfer Restricted Security that is
a Definitive Security, the Security Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security for
a Definitive Security that does not bear the legend set forth
above and rescind any restriction on the transfer of such
Transfer Restricted Security; PROVIDED, HOWEVER, that with
respect to a transfer made in reliance upon Rule 144 or an
effective registration statement, the Holders thereof shall
certify in writing to the Security Registrar that such request is
being made pursuant to Rule 144 or an effective registration
statement (such Certification to be substantially in the form of
Exhibit A hereto) and, in the case of a transfer made in reliance
upon Rule 144, shall be accompanied by an Opinion of Counsel
reasonably acceptable to the Company and to the Security
Registrar to the effect that such transfer is in compliance with
the Securities Act; and
(B) any such Transfer Restricted Security represented by a
Global Security shall not be subject to the provisions set forth
in (i) above (such sales or transfers being subject only to the
provisions of Section 305(d) hereof); PROVIDED, HOWEVER, that
with respect to any request for an exchange of a Transfer
Restricted Security that is represented by a Global Security for
a Definitive Security that does not bear a legend, which request
is made in reliance upon Rule 144 or an effective registration
statement, the Holder thereof shall certify in writing to the
Security Registrar that such request is being made pursuant to
Rule 144 or an effective registration statement (such
certification to be substantially in the form of Exhibit A
hereto) and, in the case of a transfer made in reliance upon Rule
144, shall be accompanied by an Opinion of Counsel reasonably
acceptable to the Company and to the Security Registrar to the
effect that such transfer is in compliance with the Securities
Act.
(i) At such time as all beneficial interests in a Global Security
have either been exchanged for Definitive Securities, redeemed, repurchased or
cancelled, such Global Security shall be returned to or retained and cancelled
by the Trustee. At any time prior to such cancellation, if any beneficial
interest in a Global Security is exchanged for Definitive Securities, redeemed,
repurchased or cancelled, the principal amount of Securities represented by such
Global Security shall be reduced and an endorsement shall be made on such Global
Security, by the Trustee or the Securities Custodian, at the direction of the
Trustee, to reflect such reduction.
(j) All Definitive Securities and Global Securities issued upon any
registration of transfer or exchange of Definitive Securities or Global
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Definitive
Securities or Global Securities surrendered upon such registration of transfer
or exchange.
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To permit registrations of transfer and exchanges, the Company shall
execute and the Trustee shall authenticate Definitive Securities and Global
Securities at the Security Registrar's request.
No service charge to a Holder shall be made for any registration of
transfer or exchange of Securities except as provided in Section 306. The
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Securities, other than exchanges pursuant to
Section 304, 905, 1108 or 1302 not involving any transfer.
The Company or the Security Registrar shall not be required (i) to
issue, register the transfer of or exchange any Security during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption of Securities selected for redemption under Section 1104
and ending at the close of business on the day of such mailing, or (ii) to
register the transfer of or exchange any Definitive Security or beneficial
interest in any Global Security so selected for redemption in whole or in part,
except the unredeemed portion of any Definitive Security being redeemed in part.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding. The Trustee may charge the Company for the Trustee's expenses in
replacing such Security.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone,
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and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest. Payment
of interest will be made (i) in respect of Securities held by the Depositary or
its nominee, in same day funds on or prior to the respective Interest Payment
Dates and (ii) in respect of Securities held of record by Holders other than the
Depositary or its nominee, at the office of the Trustee in New York, New York or
at such other office or agency of the Company as it shall maintain for that
purpose pursuant to Section 1002, PROVIDED, HOWEVER, that, at the option of the
Company, interest on any Security held of record by Holders other than the
Depositary or its nominee may be paid by mailing checks to the addresses of the
Holders thereof as such addresses appear in the Securities Register.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be
paid on each Security and the date of the proposed payment, and at the
same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this Clause provided.
Thereupon the Trustee shall fix a Special Record Date for the payment of
such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class postage
prepaid, to each Holder at his address as it appears in the Security
Register, not
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less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so mailed, such Defaulted Interest shall be paid to
the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
In the case of any Security which is converted after any Regular
Record Date and on or prior to the next succeeding Interest Payment Date (other
than any Security whose Maturity is prior to such Interest Payment Date),
interest whose Stated Maturity is on such Interest Payment Date shall be payable
on such Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on such Regular Record Date PROVIDED,
HOWEVER, that Securities so surrendered for conversion shall (except in the case
of Securities or portions thereof called for redemption) be accompanied by
payment in New York Clearing House funds or other funds acceptable to the
Company of an amount equal to the interest payable on such Interest Payment Date
on the principal amount being surrendered for conversion. Except as otherwise
expressly provided in the immediately preceding sentence, in the case of any
Security which is converted, interest whose Stated Maturity is after the date of
conversion of such Security shall not be payable.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and premium, if
any, and (subject to Section 307) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
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SECTION 309. CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer, exchange or conversion shall, if surrendered to any Person other than
the Trustee, be delivered to the Trustee and shall be promptly canceled by it.
The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly canceled by the Trustee. No Securities shall be authenticated
in lieu of or in exchange for any Securities canceled as provided in this
Section, except as expressly permitted by this Indenture. All canceled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.
SECTION 310. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further
effect (except as expressly provided for in this Article Four), and the Trustee,
at the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and
(ii) Securities for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
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(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company, or
(iv) are delivered to the Trustee for Conversion in
accordance with Article Thirteen,
and the Company, in the case of (i), (ii), (iii) or (iv) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for the purpose an amount in cash sufficient
(without consideration of any investment of such cash) to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation for principal and premium,
if any, and interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be; PROVIDED that the
Trustee shall have been irrevocably instructed to apply such amount to
said payments with respect to the Securities;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
following rights or obligations under the Securities and this Indenture shall
survive until otherwise terminated or discharged hereunder: (a) Article
Thirteen, Article Fourteen and the Company's obligations under Sections 304,
305, 306, 1002 and 1003, in each case with respect to any Securities described
in subclause (B) of Clause (1) of this Section, (b) this Article Four, (c) the
rights, powers, trusts, duties and immunities of the Trustee hereunder,
including the obligations of the Company to the Trustee under Section 607, and
the obligations of the Trustee to any Authenticating Agent under Section 614 and
(d) if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the rights of Holders of any
Securities described in subclause (B) of Clause (1) of this Section to receive,
solely from the trust fund described in such subclause (B), payments in respect
of the principal of, and premium (if any) and interest on, such Securities when
such payment are due.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either
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directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal and premium, if any, and interest for whose payment such money has
been deposited with the Trustee. All moneys deposited with the Trustee pursuant
to Section 401 (and held by it or any Paying Agent) for the payment of
Securities subsequently converted shall be returned to the Company upon Company
Request.
SECTION 403. REINSTATEMENT.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article Four by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article Four until such time as the Trustee or Paying Agent is
permitted to apply all money held in trust with respect to the Securities;
PROVIDED, HOWEVER, that if the Company makes any payment of principal of or any
premium or interest on any Security following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of the
Securities to receive such payment from the money so held in trust.
ARTICLE FIVE
Remedies
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Twelve or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body);
(1) default in the payment of the principal of or premium, if any, on
any Security at its Maturity, whether or not such payment is prohibited
by the provisions of Article Twelve; or
(2) default in the payment of any interest upon any Security when it
becomes due and payable, whether or not such payment is prohibited by
the provisions of Article Twelve, and continuance of such default for a
period of 30 days; or
(3) failure to provide timely notice of a Repurchase Event as
required in accordance with the provisions of Article Fourteen; or
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(4) default in the payment of the Repurchase Price in respect of any
Security on the Repurchase Date therefor in accordance with the
provisions of Article Fourteen, whether or not such payment is
prohibited by the provisions of Article Twelve; or
(5) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default
or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(6) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company or any Subsidiary 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, 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, by registered or certified mail,
to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding
Securities 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 stating that such notice is
a "Notice of Default" hereunder; or
(7) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Subsidiary
in an involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or
(B) a decree or order adjudging the Company or any Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect
of the Company or any Subsidiary under any applicable Federal or State
law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary
or of any substantial part of its property, or ordering the winding up
or liquidation of its affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in
effect for a period of 90 consecutive days; or
(8) the commencement by the Company or any Subsidiary of a voluntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency,
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reorganization or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or the consent by it to the
entry of a decree or order for relief in respect of the Company or any
Subsidiary in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar
law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under any applicable Federal or
State law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
the Company or any Subsidiary or of any substantial part of its
property, or the making by it of a general assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by
the Company or any Subsidiary in furtherance of any such action.
Upon receipt by the Trustee of any Notice of Default pursuant to this
Section 501, a record date shall automatically and without any other action by
any Person be set for the purpose of determining the Holders of Outstanding
Securities entitled to join in such Notice of Default, which record date shall
be the close of business on the day the Trustee receives such Notice of Default.
The Holders of Outstanding Securities on such record date (or their duly
appointed agents), and only such Persons, shall be entitled to join in such
Notice of Default, whether or not such Holders remain Holders after such record
date: PROVIDED, that unless such Notice of Default shall have become effective
by virtue of the Holders of the requisite principal amount of Outstanding
Securities on such record date (or their duly appointed agents) having joined
therein on or prior to the 90th day after such record date, such Notice of
Default shall automatically and without any action by any Person be canceled and
of no further force or effect.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than as specified in subparagraph (7) or
(8) of Section 501) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities to be due
and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration such principal plus
any interest accrued on the securities to the date of declaration shall become
immediately due and payable. If an Event of Default specified in subparagraph
(7) or (8) of Section 501 occurs and is continuing, then the principal of,
premium, if any, and accrued and unpaid interest, if any, on all of the
Securities shall IPSO FACTO become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder of
Securities.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
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(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of and premium, if any, on any Securities
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities,
and
(D) all sums paid or advanced by the Trustee and each
predecessor Trustee, their respective agents and counsel hereunder and
the reasonable compensation, expenses, disbursements and advances of
the Trustee and each predecessor Trustee, their respective agents and
counsel;
and
(2) all Events of Default, other than the nonpayment of the principal
of, premium, if any, and interest on the Securities that has become due
solely by such declaration of acceleration, have been cured or waived as
provided in Section 513.
No such rescission and waiver shall affect any subsequent default or impair any
right consequent thereon.
Upon receipt by the Trustee of any declaration of acceleration, or any
rescission and annulment of any such declaration, pursuant to this Section 502,
a record date shall automatically and without any other action by any Person be
set for the purpose of determining the Holders of Outstanding Securities
entitled to join in such declaration, or rescission and annulment, as the case
may be, which record date shall be the close of business on the day the Trustee
receives such declaration, or rescission and annulment, as the case may be. The
Holders of Outstanding Securities on such record date (or their duly appointed
agents), and only such Persons, shall be entitled to join in such declaration,
or rescission and annulment, as the case may be, whether or not such Holders
remain Holders after such record date; PROVIDED, that unless such declaration,
or rescission and annulment, as the case may be, shall have become effective by
virtue of Holders of the requisite principal amount of Outstanding Securities on
such record date (or their duly appointed agents) having joined therein on or
prior to the 90th day after such record date, such declaration, or rescission
and annulment, as the case may be, shall automatically and without any action by
any Person be canceled and of no further force or effect.
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SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues
for a period of 30 days, or
(2) default is made in the payment of the principal of or premium, if
any, on any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and premium, if any, and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal and premium, if any, and on any overdue interest, at the rate
borne by the Securities, and, in addition thereto, such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee and
each predecessor Trustee, their respective agents and counsel, and any other
amounts due the Trustee or any predecessor Trustee under Section 607.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid and may
prosecute any such proceeding to judgment or final decree, and may enforce the
same against the Company (or any other obligor upon the Securities) and collect
the moneys adjudged or decreed to be payable in the manner provided by law out
of the property of the Company (or any other obligor upon the Securities),
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Securities), its property or its creditors, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have the claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of
such payments
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directly to the Holders, to pay to the Trustee any amount due it
and each predecessor Trustee for the reasonable compensation, expenses,
disbursements and advances of the Trustee and each predecessor Trustee and their
respective agents and counsel, and any other amounts due the Trustee under
Section 607.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding; PROVIDED,
HOWEVER, that the Trustee may, on behalf of the Holders, vote for the election
of a trustee in bankruptcy or similar official and may be a member of the
Creditors' Committee.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee and each predecessor Trustee and their
respective agents and counsel, be for the ratable benefit of the Holders of the
Securities in respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or premium, if
any, or interest, upon presentation of the Securities and the notation thereon
of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To payment of all amounts due the Trustee under Section 607;
SECOND: Subject to Article 12, to the holders of Senior Indebtedness;
THIRD: To the payment of the amounts then due and unpaid for
principal of and premium, if any, and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal and premium, if any, and interest, respectively; and
FOURTH: The balance, if any, to the Company or any other Person or
Persons determined to be entitled thereto.
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SECTION 507. LIMITATION ON SUITS.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity satisfactory to it against the costs, expenses and liabilities
to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND
INTEREST AND TO CONVERT.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and premium, if any, and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date or, in the case of a repurchase pursuant to Article Fourteen, on the
Repurchase Date) and to convert such Security in accordance with Article
Thirteen and to institute suit for the enforcement of any such payment and right
to convert, and such rights shall not be impaired without the consent of such
Holder.
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SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 306, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; PROVIDED, that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture; and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; and
(3) subject to the provisions of Section 601, the Trustee shall have
the right to decline to follow any such direction if the Trustee in good
faith shall determine that
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the action so directed would involve the Trustee in personal liability
or would be unduly prejudicial to Holders not joining in such direction.
Upon receipt by the Trustee of any such direction, a record date shall
automatically and without any other action by any Person be set for the purpose
of determining the Holders of Outstanding Securities entitled to join in such
direction, which record date shall be the close of business on the day the
Trustee receives such direction. The Holders of Outstanding Securities on such
record date (or their duly appointed agents), and only such Persons, shall be
entitled to join in such direction, whether or not such Holders remain Holders
after such record date; PROVIDED, that unless such direction shall have become
effective by virtue of Holders of the requisite principal amount of Outstanding
Securities on such record date (or their duly appointed agents) having joined
therein on or prior to the 90th day after such record date, such direction shall
automatically and without any action by any Person be canceled and of no further
force or effect.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of or premium, if any, or
interest on any Security, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; PROVIDED, that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company, in any suit instituted
by the Trustee, a suit by a Holder pursuant to Section 508, or a suit by a
Holder or Holders of more than 10% in principal amount of the outstanding
Securities.
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SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
The duties and responsibilities of the Trustee shall be as provided by
this Indenture and the Trust Indenture Act for securities issued pursuant to
indentures qualified thereunder. Except as otherwise provided herein,
notwithstanding the foregoing, no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability or risk in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity satisfactory to it
against such risk or liability is not reasonably assured to it. Whether or not
therein expressly so provided, every provision of this Indenture relating to the
conduct or affecting the liability of or affording protection to the Trustee
shall be subject to the provisions of this Section. The Trustee shall not be
liable (x) for any error of judgment made in good faith by a Responsible Officer
or Responsible Officers of the Trustee, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts or (y) with respect to
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the holders of not less than a majority in aggregate principal
amount of the Securities at the time Outstanding relating to the time, method
and place of conducting any proceeding or any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under this
Indenture. Prior to the occurrence of an Event of Default and after the curing
or waiving of all Events of Default which may have occurred: (i) the duties and
obligations of the Trustee shall be determined solely by the express provisions
of this Indenture and in the Trust Indenture Act, and the Trustee shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Indenture and in the Trust Indenture Act, and no
implied covenants or obligations shall be read in to this Indenture against the
Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions therein, upon any statements, certificates or
opinions furnished to the Trustee and conforming to the requirements of this
Indenture and believed by the Trustee to be genuine and to have been signed or
presented by the proper party or parties; but in the case of any such
statements, certificates
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or options which by any provisions hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform on their face to the requirements of
this Indenture. If a default or an Event of Default has occurred and is
continuing, the Trustee shall exercise the rights and powers vested in it by
this Indenture and use the same degree of care and skill in its exercise thereof
as a prudent person would exercise or use under the circumstances in the conduct
of his own affairs.
SECTION 602. NOTICE OF DEFAULTS.
The Trustee shall give the Holders notice of any default hereunder
known to it as and to the extent provided by the Trust Indenture Act; PROVIDED,
HOWEVER, that in the case of any default of the character specified in
Section 501(5), no such notice to Holders shall be given until at least 30 days
after the occurrence thereof. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or
indemnity satisfactory to it against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or
direction;
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(f) before the Trustee acts or refrains from acting with respect to
any matter contemplated by this Indenture, it may require an Officers'
Certificate or an Opinion of Counsel, which shall conform to the
provisions of Section 102, and the Trustee shall be protected and shall
not be liable for any action it takes or omits to take in good faith and
without gross negligence in reliance on such certificate or opinion;
(g) the Trustee shall not be required to give any bond or surety in
respect of the performance of its power and duties hereunder;
(h) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney; and
(i) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care
by it hereunder.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the
Trustee's certificate of authentication, shall be taken as the statements of the
Company, and the Trustee and any Authenticating Agent assume no responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. The Trustee and any
Authenticating Agent shall not be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee or any Paying Agent in trust hereunder need
not be segregated from other funds except to the extent required by law. The
Trustee or any Paying
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Agent shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (including its services as
Security Registrar or Paying Agent, if so appointed by the Company) as
may be mutually agreed upon in writing by the Company and the Trustee
(which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee and each predecessor Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by or on behalf of
it in connection with the performance of its duties under any provision
of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel and all other
persons not regularly in its employ) except to the extent any such
expense, disbursement or advance may be attributable to its negligence
or bad faith; and
(3) to indemnify the Trustee and each predecessor Trustee (each an
"indemnitee") for, and to hold it harmless against, any loss, liability
or expense incurred without negligence or bad faith on its part, arising
out of or in connection with the acceptance or administration of this
Indenture or the trusts hereunder and its duties hereunder (including
its services as Security Registrar or Paying Agent, if so appointed by
the Company), including enforcement of this Section 607 and including
the costs and expenses of defending itself against or investigating any
claim or liability in connection with the exercise or performance of any
of its powers or duties hereunder. The Company shall defend any claim
or threatened claim asserted against an indemnitee for which it may seek
indemnity, and the indemnitee shall cooperate in the defense unless, in
the reasonable opinion of the indemnitee's counsel, the indemnitee has
an interest adverse to the Issuer or a potential conflict of interest
exists between the indemnitee and the Company, in which case the
indemnitee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel; PROVIDED that the Company
shall only be responsible for the reasonable fees and expenses of one
law firm (in addition to local counsel) in any one action or separate
substantially similar actions in the same jurisdiction arising out of
the same general allegations or circumstances, such law firm to be
designated by the indemnitee.
As security for the performance of the obligations of the Company
under this Section 607, the Trustee shall have a lien prior to the Securities
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the benefit of the Holders of particular Securities, and
the Securities are hereby subordinated to such prior lien. The
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obligations of the Company under this Section to compensate and indemnify the
Trustee and any predecessor Trustee and to pay or reimburse the Trustee and any
predecessor Trustee for expenses, disbursements and advances, and any other
amounts due the Trustee or any predecessor Trustee under Section 607, shall
constitute an additional obligation hereunder and shall survive the satisfaction
and discharge of this Indenture.
When the Trustee or any predecessor Trustee incurs expenses or renders
services in connection with the performance of its obligations hereunder
(including its services as Security Registrar or Paying Agent, if so appointed
by the Company) after an Event of Default specified in Section 501(7) or (8)
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under ny applicable bankruptcy, insolvency
or other similar federal or state law to the extent provided in Section
503(b)(5) of Title 11 of the United States Code, as now or hereafter in effect.
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
Person that (i) is eligible pursuant to the Trust Indenture Act to act as such,
(ii) has (or, in the case of a corporation included in a bank holding company
system, whose related bank holding company has) a combined capacity and surplus
of at least $50,000,000 and (iii) has a Corporate Trust Office in the Borough of
Manhattan, The City of New York. If such Person publishes reports of conditions
at least annually, pursuant to law or to the requirements of a Federal or state
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Person shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
required by Section 611 shall not have been delivered to the resigning Trustee
within 30 days after the giving of such notice
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of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by an Act of the Holders
of a majority in principal amount of the Outstanding Securities delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for the last six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or
by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee and
such successor Trustee shall comply with the applicable requirements of
Section 611. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment in accordance with the applicable requirements of Section 611 become
the successor Trustee and supersede the successor Trustee appointed by the
Company. If no successor Trustee shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee.
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(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
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SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents acceptable
to and at the expense of the Company which shall be authorized to act on behalf
of the Trustee to authenticate Securities issued upon original issue and upon
exchange, registration of transfer, partial conversion or partial redemption or
pursuant to Section 306, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a Person organized and doing
business under the laws of the United States of America, any State thereof or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any Person into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which such Authenticating Agent shall be
a party, or any Person succeeding to the corporate agency or corporate trust
business of an Authenticating Agent, shall continue to be an Authenticating
Agent, provided such Person shall be otherwise eligible under this Section,
without the execution or filing of any paper or any further act on the part of
the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail notice of such
appointment by first-class mail, postage prepaid, to all Holders as their names
and addresses appear in the Security Register. Any successor Authenticating
Agent upon acceptance of its appointment under this Section shall become vested
with all the rights, powers and duties of its predecessor hereunder, with like
effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible to act as such under the
provisions of this Section.
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Any Authenticating Agent by the acceptance of its appointment shall be
deemed to have represented to the Trustee that it is eligible for appointment as
Authenticating Agent under this Section and to have agreed with the Trustee
that: it will perform and carry out the duties of an Authenticating Agent as
herein set forth, including among other things the duties to authenticate
Securities when presented to it in connection with the original issuance and
with exchanges, registrations of transfer or redemptions or conversions thereof
or pursuant to Section 306; it will keep and maintain, and furnish to the
Trustee from time to time as requested by the Trustee, appropriate records of
all transactions carried out by it as Authenticating Agent and will furnish the
Trustee such other information and reports as the Trustee may reasonably
require; and it will notify the Trustee promptly if it shall cease to be
eligible to act as Authenticating Agent in accordance with the provisions of
this Section. Any Authenticating Agent by the acceptance of its appointment
shall be deemed to have agreed with the Trustee to indemnify the Trustee against
any loss, liability or expense incurred by the Trustee and to defend any claim
asserted against the Trustee by reason of any acts or failures to act of such
Authenticating Agent, but such Authenticating Agent shall have no liability for
any action taken by it in accordance with the specific written direction of the
Trustee.
The Trustee shall not be liable for any act or any failure of the
Authenticating Agent to perform any duty either required herein or authorized
herein to be performed by such person in accordance with this Indenture.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities described in the within-mentioned
Indenture.
-------------------------------------,
As Trustee
By
--------------------------------
As Authenticating Agent
By
-----------------------------
Authorized Officer
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ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished.
Notwithstanding the foregoing, so long as the Trustee is the Security Registrar,
no such list shall be required to be furnished.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATION TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most
recent list furnished to the Trustee as provided in Section 701 and the
names and addresses of Holders received by the Trustee in its capacity as
Security Registrar. The Trustee may destroy any list furnished to it as
provided in Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and
the corresponding rights and duties of the Trustee, shall be as provided by
the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason
of any disclosure of information as to names and addresses of Holders made
pursuant to the Trust Indenture Act or otherwise in accordance with this
Indenture.
SECTION 703. REPORTS BY TRUSTEE.
(a) Not later than 60 days following each May 15, the Trustee shall
transmit to Holders such reports concerning the Trustee and its actions
under this Indenture as may be required pursuant to the Trust Indenture Act
at the times and in the manner provided pursuant thereto.
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(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange
upon which the Securities are listed, with the Commission and with the
Company. The Company will notify the Trustee when the Securities are
listed on any stock exchange.
SECTION 704. REPORTS BY COMPANY.
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; PROVIDED, that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) or the Securities Exchange Act of 1934, as
amended, shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission.
SECTION 705. RULE 144A INFORMATION REQUIREMENT.
If at any time prior to the Resale Restriction Termination Date the
Company is no longer subject to Section 13 or 15(d) of the Exchange Act, the
Company will furnish to the Holders or beneficial holders of the Securities and
prospective purchasers of the Securities designated by the Holders of the
Securities, upon their request, information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act until the earlier of (i) the date on
which the Securities and the underlying Common Stock are registered under the
Securities Act or (ii) the Resale Restriction Termination Date.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall 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, and the Company shall not permit any Person to
consolidate with or merge into the Company, unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease all or substantially all of its
properties and assets to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer, or which leases, all or substantially
all of the properties and assets of the Company shall be a corporation,
partnership or trust, shall be organized and validly existing under the
laws of the United States of America, any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in
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form satisfactory to the Trustee, the due and punctual payment of the
principal of and premium, if any, and interest on all the Securities and
the performance or observance of every covenant of this Indenture on the
part of the Company to be performed or observed and shall have provided for
conversion rights in accordance with Section 1311;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing;
(3) such consolidation, merger, conveyance, transfer or lease does
not adversely affect the validity or enforceability of the Securities; and
(4) the Company or the successor Person has delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been
complied with.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of all or
substantially all of the properties and assets of the Company in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a transfer by lease, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to cause this Indenture to be qualified under the Trust Indenture
Act; or
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(2) to 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 Securities; or
(3) to add to the covenants of the Company for the benefit of the
Holders or an additional Event of Default, or to surrender any right or
power conferred herein or in the Securities upon the Company; or
(4) to secure the Securities; or
(5) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Section 1311; or
(6) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities; or
(7) to cure any ambiguity, to correct or supplement any provision
herein or in the Securities which may be defective or inconsistent with any
other provision herein or in the Securities, or to make any other
provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this
Indenture; PROVIDED, that such action pursuant to this Clause (7) shall not
adversely affect the interests of the Holders in any material respect and
the Trustee may rely upon an opinion of counsel to that effect.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
PROVIDED, HOWEVER, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any instalment
of interest on, any Security, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in
which, any Security or any premium or interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of redemption, on
or after the Redemption Date), or adversely affect the right to convert any
Security as provided in Article Thirteen (except as permitted by
Section 901(5)), or modify the provisions of Article Fourteen, or the
provisions of this Indenture with respect to the subordination of the
Securities, in a manner adverse to the Holders, or
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(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture,
or
(3) modify any of the provisions of this Section, Section 513 or
Section 1006, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby; PROVIDED, HOWEVER, that this Clause shall not be deemed to require
the consent of any Holder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section and Section 1006, or the
deletion of this proviso, in accordance with the requirements of
Section 901(6).
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which adversely affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in
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form approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Securities so modified as to
conform, in the opinion of the Trustee and the Company, to any such supplemental
indenture may be prepared and executed by the Company and (at the specific
direction of the Company) authenticated and delivered by the Trustee in exchange
for Outstanding Securities.
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURE.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to Section 902, the Company shall transmit to
the Holders a notice setting forth the substance of such supplemental indenture.
ARTICLE TEN
Covenants
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company will duly and punctually pay the principal of and premium,
if any, and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in New York, New York an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer, where Securities may be
surrendered for exchange or conversion and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of any such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in
New York, New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
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SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of and premium, if any, or interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal and premium, if
any, or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, on
or prior to 11:00 a.m. (New York City time) on each due date of the principal of
and premium, if any, or interest on any Securities, deposit with a Paying Agent
a sum in same day funds sufficient to pay the principal and any premium and
interest so becoming due, such sum to be held as provided by the Trust Indenture
Act, and (unless such Paying Agent is the Trustee) the Company will promptly
notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee or the
Company to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will (i) comply with the provisions of the Trust
Indenture Act and this Indenture applicable to it as a Paying Agent and hold all
sums held by it for the payment of principal of or any premium or interest on
the Securities in trust for the benefit of the Persons entitled thereto until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided; (ii) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment in respect of
the Securities; and (iii) at any time during the continuance of any default by
the Company (or any other obligor upon the Securities) in the making of any
payment in respect of the Securities, upon the written request of the Trustee,
forthwith pay to the Trustee all sums held in trust by such Paying Agent for
payment in respect of the Securities, and account for any funds disbursed.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of and premium, if
any, or interest on any Security and remaining unclaimed for two years after
such principal and premium, if any, or interest has become due and payable shall
be paid to the Company on Company Request, or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money,
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and all liability of the Company as trustee thereof, shall thereupon cease;
PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in New York, New York,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
SECTION 1005. EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises and the existence, rights (charter
and statutory) and franchises of each Subsidiary; PROVIDED, HOWEVER, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1006. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 1005, if before the time for such
compliance the Holders of at least a majority in principal amount of the
Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect.
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ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. RIGHT OF REDEMPTION.
The Securities may be redeemed at the election of the Company, in
whole or from time to time in part, at any time on or after December 17, 1998,
at the Redemption Prices specified in the form of Security hereinbefore set
forth, together with accrued interest, to the Redemption Date.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company as permitted
by any provision of this Indenture shall be made in accordance with such
provision and this Article.
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company of less than all the Securities, the
Company shall, at least 60 days prior to the Redemption Date fixed by the
Company (unless a shorter period shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the principal amount of Securities to
be redeemed. In case of any redemption at the election of the Company of all of
the Securities, the Company shall, at least 45 days prior to the Redemption Date
fixed by the Company (unless a shorter period shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date.
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by lot or pro rata or by such other method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to $1,000 or any integral multiple thereof) of the
principal amount of Securities of a denomination larger than $1,000.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed (so
far as may be) to be the portion selected for redemption. Securities which have
been converted during a selection of Securities to be redeemed shall be treated
by the Trustee as Outstanding for the purpose of such selection. In any case
where more than one Security is registered in the same name, the Trustee in its
discretion may treat the aggregate principal amount so registered as if it were
represented by one Security.
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The Trustee shall promptly notify the Company and each Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
SECTION 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 15 nor more than 60 days prior to the Redemption
Date, to the Trustee and to each Holder of Securities to be redeemed, at his
address appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price,
(c) if less than all the Outstanding Securities are to be redeemed,
the identification (and, in the case of partial redemption of any
Securities, the principal amounts) of the particular Securities to be
redeemed,
(d) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that (unless the
Company shall default in payment of the Redemption Price) interest thereon
will cease to accrue on and after said date,
(e) the conversion price, the date on which the right to convert the
Securities to be redeemed will terminate and the place or places where such
Securities may be surrendered for conversion, and
(f) the place or places where such Securities are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request received
by the Trustee at least 25 days prior to the Redemption Date, by the Trustee in
the name and at the expense of the Company.
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SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
At or prior to 9:00 a.m. (New York City time) on any Redemption Date,
the Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money in same day funds sufficient to pay
the Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, all the Securities or portions thereof which
are to be redeemed on that date other than any Securities called for redemption
on that date which have been converted prior to the date of such deposit.
If any Security called for redemption is converted, any money
deposited with the Trustee or with any Paying Agent or so segregated and held in
trust for the redemption of such Security shall (subject to any right of the
Holder of such Security or any Predecessor Security to receive interest as
provided in the last paragraph of Section 307) be paid to the Company upon
Company Request or, if then held by the Company, shall be discharged from such
trust.
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; PROVIDED, HOWEVER, that instalments of interest whose
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Security.
SECTION 1108. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company maintained for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
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ARTICLE TWELVE
Subordination of Securities
SECTION 1201. SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company covenants and agrees, and each Holder of a Security, by
his acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article, the indebtedness
represented by the Securities and the payment of the principal of and premium,
if any, and interest on each and all of the Securities are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness.
SECTION 1202. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding, relative to the Company or to its creditors, as such, or to a
substantial part of its assets, or (b) any proceeding for the liquidation,
dissolution or other winding up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any general
assignment for the benefits of creditors or any other marshalling of assets and
liabilities of the Company, then and in any such event the holders of Senior
Indebtedness shall be entitled to receive payment in full of all amounts due or
to become due on or in respect of all Senior Indebtedness; or provision shall be
made for such payment in money or money's worth, before the Holders of the
Securities are entitled to receive any payment or distribution of any kind or
character, whether in cash, property or securities, on account of principal of
or premium, if any, or interest on the Securities, and to that end the holders
of Senior Indebtedness shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character, whether
in cash, property or securities, including any such payment or distribution
which may be payable or deliverable by reason of the payment of any other
indebtedness of the Company being subordinated to the payment of the Securities,
which may be payable or deliverable in respect of the Securities in any such
case, proceeding, dissolution, liquidation or other winding up or event.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of the
Securities, before all Senior Indebtedness is paid in full or payment thereof
provided for, and if such fact shall, at or prior to the time of such payment or
distribution, have been made known to the Trustee or such Holder, as the case
may be, then and in such event such payment or distribution shall be paid over
or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making payment or
distribution of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the
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extent necessary to pay all Senior Indebtedness in full, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness.
For purposes of this Article only, the words "cash, property or
securities" shall not be deemed to include securities of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, which are subordinated
in right of payment to all Senior Indebtedness which may at the time be
outstanding to substantially the same extent as, or to a greater extent than,
the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the conveyance
or transfer of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a dissolution, winding up, liquidation, reorganization, general
assignment for the benefit of creditors or marshalling of assets and liabilities
of the Company for the purposes of this Section if the Person formed by such
consolidation or into which the Company is merged or which acquires by
conveyance or transfer such properties and assets substantially as an entirety,
as the case may be, shall, as a part of such consolidation, merger, conveyance
or transfer, comply with the conditions set forth in Article Eight.
SECTION 1203. PRIOR PAYMENT TO SENIOR INDEBTEDNESS UPON ACCELERATION OF
SECURITIES.
In the event that any Securities are declared due and payable before
their Stated Maturity, then and in such event the holders of Senior Indebtedness
outstanding at the time such Securities so become due and payable shall be
entitled to receive payment in full of all amounts due on or in respect of such
Senior Indebtedness, or provision shall be made for such payment in money or
money's worth, before the Holders of the Securities are entitled to receive any
payment (including any payment which may be payable by reason of the payment of
any other indebtedness of the Company being subordinated to the payment of the
Securities) by the Company on account of the principal of or premium, if any, or
interest on the Securities or on account of the purchase or other acquisition of
Securities.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or such Holder, as the
case may be, then and in such event such payment shall be paid over the
delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.
SECTION 1204. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT.
(a) In the event and during the continuation of any default in the
payment of principal of or premium, if any, or interest on any Senior
Indebtedness beyond any applicable grace period with respect thereto, or in the
event that any event of default with respect to any
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Senior Indebtedness shall have occurred and be continuing and shall have
resulted in such Senior Indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise have become due and payable,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist and such acceleration shall have been rescinded or
annulled, or (b) in the event any judicial proceeding shall be pending with
respect to any such default in payment or event of default, then no payment
(including any payment which may be payable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of the
Securities) shall be made by the Company on account of the principal of or
premium, if any, or interest on the Securities or on account of the purchase or
other acquisition of Securities.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or such Holder, as the
case may be, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.
SECTION 1205. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time except during
the pendency of any case, proceeding, dissolution, liquidation or other winding
up, general assignment for the benefit of creditors or other marshalling of
assets and liabilities of the Company referred to in Section 1202 or under the
conditions described in Section 1203 or 1204, from making payments at any time
of principal of and premium, if any, or interest on the Securities, or (b) the
application by the Trustee of any money deposited with it hereunder to the
payment of or on account of the principal of and premium, if any, or interest on
the Securities or the retention of such payment by the Holders, if, at the time
of such application by the Trustee, it did not have knowledge that such payment
would have been prohibited by the provisions of this Article.
SECTION 1206. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full of all amounts due on or in respect of
Senior Indebtedness, the Holders of the Securities shall be subrogated to the
extent of the payments or distributions made to the holders of such Senior
Indebtedness pursuant to the provisions of this Article (equally and ratably
with the holders of all indebtedness of the Company which by its express terms
is subordinated to other indebtedness of the Company to substantially the same
extent as the Securities are subordinated and is entitled to like rights of
subrogation) to the rights of the holders of such Senior Indebtedness to receive
payments and distributions of cash, property and securities applicable to the
Senior Indebtedness until the principal of and premium, if any, and Interest on
the Securities shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of the Senior Indebtedness of any cash,
property or
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securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior Indebtedness
by Holders of the Securities or the Trustee, shall, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, be deemed to be a payment or distribution by the Company to or on
account of the Senior Indebtedness.
SECTION 1207. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders of
the Securities the principal of and premium, if any, and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms; or (b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than the holders of
Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article of the
holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the Trustee or such Holder.
SECTION 1208. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1209. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior
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Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness;
(iii) release any Person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person.
SECTION 1210. NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee therefor; and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 601, shall be entitled in all respects to assume that no
such facts exist; PROVIDED, HOWEVER, that if the Trustee shall not have received
the notice provided for in this Section at least three Business Days prior to
the date upon which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment of the principal of and
premium, if any, or interest on any Security), then, anything herein contained
to the contrary notwithstanding, the Trustee shall have full power and authority
to receive such money and to apply the same to the purpose for which such money
was received and shall not be affected by any notice to the contrary which may
be received by it within three Business Days prior to such date.
Subject to the provisions of Section 601, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee therefor). In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of any
Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
SECTION 1211. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee, subject to the provisions of Section 601, and the
Holders of the Securities
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shall be entitled to rely upon any order or decree entered by any court of
competent jurisdiction in which such insolvency, bankruptcy, receivership,
liquidation, reorganization, dissolution, winding up or similar case or
proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other person making such payment or distribution, delivered to the Trustee or to
the Holders of Securities, for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
SECTION 1212. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall in good faith mistakenly pay over or distribute to Holders of Securities
or to the Company or to any other Person cash, property or securities to which
holders of Senior Indebtedness shall be entitled by virtue of this Article or
otherwise. With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Article against the Trustee.
SECTION 1213. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS; PRESERVATION
OF TRUSTEE'S RIGHTS.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
SECTION 1214. ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; PROVIDED,
HOWEVER, that Section 1213 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
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SECTION 1215. CERTAIN CONVERSIONS DEEMED PAYMENT.
For the purposes of this Article only, (1) the issuance and delivery
of junior securities upon conversion of Securities in accordance with Article
Thirteen shall not be deemed to constitute a payment or distribution on account
of the principal of or premium or interest on Securities or on account of the
purchase or other acquisition of Securities, and (2) the payment, issuance or
delivery of cash, property or securities (other than junior securities) upon
conversion of a Security shall be deemed to constitute payment on account of the
principal of such Security. For the purposes of this Section, the term "junior
securities" means (a) shares of any class of capital stock of the Company and
(b) securities of the Company which are subordinated in right of payment to all
Senior Indebtedness which may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the right,
which is absolute and unconditional, of the Holder of any Security to convert
such Security in accordance with Article Thirteen.
SECTION 1216. NO SUSPENSION OF REMEDIES.
Nothing contained in this Article shall limit the right of the Trustee
or the Holders of the Securities to take any action to accelerate the maturity
of the Securities pursuant to the provisions described under Article Five and as
set forth in this Indenture or to pursue any rights or remedies hereunder or
under applicable law, subject to the rights, if any, under this Article of the
holders, from time to time, of Senior Indebtedness to receive the cash, property
or securities receivable upon the exercise of such rights or remedies.
ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. CONVERSION PRIVILEGE AND CONVERSION PRICE.
Subject to and upon compliance with the provisions of this Article, at
the option of the Holder thereof, any Security or any portion of the principal
amount thereof which equals $1,000 or any integral multiple thereof may be
converted at any time after the 60th day following the date of original issuance
of Securities under this Indenture at the principal amount thereof, or of such
portion thereof, into fully paid and nonassessable shares (calculated as to each
conversion to the nearest 1/100 of a share) of Common Stock, at the conversion
price, determined as hereinafter provided, in effect at the time of conversion.
Such conversion right shall expire at the close of business on December 15,
2002. In case a Security or portion thereof is called for redemption, such
conversion right in respect of the Security or portion so called shall expire at
the close of business on the second business day preceding the applicable
Redemption Date, unless the Company defaults in making the payment due upon
redemption.
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The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price") shall be initially $27.25 per
share of Common Stock. The conversion price shall be adjusted in certain
instances as provided in paragraphs (a), (b), (c), (d), (e), (f) and (i) of
Section 1304.
SECTION 1302. EXERCISE OF CONVERSION PRIVILEGE.
In order to exercise the conversion privilege, the Holder of any
Security shall surrender such Security, duly endorsed or assigned to the Company
or in blank, at any office or agency of the Company maintained pursuant to
Section 1002, accompanied by written notice to the Company in the form provided
in the Security (or such other notice as is acceptable to the Company) at such
office or agency that the Holder elects to convert such Security or, if less
than the entire principal amount thereof is to be converted, the portion thereof
to be converted. Securities surrendered for conversion during the period from
the opening of business on any Regular Record Date next preceding any Interest
Payment Date to the close of business on such Interest Payment Date shall
(except in the case of Securities or portions thereof which have been called for
redemption) be accompanied by payment in New York Clearing House funds or other
funds acceptable to the Company of an amount equal to the interest payable on
such Interest Payment Date on the principal amount being surrendered for
conversion. Except as provided in the immediately preceding sentence and
subject to the fourth paragraph of Section 307, no payment or adjustment shall
be made upon any conversion on account of any interest accrued on the
Securities surrendered for conversion or on account of any dividends on the
Common Stock issued upon conversion.
Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Securities for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes of the record holder or holders of such Common Stock as and
after such time. As promptly as practicable on or after the conversion date,
the Company shall issue and shall deliver at such office or agency a certificate
or certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share, as
provided in Section 1303.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in aggregate principal amount equal to
the unconverted portion of the principal amount of such Security.
SECTION 1303. FRACTIONS OF SHARES.
No fractional share of Common Stock shall be issued upon conversion of
Securities. If more than one Security shall be surrendered for conversion at
one time by the same Holder, the number of full shares which shall be issuable
upon conversion thereof shall
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be computed on the basis of the aggregate principal amount of the Securities (or
specified portions thereof) so surrendered. Instead of any fractional share of
Common Stock which would otherwise be issuable upon conversion of any Security
or Securities (or specified portions thereof), the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the Closing Price (as hereinafter defined) at the close of business on the
day of conversion (or, if such day is not a Trading Day (as hereafter defined),
on the Trading Day immediately preceding such day).
SECTION 1304. ADJUSTMENT OF CONVERSION PRICE.
(a) In case the Company shall pay or make a dividend or other
distribution on the Common Stock exclusively in Common Stock or shall pay or
make a dividend or other distribution on any other class of capital stock of the
Company which dividend or distribution includes Common Stock, the conversion
price in effect at the opening of business on the day following the date fixed
for the determination of shareholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such conversion price by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day following
the date fixed for such determination. For the purpose of this paragraph (a),
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company. The Company shall not pay any
dividend or make any distribution on shares of Common Stock held in the treasury
of the Company.
(b) Subject to paragraph (g) of this Section, in case the Company
shall pay or make a dividend or other distribution on the Common Stock
consisting exclusively of, or shall otherwise issue to all holders of the Common
Stock, rights or warrants entitling the holders thereof to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (determined as provided in paragraph (h) of this Section) on the
date fixed for the determination of shareholders entitled to receive such rights
or warrants, the conversion price in effect at the opening of business on the
day following the date fixed for such determination shall be reduced by
multiplying such conversion price by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such
Current Market Price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this paragraph (b), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company. The Company shall not issue any rights or warrants in
respect of shares of Common Stock held in the treasury of the Company.
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(c) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the conversion price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and, conversely,
in case outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the conversion price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which subdivision or combination becomes
effective.
(d) Subject to the last sentence of this paragraph (d) and to
paragraph (g) of this Section, in case the Company shall, by dividend or
otherwise, distribute to all holders of the Common Stock evidences of its
indebtedness, shares of any class of its capital stock, cash or other assets
(including securities, but excluding any rights or warrants referred to in
paragraph (b) of this Section, excluding any dividend or distribution paid
exclusively in cash and excluding any dividend or distribution referred to in
paragraph (a) of this Section), the conversion price shall be reduced by
multiplying the conversion price in effect immediately prior to the close of
business on the date fixed for the determination of shareholders entitled to
such distribution by a fraction of which the numerator shall be the Current
Market Price (determined as provided in paragraph (h) of this Section) on such
date less the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) on such
date of the portion of the evidences of indebtedness, shares of capital stock,
cash and other assets to be distributed applicable to one share of Common Stock
and the denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day following such
date. If the Board of Directors determines the fair market value of any
distribution for purposes of this paragraph (d) by reference to the actual or
when-issued trading market for any securities comprising part or all of such
distribution, it must in doing so consider the prices in such market over the
same period used in computing the Current Market Price pursuant to paragraph (h)
of this Section, to the extent possible. For purposes of this paragraph (d),
any dividend or distribution that includes shares of Common Stock, rights or
warrants to subscribe for or purchase shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock shall be deemed to
be (x) a dividend or distribution of the evidences of indebtedness, cash, assets
or shares of capital stock other than such shares of Common Stock, such rights
or warrants or such convertible or exchangeable securities (making any
conversion price reduction required by this paragraph (d)) immediately followed
by (y) in the case of such shares of Common Stock or such rights or warrants, a
dividend or distribution thereof (making any further conversion price reduction
required by paragraph (a) and (b) of this Section, except any shares of Common
Stock included in such dividend or distribution shall not be deemed "outstanding
at the close of business on the date fixed for such determination" within the
meaning of paragraph (a) of this Section), or (z) in the case of such
convertible or exchangeable securities, a dividend or distribution of the number
of shares of Common Stock as would then be issuable upon the conversion or
exchange thereof, whether or not the conversion or exchange of such securities
is subject to any conditions (making any further conversion price reduction
required by paragraph (a) of this Section, except the shares deemed to
constitute such dividend or
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distribution shall not be deemed "outstanding at the close of business on the
date fixed for such determination" within the meaning of paragraph (a) of this
Section).
(e) In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of the Common Stock cash (excluding any cash that is
distributed as part of a distribution referred to in paragraph (d) of this
Section or in connection with a transaction to which Section 1311 applies) in an
aggregate amount that, together with (i) the aggregate amount of any other
distributions to all holders of the Common Stock made exclusively in cash within
the 12 months preceding the date fixed for the determination of shareholders
entitled to such distribution and in respect of which no conversion price
adjustment pursuant to this paragraph (e) has been made previously and (ii) the
aggregate of any cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) as of such date of determination of consideration payable in respect
of any tender offer by the Company or a Subsidiary for all or any portion of the
Common Stock consummated within the 12 months preceding such date of
determination and in respect of which no conversion price adjustment pursuant to
paragraph (f) of this Section has been made previously, exceeds 12.5% of the
product of the Current Market Price (determined as provided in paragraph (h) of
this Section) on such date of determination times the number of shares of Common
Stock outstanding on such date, the conversion price shall be reduced by
multiplying the conversion price in effect immediately prior to the close of
business on such date of determination by a fraction of which the numerator
shall be the Current Market Price (determined as provided in paragraph (h) of
this Section) on such date less the amount of cash to be distributed at such
time applicable to one share of Common Stock and the denominator shall be such
Current Market Price, such reduction to become effective immediately prior to
the opening of business on the day after such date.
(f) In case a tender offer made by the Company or any Subsidiary for
all or any portion of the Common Stock shall be consummated and such tender
offer shall involve an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution) as of the last time (the "Expiration Time")
that tenders may be made pursuant to such tender offer (as it shall have been
amended) that, together with (i) the aggregate of the cash plus the fair market
value (as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) as of the Expiration Time of the
other consideration paid in respect of any other tender offer by the Company or
a Subsidiary for all or any portion of the Common Stock consummated within the
12 months preceding the Expiration Time and in respect of which no conversion
price adjustment pursuant to this paragraph (f) has been made previously and
(ii) the aggregate amount of any distributions to all holders of the Common
Stock made exclusively in cash within the 12 months preceding the Expiration
Time and in respect of which no conversion price adjustment pursuant to
paragraph (e) of this Section has been made previously, exceeds 12.5% of the
product of the Current Market Price (determined as provided in paragraph (h) of
this Section) immediately prior to the Expiration Time times the number of
shares of Common Stock outstanding (including any tendered shares) at the
Expiration Time, the conversion price shall be reduced by multiplying the
conversion price in effect immediately prior to the Expiration Time by a
fraction of which the numerator shall be (x) the product of the
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Current Market Price (determined as provided in paragraph (h) of this Section)
immediately prior to the Expiration Time times the number of shares of Common
Stock outstanding (including any tendered shares at the Expiration Time minus
(y) the fair market value (determined as aforesaid) of the aggregate
consideration payable to shareholders upon consummation of such tender offer and
the denominator shall be the product of (A) such Current Market Price times (B)
such number of outstanding shares at the Expiration Time minus the number of
shares accepted for payment in such tender offer (the "Purchased Shares"), such
reduction to become effective immediately prior to the opening of business on
the day following the Expiration Time; PROVIDED, that if the number of Purchased
Shares or the aggregate consideration payable therefor have not been finally
determined by such opening of business, the adjustment required by this
paragraph (f) shall, pending such final determination, be made based upon the
preliminarily announced results of such tender offer, and, after such final
determination shall have been made, the adjustment required by this paragraph
(f) shall be made based upon the number of Purchased Shares and the aggregate
consideration payable therefor as so finally determined.
(g) The reclassification of Common Stock into securities which
include securities other than Common Stock (other than any reclassification upon
a consolidation or merger to which Section 1311 applies) shall be deemed to
involve (i) a distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such reclassification shall
be deemed to be "the date fixed for the determination of shareholders entitled
to such distribution" within the meaning of paragraph (d) of this Section), and
(ii) a subdivision or combination, as the case may be, of the number of shares
of Common Stock outstanding immediately prior to such reclassification into the
number of shares of Common Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be deemed to be "the day upon
which such subdivision becomes effective" or "the day upon which such
combination becomes effective", as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of paragraph
(c) of this Section).
Rights or warrants issued by the Company to all holders of the Common
Stock entitling the holders thereof to subscribe for or purchase shares of
Common Stock (either initially or under certain circumstances), which rights or
warrants (i) are deemed to be transferred with such shares of Common Stock,
(ii) are not exercisable and (iii) are also issued in respect of future
issuances of Common Stock, in each case in clauses (i) through (iii) until the
occurrence of a specified event or events ("Trigger Event"), shall for purposes
of this Section 1304 not be deemed issued until the occurrence of the earliest
Trigger Event. If any such rights or warrants, including any such existing
rights or warrants distributed prior to the date of this Indenture (including
the Rights) are subject to subsequent events, upon the occurrence of each of
which such rights or warrants shall become exercisable to purchase different
securities, evidences of indebtedness or other assets, then the occurrence of
each such event shall be deemed to be such date of issuance and record date with
respect to new rights or warrants (and a termination or expiration of the
existing rights or warrants without exercise by the holder thereof). In
addition, in the event of any distribution (or deemed distribution) of rights or
warrants (including the Rights), or any Trigger Event with respect thereto, that
was
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counted for purposes of calculating a distribution amount for which an
adjustment to the Conversion Price under this Section 1304 was made, (1) in the
case of any such rights or warrants (including the Rights) which shall all have
been redeemed or repurchased without exercise by any holders thereof, the
Conversion Price shall be readjusted upon such final redemption or repurchase to
give effect to such distribution or Trigger Event, as the case may be, as though
it were a cash distribution, equal to the per share redemption or repurchase
price received by a holder or holders of Common Stock with respect to such
rights or warrants (assuming such holder had retained such rights or warrants),
made to all holders of Common Stock as of the date of such redemption or
repurchase, and (2) in the case of such rights or warrants (including the
Rights) which shall have expired or been terminated without exercise by any
holders thereof, the Conversion Price shall be readjusted as if such rights and
warrants had not been issued. In lieu of any adjustment to the Conversion Price
otherwise required by this Section 1304 as a result of a Trigger Event affecting
the Rights distributed pursuant to the Rights Plan, the Company may amend the
Rights Plan to provide that upon conversion of the Securities 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 Plan.
Notwithstanding any other provision of this Section 1304 to the
contrary, rights, warrants, evidences of indebtedness, other securities, cash or
other assets (including, without limitation, any rights distributed pursuant to
any stockholder rights plan) shall be deemed not to have been distributed for
purposes of this Section 1304 if the Company makes proper provision so that each
holder of Securities who converts a Security (or any portion thereof) after the
date fixed for determination of stockholders entitled to receive such
distribution shall be entitled to receive upon such conversion, in addition to
the shares of Common Stock issuable upon such conversions, the amount and kind
of such distributions that such holder would have been entitled to receive if
such holder had, immediately prior to such determination date, converted such
Security into Common Stock.
(h) For the purpose of any computation under this paragraph and
paragraphs (b), (d) and (e) of this Section, the current market price per share
of Common Stock (the "Current Market Price") on any date shall be deemed to be
the average of the daily Closing Prices for the 5 consecutive Trading Days
selected by the Company commencing not more than 20 Trading Days before, and
ending not later than, the date in question; PROVIDED, HOWEVER, that (i) if the
"ex" date for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the conversion price pursuant to
paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after the 20th
Trading Day prior to the date in question and prior to the "ex" date for the
issuance or distribution requiring such computation, the Closing Price for each
Trading Day prior to the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the same fraction by which the conversion
price is so required to be adjusted as a result of such other event, (ii) if the
"ex" date for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the conversion price pursuant to
paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after the "ex" date
for the issuance or distribution requiring such computation and on or prior to
the date
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in question, the Closing Price for each Trading Day on and after the "ex" date
for such other event shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the conversion price is so required to be
adjusted as a result of such other event, and (iii) if the "ex" date for the
issuance or distribution requiring such computation is on or prior to the date
in question, after taking into account any adjustment required pursuant to
clause (ii) of this proviso, the Closing Price for each Trading Day on or after
such "ex" date shall be adjusted by adding thereto the amount of any cash and
the fair market value on the date in question (as determined by the Board of
Directors in a manner consistent with any determination of such value for
purposes of paragraph (d) or (e) of this Section, whose determination shall be
conclusive and described in a Board Resolution) of the evidences of
indebtedness, shares of capital stock or assets being distributed applicable to
one share of Common Stock as of the close of business on the day before such
"ex" date. For the purpose of any computation under paragraph (f) of this
Section, the Current Market Price on any date shall be deemed to be the average
of the daily Closing Prices for the 5 consecutive Trading Days selected by the
Company commencing on or after the latest (the "Commencement Date") of (i) the
date 20 Trading Days before the date in question, (ii) the date of commencement
of the tender offer requiring such computation and (iii) the date of the last
amendment, if any, of such tender offer involving a change in the maximum number
of shares for which tenders are sought or a change in the consideration offered,
and ending not later than the Expiration Time of such tender offer; PROVIDED,
HOWEVER, that if the "ex" date for any event (other than the tender offer
requiring such computation) that requires an adjustment to the conversion price
pursuant to paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after
the Commencement Date and prior to the Expiration Time for the tender offer
requiring such computation, the Closing Price for each Trading Day prior to the
"ex" date for such other event shall be adjusted by multiplying such Closing
Price by the same fraction by which the conversion price is so required to be
adjusted as a result of such other event. The closing price for any Trading Day
(the "Closing Price") shall be the last reported sales price regular way or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the New York Stock
Exchange or, if the Common Stock is not listed or admitted to trading on such
exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange, on the Nasdaq Stock Market's National
Market or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on such National Market, the average of
the closing bid and asked prices in the over-the-counter market as furnished by
any New York Stock Exchange member firm selected from time to time by the
Company for that purpose. For purposes of this paragraph, the term "Trading
Day" means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any
day on which securities are generally not traded on the applicable securities
exchange or in the applicable securities market and the term "'ex' date," (i)
when used with respect to any issuance or distribution, means the first date on
which the Common Stock trades regular way on the relevant exchange or in the
relevant market from which the Closing Prices were obtained without the right to
receive such issuance or distribution, (ii) when used with respect to any
subdivision or combination of shares of Common Stock, means the first date on
which the Common Stock trades regular way on such exchange or in such market
after the time at which such subdivision or combination becomes effective, and
(iii) when used with respect to any tender offer means the first date on which
the Common Stock
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trades regular way on such exchange or in such market after the last time that
tenders may be made pursuant to such tender offer (as it shall have been
amended).
(i) The Company may make such reductions in the conversion price, in
addition to those required by paragraphs (a), (b), (c), (d), (e) and (f) of this
Section, as it considers to be advisable (as evidenced by a Board Resolution) in
order that any event treated for federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients or, if that is not
possible, to diminish any income taxes that are otherwise payable because of
such event.
(j) No adjustment in the conversion price shall be required unless
such adjustment (plus any other adjustments not previously made by reason of
this paragraph (j)) would require an increase or decrease of at least 1% in the
conversion price; PROVIDED, HOWEVER, that any adjustments which by reason of
this paragraph (j) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(k) Notwithstanding any other provision of this Section 1304, no
adjustment to the conversion price shall reduce the conversion price below the
then par value per share of the Common Stock, and any such purported adjustment
shall instead reduce the conversion price to such par value. The Company hereby
covenants not to take any action to increase the par value per share of the
Common Stock.
SECTION 1305. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 1304 and shall prepare an Officers' Certificate
signed by the Treasurer of the Company setting forth the adjusted
conversion price and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith be filed (with a
copy to the Trustee) at each office or agency maintained for the purpose of
conversion of Securities pursuant to Section 1002; and
(b) a notice stating that the conversion price has been adjusted and
setting forth the adjusted conversion price shall forthwith be prepared,
and as soon as practicable after it is prepared, such notice shall be
mailed by the Company to all Holders at their last addresses as they shall
appear in the Security Register.
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SECTION 1306. NOTICE OF CERTAIN CORPORATE ACTION.
In case:
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require a conversion price
adjustment pursuant to paragraph (e) of Section 1304; or
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any other rights (excluding shares of
capital stock or option for capital stock issued pursuant to a benefit plan
for employees, officers or directors of the Company); or
(c) of any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding shares of Common Stock), or
of any consolidation, merger or share exchange to which the Company is a
party and for which approval of any shareholders of the Company is
required, or of the sale or transfer of all or substantially all of the
assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer for
all or a portion of the outstanding shares of Common Stock (or shall amend
any such tender offer to change the maximum number of shares being sought
or the amount or type of consideration being offered therefor);
then the Company shall cause to be filed at each office or agency maintained
pursuant to Section 1002, and shall cause to be mailed to all Holders at their
last addresses as they shall appear in the Security Register, at least 21 days
(or 11 days in any case specified in clause (a), (b) or (e) above) prior to the
applicable record, effective or expiration date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or granting of rights or warrants, or, if a record is not
to be taken, the date as of which the holders of Common Stock of record who will
be entitled to such dividend, distribution, rights or warrants are to be
determined, (y) the date on which such reclassification, consolidation, merger,
share exchange, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding up, or (z) the date on which such tender
offer commenced, the date on which such tender offer is scheduled to expire
unless extended, the consideration offered and the other material terms thereof
(or the material terms of any amendment thereto). Neither the failure to give
any such notice nor any defect therein shall
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affect the legality or validity of any action described in clauses (a) through
(e) of this Section 1306.
SECTION 1307. COMPANY TO RESERVE COMMON STOCK.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of the authorized but unissued Common Stock or out of the
Common Stock held in treasury, for the purpose of effecting the conversion of
Securities, the full number of shares of Common Stock then issuable upon the
conversion of all outstanding Securities. Shares of Common Stock issuable upon
conversion of outstanding Securities shall be issued out of the Common Stock
held in Treasury to the extent available.
SECTION 1308. TAXES ON CONVERSIONS.
The Company will pay any and all taxes that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the Security or Securities to be converted, and no such issue or delivery shall
be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid.
SECTION 1309. COVENANT AS TO COMMON STOCK.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be fully paid and
nonassessable and, except as provided in Section 1308, the Company will pay all
taxes, liens and charges with respect to the issue thereof.
SECTION 1310. CANCELLATION OF CONVERTED SECURITIES.
All Securities delivered for conversion shall be delivered to the
Trustee to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 309.
SECTION 1311. PROVISIONS OF CONSOLIDATION, MERGER OR SALE OF ASSETS.
In case of any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock) or any sale or
transfer of all or substantially all of the assets of the Company, the Person
formed by such consolidation or resulting from such merger or which acquires
such assets, as the case may be, shall execute and deliver to the Trustee a
supplemental indenture providing that the Holder of each Security then
Outstanding shall have the right
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thereafter, during the period such Security shall be convertible as specified in
Section 1301, to convert such Security only into the kind and amount of
securities, cash and other property, if any, receivable upon such consolidation,
merger, sale or transfer by a holder of the number of shares of Common Stock
into which such Security might have been converted immediately prior to such
consolidation, merger, sale or transfer, assuming such holder of Common Stock
(i) is not a Person with which the Company consolidated or into which the
Company merged or which merged into the Company or to which such sale or
transfer was made, as the case may be (a "Constituent Person"), or an Affiliate
of a Constituent Person and (ii) failed to exercise his rights of election, if
any, as to the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer (provided that if the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer is not the same for each share of Common
Stock held immediately prior to such consolidation, merger, sale or transfer by
other than a Constituent Person or an Affiliate thereof and in respect of which
such rights of election shall not have been exercised ("nonelecting share"),
then for the purpose of this Section the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer by
each nonelecting share shall be deemed to be the kind and amount so receivable
per share by a plurality of the nonelecting shares). Such supplemental
indenture shall provide for adjustments which, for events subsequent to the
effective date of such supplemental indenture, shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article. The above
provisions of this Section shall similarly apply to successive consolidations,
mergers, sales or transfers.
SECTION 1312. TRUSTEE'S DISCLAIMER.
The Trustee has no duty to determine when an adjustment under this
Article 13 should be made, how it should be made or what such adjustment should
be, but may accept as conclusive evidence of the correctness of any such
adjustment, and shall be protected in relying upon, the Officers' Certificate
with respect thereto which the Company is obligated to file with the Trustee
pursuant to Section 1305. The Trustee makes no representation as to the
validity or value of any securities or assets issued upon conversion of
Securities, and the Trustee shall not be responsible for the Company's failure
to comply with any provisions of this Article 13.
The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture executed
pursuant to Section 1311, but may accept as conclusive evidence of the
correctness thereof, and shall be protected in relying upon, the Officers'
Certificate with respect thereto which the Company is obligated to file with the
Trustee pursuant to Section 1311.
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ARTICLE FOURTEEN
Right to Require Repurchase
SECTION 1401. RIGHT TO REQUIRE REPURCHASE.
In the event that there shall occur a Repurchase Event (as defined in
Section 1406), then each Holder shall have the right, at such Holder's option,
to require the Company to purchase, and upon the exercise of such right, the
Company shall, subject to the provisions of Section 1203, purchase, all or any
part of such Holder's Securities on the date (the "Repurchase Date") that is 30
days after the date the Company gives notice of the Repurchase Event as
contemplated in Section 1402(a) at a price (the "Repurchase Price") equal to
100% of the principal amount thereof, together with accrued and unpaid interest
to the Repurchase Date.
SECTION 1402. NOTICE; METHOD OF EXERCISING REPURCHASE RIGHT.
(a) On or before the 15th day after the occurrence of a Repurchase
Event, the Company, or at the request of the Company received by the Trustee at
least 40 days prior to the Repurchase Date, the Trustee (in the name and at the
expense of the Company), shall give notice of the occurrence of the Repurchase
Event and of the repurchase right set forth herein arising as a result thereof
by first-class mail, postage prepaid, to the Trustee and to each Holder of the
Securities at such Holder's address appearing in the Security Register. The
Company shall also deliver a copy of such notice of a repurchase right to the
Trustee.
Each notice of a repurchase right shall state:
(1) the event constituting the Repurchase Event and the date thereof,
(2) the Repurchase Date,
(3) the date by which the repurchase right must be exercised,
(4) the Repurchase Price, and
(5) the instructions a Holder must follow to exercise a repurchase
right.
No failure of the Company to give the foregoing notice shall limit any
Holder's right to exercise a repurchase right. The Trustee shall have no
affirmative obligation to determine if there shall have occurred a Repurchase
Event.
(b) To exercise a repurchase right, a Holder shall deliver to the
Company (or an agent designated by the Company for such purpose in the notice
referred to in (a) above) and to the Trustee on or before the close of business
on the Repurchase Date (i) written notice of the Holder's exercise of such
right, which notice shall set forth the name of the Holder, the principal amount
of the Security or Securities (or portion of a Security) to be repurchased, and
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a statement that an election to exercise the repurchased right is being made
thereby, and (ii) the Security or Securities with respect to which the
repurchase right is being exercised, duly endorsed for transfer to the Company.
Such written notice shall be irrevocable. If the Repurchase Date falls between
any Regular Record Date and the next succeeding Interest Payment Date,
Securities to be repurchased must be accompanied by payment from the Holder of
an amount equal to the interest thereon which the registered Holder thereof is
to receive on such Interest Payment Date.
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall on the Repurchase Date pay or cause to
be paid in cash to the Holder thereof the Repurchase Price of the Security or
Securities as to which the repurchase right had been exercised. In the event
that a repurchase right is exercised with respect to less than the entire
principal amount of a surrendered Security, the Company shall execute and
deliver to the Trustee and the Trustee shall authenticate for issuance in the
name of the Holder a new Security or Securities in the aggregate principal
amount of the unrepurchased portion of such surrendered security.
SECTION 1403. DEPOSIT OF REPURCHASE PRICE.
On or prior to the Repurchase Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money in same day funds sufficient to pay the Repurchase Price of the Securities
which are to be repaid on the Repurchase Date.
SECTION 1404. SECURITIES NOT REPURCHASED ON REPURCHASE DATE.
If any Security surrendered for repurchase shall not be so paid on the
Repurchase Date, the principal shall, until paid, bear interest to the extent
permitted by applicable law from the Repurchase Date at the rate per annum borne
by such Security.
SECTION 1405. SECURITIES REPURCHASED IN PART.
Any Security which is to be repurchased only in part shall be
surrendered at any office or agency of the Company designated for that purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities of any authorized denomination as requested
by such Holder, in aggregate principal amount equal to and in exchange for the
unrepurchased portion of the principal of the Security so surrendered.
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SECTION 1406. CERTAIN DEFINITIONS.
For purposes of this Article:
(a) A "Repurchase Event" shall have occurred upon the occurrence of a
Change in Control or Termination of Trading after the date of this Indenture and
on or prior to December 15, 2002.
(b) 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 (a
"Group"), 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; or
(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 66 2/3% 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.
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(c) A "Termination of Trading" shall occur if the Common Stock (or other
common stock into which the Securities 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.
_____________________________
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This instrument may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
PHP HEALTHCARE CORPORATION
By /S/ ANTHONY M. PICINI
---------------------------------
Anthony M. Picini
Senior Vice President
and Chief Financial Officer
Attest:
/s/ Ben Rosenbaum, III
- ------------------------
Ben Rosenbaum, III
Corporate Secretary
and General Counsel
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By /s/ Thomas J. Bogert
---------------------
Thomas J. Bogert
Assistant Vice President
Attest:
/s/ Thomas McCutcheon
- ----------------------
Thomas McCutcheon
Assistant Secretary
90
<PAGE>
COMMONWEALTH OF VIRGINIA )
) ss.
COUNTY OF FAIRFAX )
On the 18th day of December, 1995, before me personally came Anthony
M. Piccini, to me known, who, being by me duly sworn, did depose and say that he
is Senior Vice President and Chief Financial Officer of PHP Healthcare
Corporation, one of the corporations described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said corporation; and that he signed his
name thereto by like authority.
A. Liza Martinez
--------------------------------
A. Liza Martinez
My Commission Expires January 31, 1998
State of New York )
) ss.:
County of Richmond )
On the 19th day of December, 1995, before me personally came Thomas J.
Bogert, to me known, who, being by me duly sworn, did depose and say that he is
Assistant Vice President of IBJ Schroder Bank & Trust Company, a New York
banking corporation described in and which executed the foregoing instrument;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such seal; that it was so affixed by authority of the Board of
Directors of said corporation; and that he signed his name thereto by like
authority.
/s/ Virginia Farese
--------------------------------
[Notary Public, State of New York
Stamp]
91
<PAGE>
EXHIBIT A
[FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER
OF SECURITIES]
CERTIFICATE FOR EXCHANGE OR TRANSFER
Re: 6 1/2% Convertible Subordinated Debentures due 2002
This Certificate relates to $_________ principal amount of Securities
held in *____________ book-entry or *____________ definitive form by _________
(the "Transferor").
The Transferor*:
/ / has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Security held by the Depositary a Security
or Securities in definitive, registered form of authorized denominations and an
aggregate principal amount equal to its beneficial interest in such Global
Security (or the portion thereof indicated above); or
/ / has requested the Trustee by written order to deliver in exchange for
its Security or Securities a beneficial interest in the Global Security held by
the Depositary in a principal amount equal to the aggregate principal amount of
such Security or Securities; or
/ / has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
In connection with such request and in respect of each such security,
the Transferor does hereby certify to the Company and the Trustee that
Transferor is familiar with the Indenture relating to the above captioned
Debentures and, as provided in Section 305 of such Indenture, the transfer of
this Security does not require registration under the Securities Act (as defined
below) because*:
/ / Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 305(b)(ii)(A) or Section
305(e)(i)(A) of the Indenture).
/ / Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act")) in reliance on Rule 144A or pursuant to an exemption
from registration in accordance with Regulation S under the Securities Act (in
satisfaction of Section 305(b)(ii)(B), Section 305(c)(i) or Section 305(e)(i)(B)
of the Indenture). If such Security is being transferred in accordance with
Regulation S under the Securities Act, an opinion of counsel to the effect that
such transfer does
- --------------------------------
* Check applicable box.
A-1
<PAGE>
not require registration under the Securities Act accompanies this Certificate
(in satisfaction of Section 305(b)(ii)(B) or Section 305(e)(i)(B) of the
Indenture).
/ / Such Security is being transferred in accordance with Rule 144 under
the Securities Act, or pursuant to an effective registration statement under the
Securities Act (in satisfaction of Section 305(b)(ii)(B), Section 305(e)(i)(B)
or Section 305(h)(ii) of the Indenture). If such Security is being transferred
in accordance with Rule 144 under the Securities Act, an opinion of counsel to
the effect that such transfer does not require registration under the Securities
Act accompanies this Certificate (in satisfaction of Section 305(b)(ii)(B),
Section 305(e)(i)(B) or Section 305(h)(ii) of the Indenture).
/ / Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Securities Act,
other than Rule 144A, 144 or Regulation S under the Securities Act. An opinion
of counsel to the effect that such transfer does not require registration under
the Securities Act accompanies this Certificate (in satisfaction of Section
305(b)(ii)(C) or Section 305(e)(i)(C) of the Indenture).
You are entitled to rely upon this certificate and you are irrevocably
authorized to produce this certificate or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect to
the matters covered hereby.
------------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
---------------------------------------
Date:
-----------------------
A-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of December 13, 1995
relating to
$60,000,000 in Aggregate Principal Amount
of 6 1/2% Convertible Senior Subordinated
Debentures due 2002
by and among
PHP Healthcare Corporation
and
Smith Barney Inc.
and
Dean Witter Reynolds Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Registration Rights Agreement (the "Agreement") is made and
entered into as of December 13, 1995, by and between PHP Healthcare Corporation,
a Delaware corporation (the "Company") and Smith Barney Inc. and Dean Witter
Reynolds Inc. (the "Initial Purchasers"), who will purchase $60,000,000 in
aggregate principal amount of 6 1/2% Convertible Subordinated Debentures due
2002 (the "Debentures") of the Company (excluding up to an additional $9,000,000
aggregate principal that may be purchased by the Initial Purchasers pursuant to
their over-allotment option) pursuant to the Purchase Agreement dated December
13, 1995 (the "Purchase Agreement"), between the Company and the Initial
Purchasers. In order to induce the Initial Purchasers to enter into the
Purchase Agreement, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in the Purchase
Agreement. All defined terms used but not defined herein shall have the
meanings ascribed to them in the Indenture (as defined herein).
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
ACT: The Securities Act of 1933, as amended.
CLOSING DATE: The date on which all the Debentures are first sold
by the Company to the Initial Purchasers pursuant to the Purchase Agreement.
COMMISSION: The Securities and Exchange Commission.
COMMON STOCK: The voting Common Stock, par value $.01 per share,
of the Company.
DAMAGES PAYMENT DATE: With respect to the Debentures or the Common
Stock, as applicable, each Interest Payment Date as defined in the Indenture.
EFFECTIVENESS TARGET DATE: As defined in Section 4.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXEMPT RESALES: The transactions in which the Initial Purchasers
propose to sell the Debentures to (i) certain "qualified institutional buyers"
(as such term is defined in Rule 144A under the Act) and (ii) to certain persons
in offshore transactions in reliance on Regulation S under the Act.
HOLDERS: As defined in Section 2(b) hereof.
INDENTURE: The Indenture, to be dated as of December 15, 1995,
among the Company and IBJ Schroder Bank and Trust Company, as trustee (the
"Trustee"), pursuant to which the Debentures are to be issued, as such Indenture
is amended or supplemented from time to time in accordance with the terms
thereof.
INTEREST PAYMENT DATE: As defined in the Indenture.
NASD: National Association of Securities Dealers, Inc.
<PAGE>
OFFERING MEMORANDUM: The Offering Memorandum, dated December 13,
1995, and all amendments and supplements thereto, relating to the Debentures and
prepared by the Company pursuant to the Purchase Agreement.
PERSON: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
PRELIMINARY PROSPECTUS: As defined in Section 3(g).
PROSPECTUS: The prospectus included in the Shelf Registration
Statement, as amended or supplemented by any Prospectus Supplement with respect
to the terms of the offering of any portion of the Transfer Restricted
Securities (as defined herein) covered by the Shelf Registration Statement and
by all other amendments and supplements to the prospectus, including
post-effective amendments, and all material which may be incorporated by
reference into such prospectus.
PROSPECTUS SUPPLEMENT: As defined in Section 5(b).
RECORD HOLDER: (i) With respect to any Damages Payment Date
relating to the Debentures, each Person who is registered on the books of the
Registrar as the holder of Debentures on the record date with respect to the
Interest Payment Date on which such Damages Payment Date shall occur and (ii)
with respect to any Damages Payment Date relating to the Common Stock, each
Person who is a holder of record of such Common Stock fifteen days prior to the
Damages Payment Date.
REGISTRATION EXPENSES: As defined in Section 6(a).
SHELF REGISTRATION STATEMENT: As defined in Section 3(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended (15 U.S.C.
Section 77aaa-77bbbb) as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Debenture and share of Common
Stock of the Company issuable upon conversion of a Debenture, until each such
Debenture or share (i) has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement covering it,
(ii) is distributed to the public pursuant to Rule 144 or (iii) may be sold or
transferred pursuant to Rule 144(k) (or any similar provisions then in force)
under the Securities Act or otherwise.
UNDERWRITER: Any underwriter, placement agent, selling broker,
dealer manager, qualified independent underwriter or similar securities industry
professional.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: An offering in
which securities of the Company are sold to an Underwriter or with the
assistance of such Underwriter for reoffering to the public on a firm commitment
or best efforts basis.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) TRANSFER RESTRICTED SECURITIES. The securities entitled to
the benefits of this Agreement are the Transfer Restricted Securities.
(b) HOLDERS OF TRANSFER RESTRICTED SECURITIES. A Person is
deemed to be a holder of Transfer Restricted Securities (each, a "Holder")
whenever such Person owns Transfer Restricted Securities.
2
<PAGE>
SECTION 3. SHELF REGISTRATION
(a) The Company shall cause to be filed with the Commission on or
prior to 60 days after the Closing Date, a shelf registration statement pursuant
to Rule 415 under the Act (as may then be amended) (the "Shelf Registration
Statement") on Form S-1 or Form S-3, if the use of such form is then available
and as determined by the Company, to cover resales of Transfer Restricted
Securities by the Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Holders of such Transfer Restricted Securities shall have provided the
representations required pursuant to Section 3(g) hereof. The Company shall use
its reasonable best efforts to cause such Shelf Registration Statement to be
declared effective by the Commission on or prior to 90 days after the Closing
Date. The Company shall use its reasonable best efforts to keep such Shelf
Registration Statement continuously effective for a period ending three years
from the effective date thereof or such shorter period that will terminate when
each of the Transfer Restricted Securities covered by the Shelf Registration
Statement shall cease to be a Transfer Restricted Security. The Company further
agrees to use its reasonable best efforts to prevent the happening of any event
that would cause the Shelf Registration Statement to contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or to
be not effective and usable for resale of the Transfer Restricted Securities
during the period that such Shelf Registration Statement is required to be
effective and usable.
Upon the occurrence of any event that would cause the Shelf
Registration Statement (i) to contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) to be not effective and usable for
resale of Transfer Restricted Securities during the period that such Shelf
Registration Statement is required to be effective and usable, the Company shall
as promptly as practicable file an amendment to the Shelf Registration
Statement, in the case of clause (i), correcting any such misstatement or
omission, and in the case of either clause (i) or (ii), use its best efforts to
cause such amendment to be declared effective and such Shelf Registration
Statement to become usable as soon as practicable thereafter.
(b) None of the Company nor any of its security holders (other
than the Holders of Transfer Restricted Securities in such capacity and other
shareholders having registration rights permitting them to participate therein,
as disclosed in the Offering Memorandum) shall have the right to include any of
the Company's securities in the Shelf Registration Statement.
(c) If the Holders of a majority of the outstanding Transfer
Restricted Securities so elect (with holders of Common Stock constituting
Transfer Restricted Securities being deemed to be Holders of the aggregate
principal amount of Debentures converted into such Common Stock for purposes of
such calculation), an offering of Transfer Restricted Securities pursuant to the
Shelf Registration Statement may be effected in the form of an Underwritten
Offering. The Holders of the Transfer Restricted Securities to be registered
shall pay all underwriting discounts and commissions of such Underwriters.
(d) If any of the Transfer Restricted Securities covered by the
Shelf Registration Statement are to be sold in an Underwritten Offering, the
Underwriter(s) that will administer the offering will be selected by the Holders
of a majority of the outstanding Transfer Restricted Securities (with holders of
Common Stock constituting Transfer Restricted Securities being deemed to be
Holders of the aggregate principal amount of Debentures converted into such
Common Stock for purposes of such calculation); PROVIDED, HOWEVER, that such
Underwriter(s) shall be reasonably satisfactory to the Company.
(e) Each Holder whose Transfer Restricted Securities are covered
by a Shelf Registration Statement filed pursuant to this Section 3 agrees, upon
the request of the Underwriter(s) in any Underwritten Offering, not to effect
any sale or distribution of securities of the Company of the same
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<PAGE>
class as the securities included in such Shelf Registration Statement, for a
period of up to 90 days beginning on the date any such Underwritten Offering
made pursuant to such Shelf Registration Statement commences, to the extent
timely notified in writing by such Underwriter(s).
(f) The Company agrees not to effect any public or private
offer, sale or distribution of Securities of the same quality and nature as the
Transfer Restricted Securities to be registered in an Underwritten Offering, and
during the 90-day period beginning on the date any such Underwritten Offering
made pursuant to the Shelf Registration Statement commences, to the extent
timely notified in writing by the Underwriter(s) (except as part of such
registration, if permitted, or pursuant to registrations on Forms S-4 or S-8 or
any successor form to such Forms), unless the Underwriter(s) shall consent in
writing to a shorter period of time; PROVIDED, HOWEVER, that any such agreement
shall permit (A) the issuance by the Company of any shares of Common Stock
issued to employees of the Company or to any other eligible person pursuant to
any employee stock option plan, stock ownership plan, stock bonus plan or stock
compensation plan of the Company in effect on the date of such Underwritten
Offering, and (B) the issuance by the Company of Common Stock upon the
conversion of securities, or the exercise of options or warrants, outstanding at
the date of such Underwritten Offering.
(g) No Holder of Transfer Restricted Securities may include any
of its Transfer Restricted Securities in any Shelf Registration Statement
pursuant to this Agreement unless such Holder furnishes to the Company in
writing, within 10 business days after receipt of a request therefor, such
information as the Company may reasonably request for use in connection with any
Shelf Registration Statement or Prospectus or preliminary Prospectus (a
"Preliminary Prospectus") included therein.
SECTION 4. LIQUIDATED DAMAGES
(a) If (i) the Shelf Registration Statement is not filed with
the Commission on or prior to 60 days after the Closing Date, (ii) the Shelf
Registration Statement has not been declared effective by the Commission within
90 days after the Closing Date (the "Effectiveness Target Date"), or (iii) the
Shelf Registration Statement is filed and declared effective but shall
thereafter cease to be effective or useable for resale without being succeeded
immediately by any additional Shelf Registration Statement filed and declared
effective (each such event referred to in clauses (i) through (iii), a
"Registration Default"), the Company will pay liquidated damages to each Holder
of Transfer Restricted Securities who has complied with such Holder's
obligations under this Agreement. 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 $0.07 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. The Company shall notify the Trustee and the Initial
Purchasers within one business day after each and every date on which a
Registration Default occurs. All accrued liquidated damages shall be paid to
Record Holders by wire transfer of immediately available funds or by federal
funds check by the Company on each Damages Payment Date. Following the cure of
all Registration Defaults, liquidated damages will cease to accrue with respect
to such Registration Default.
All of the Company's obligations set forth in the preceding
paragraph which are outstanding with respect to any Transfer Restricted Security
at the time such security ceases to be a Transfer Restricted Security shall
survive until such time as all such obligations with respect to such security
shall have been satisfied in full.
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<PAGE>
The parties hereto agree that the liquidated damages provided in
this Section 4 constitute a reasonable estimate of the damages that will be
incurred by Holders of Transfer Restricted Securities by reason of the failure
of the Shelf Registration Statement to be filed, declared effective or to remain
effective, as the case may be.
SECTION 5. REGISTRATION PROCEDURES
In connection with the Shelf Registration Statement, the Company
will use its best efforts to effect such registration to permit the sale of the
Transfer Restricted Securities being sold in accordance with the intended method
or methods of distribution or disposition thereof, and pursuant thereto the
Company will as expeditiously as possible after the Closing Date:
(a) on or prior to the date 60 days after the Closing Date,
prepare and file with the Commission a Shelf Registration Statement relating to
the registration on Form S-1 or Form S-3, if the use of such form is then
available and as determined by the Company, for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements required to be
included or incorporated by reference therein; cooperate and assist in any
filings required to be made with the NASD and use its reasonable best efforts to
cause such Shelf Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the selling
Holders to consummate the disposition of such Transfer Restricted Securities;
PROVIDED, HOWEVER, that before filing a Shelf Registration Statement or any
Prospectus, or any amendments or supplements thereto, the Company will furnish
to the Holders and the Underwriter(s), if any, copies of all such documents
proposed to be filed (except that the Company shall not be required to furnish
any exhibits to such documents, including those incorporated by reference,
unless so requested by a Holder or Underwriter in writing), and the Company will
not file any Shelf Registration Statement or amendment thereto or any Prospectus
or any supplement thereto to which (i) the Underwriter(s), if any, shall
reasonably object or (ii) if there are no Underwriters, the Holders of a
majority of the outstanding Transfer Restricted Securities shall reasonably
object (with holders of Common Stock constituting Transfer Restricted Securities
being deemed to be Holders of the aggregate principal amount of Debentures
converted into such Common Stock for purposes of such calculation), in each such
case within five business days after the receipt thereof. A Holder or
Underwriter, if any, shall be deemed to have reasonably objected to such filing
if the Shelf Registration Statement, amendment, Prospectus or supplement, as
applicable, as proposed to be filed contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading which misstatement or
omission is specifically identified to the Company in writing within such five
business days;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Shelf Registration Statement as may be
necessary to keep the Shelf Registration Statement effective for the applicable
period set forth in Section 3(a) hereof; cause the Prospectus to be supplemented
by any required supplement thereto (a "Prospectus Supplement"), and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully
with the applicable provisions of Rules 424 and 430A under the Act in a timely
manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Shelf Registration Statement
during the applicable period in accordance with the intended method or methods
of distribution by the sellers thereof set forth in such Shelf Registration
Statement, Prospectus or Prospectus Supplement;
(c) if requested by the Holders of Transfer Restricted
Securities, or if the Transfer Restricted Securities are being sold in an
Underwritten Offering, the Underwriter(s) of such Underwritten Offering,
promptly incorporate in the Prospectus, any Prospectus Supplement or
post-effective amendment to the Shelf Registration Statement such information as
the Underwriters and/or the Holders of Transfer Restricted Securities being sold
agree should be included therein relating to the plan of distribution of the
Transfer Restricted Securities, including, without limitation, information with
respect to the principal
5
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amount of Debentures and/or the number of shares of Common Stock being sold to
such Underwriter(s), the purchase price being paid therefor and any other terms
with respect to the offering of the Transfer Restricted Securities to be sold in
such offering; and make all required filings of such Prospectus, Prospectus
Supplement or post-effective amendment as soon as practicable after the Company
is notified of the matters to be incorporated in such Prospectus, Prospectus
Supplement or post-effective amendment;
(d) advise the Underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice in writing,
(i) when the Prospectus or any Prospectus Supplement or post-effective amendment
to the Shelf Registration Statement has been filed, and, with respect to the
Shelf Registration Statement or any post-effective amendment thereto, when the
same has become effective, (ii) of any request by the Commission for amendments
to the Shelf Registration Statement or amendments or supplements to the
Prospectus or for additional information relating thereto, (iii) of the issuance
by the Commission of any stop order suspending the effectiveness of the Shelf
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted Securities
for offering or sale in any jurisdiction, or the initiation of any proceeding
for any of the preceding purposes, (iv) if at any time the representations and
warranties of the Company contemplated by paragraph (m)(i) below cease to be
true and correct, and (v) of the existence of any fact and the happening of any
event that makes any statement of a material fact made in the Shelf Registration
Statement, the Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of any
additions to or changes in the Shelf Registration Statement or the Prospectus in
order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the Shelf
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state securities or
Blue Sky laws, the Company shall use their reasonable best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(e) promptly following the filing of any document that is to be
incorporated by reference into the Shelf Registration Statement or the
Prospectus subsequent to the initial filing of the Shelf Registration Statement,
provide copies of such document (excluding exhibits, unless requested by a
Holder in writing) to the Holders;
(f) furnish to each Holder and each of the Underwriter(s), if
any, without charge, at least one copy of the Shelf Registration Statement, as
first filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits (excluding exhibits
to documents incorporated by reference therein unless requested by such Holder
or Underwriter);
(g) deliver to each selling Holder and each of the
Underwriter(s), if any, without charge, as many copies of any Preliminary
Prospectus and the Prospectus and any amendments or supplements thereto as such
Persons may reasonably request; the Company consents to the use of any
Preliminary Prospectus and the Prospectus and any amendments or supplements
thereto by each of the selling Holders and each of the Underwriter(s), if any,
in connection with the public offering and the sale of the Transfer Restricted
Securities covered by any Preliminary Prospectus and the Prospectus or any
amendments or supplements thereto;
(h) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the Underwriter(s), if any, and
their respective counsel in connection with the registration and qualification
of the Transfer Restricted Securities under the securities or Blue Sky laws of
such jurisdictions as the selling Holders or Underwriter(s) may request and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdiction of the Transfer Restricted Securities covered
by the Shelf Registration Statement; PROVIDED, HOWEVER, that the Company shall
not be required (i) to register or qualify as a foreign corporation where it is
not now so qualified or (ii) to take any action
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<PAGE>
that would subject it to the service of process in suits, other than as to
matters and transactions relating to the Shelf Registration Statement, in any
jurisdiction where it is not now so subject;
(i) cooperate with the selling Holders and the Underwriter(s),
if any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Transfer Restricted Securities to be in
such denominations and registered in such names as the Holders or the
Underwriter(s), if any, may request at least two business days prior to any sale
of Transfer Restricted Securities;
(j) use its best efforts to cause the Transfer Restricted
Securities covered by the Shelf Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the Underwriter(s), if any, to
consummate the disposition of such Transfer Restricted Securities, subject to
the proviso contained in clause (h) above;
(k) if any fact or event contemplated by clause (d)(v) above
shall exist or have occurred, prepare a post-effective amendment or supplement
to the Shelf Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading;
(l) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Shelf Registration Statement
and provide the Trustee under the Indenture and/or the transfer agent for the
Common Stock with printed certificates for the Transfer Restricted Securities
which are in a form eligible for deposit with the Depository Trust Company;
(m) enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith as may
reasonably be required in order to expedite or facilitate the disposition of the
Transfer Restricted Securities pursuant to the Shelf Registration Agreement, in
connection with an Underwritten Registration, and (i) make such representations
and warranties to the Holders and the Underwriter(s), in form, substance and
scope as they may reasonably request and as are customarily made by issuers to
Underwriters in primary Underwritten Offerings and covering matters including,
but not limited to, those set forth in the Purchase Agreement; (ii) obtain
opinions of counsel for the Company and updates thereof in customary form and
covering matters reasonably requested by the Underwriter(s) of the type
customarily covered in legal opinions to Underwriters in connection with primary
Underwritten Offerings addressed to each selling Holder and the Underwriter
requesting the same and covering the matters as may be reasonably requested by
such Holders and Underwriters; (iii) obtain "cold comfort" letters and updates
thereof from the Company's independent certified public accountants addressed to
the selling Holders of Transfer Restricted Securities and the Underwriters
requesting the same, such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters to Underwriters in
connection with primary Underwritten Offerings; (iv) set forth in full or
incorporate by reference in the underwriting agreement the indemnification
provisions and procedures of Section 7 hereof with respect to all parties to be
indemnified pursuant to said Section; and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of the Transfer
Restricted Securities being sold or the Underwriter(s) of such Underwritten
Offering to evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement entered into by the Company
pursuant to this clause (m). The above shall be done at or prior to each
closing under such underwriting agreement, as and to the extent required
thereunder;
(n) make available at reasonable times and in a reasonable
manner for inspection by a representative of the Holders of the Transfer
Restricted Securities, any Underwriter participating in any disposition pursuant
to such Shelf Registration Statement, and any attorney or accountant retained by
such
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<PAGE>
selling Holders or any of the Underwriters, all financial and other records,
pertinent corporate documents and properties of the Company and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such Holder, Underwriter, attorney or accountant in connection
with such Shelf Registration Statement prior to its effectiveness, PROVIDED,
HOWEVER, that such representatives, attorneys or accountants shall agree to keep
confidential (which agreement shall be confirmed in writing in advance to the
Company if the Company shall so request) all information, records or documents
made available to such persons which are not otherwise available to the general
public unless disclosure of such records, information or documents is required
by court or administrative order (of which the Company shall have been given
prior notice and an opportunity to defend) after the exhaustion of all appeals
therefrom, and to use such information obtained pursuant to this provision only
in connection with the transaction for which such information was obtained, and
not for any other purpose;
(o) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to its security holders, as soon as practicable, a consolidated earnings
statement, which consolidated earnings statement shall satisfy the provisions of
Section 11(a) of the Act, for the twelve-month period (i) commencing at the end
of any fiscal quarter in which Transfer Restricted Securities are sold to
Underwriters in a firm commitment or best efforts Underwritten Offering or (ii)
if not sold to Underwriters in such an offering, beginning with the first month
of the Company's first fiscal quarter commencing after the effective date of the
Shelf Registration Statement;
(p) cause the Indenture to be qualified under the TIA, and, in
connection therewith, cooperate with the Trustee and the Holders to effect such
changes to the Indenture as may be required for such Indenture to be so
qualified in accordance with the terms of the TIA; and execute and use its best
efforts to cause the Trustee to execute, all documents as may be required to
effect such changes and all other forms and documents required to be filed with
the Commission to enable such Indenture to be so qualified in a timely manner;
(q) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Shelf Registration Statement at the
earliest possible moment;
(r) cause all Transfer Restricted Securities covered by the
Shelf Registration Statement to be listed on each securities exchange or
quotation system on which similar securities issued by the Company are then
listed if requested by the Holders of a majority of the outstanding Transfer
Restricted Securities (with holders of Common Stock constituting Transfer
Restricted Securities being deemed to be Holders of the aggregate principal
amount of Debentures converted into such Common Stock for purposes of such
calculation) or the Underwriters, if any; cause the Debentures covered by the
Shelf Registration Statement to be rated with the appropriate rating agencies,
if so requested by the Holders of a majority in aggregate principal amount of
such Debentures or the Underwriters; and
(s) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
Underwriter (including any "qualified independent Underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD).
Each Holder as to which any Shelf Registration Statement is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such Holder not materially misleading or necessary to cause such
Shelf Registration Statement not to omit a material fact with respect to such
Holder necessary in order to make the statements therein not misleading.
Each Holder agrees by acquisition of such Transfer Restricted
Securities that, upon receipt of any notice from the Company of the existence of
any fact of the kind described in Section 5(d)(v)
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<PAGE>
hereof, such Holder will forthwith discontinue disposition of Transfer
Restricted Securities until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "Advice") by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings with respect to the Prospectus. If so directed by the
Company, each Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Holder's possession, of
the Prospectus covering such Transfer Restricted Securities current at the time
of receipt of such notice. In the event Company shall give any such notice, the
time period regarding the effectiveness of the Shelf Registration Statement set
forth in Section 3(a) hereof shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 5(d)(v) hereof to and including the date when each selling Holder
covered by such Shelf Registration Statement shall have received the copies of
the supplemented or amended Prospectus contemplated by Section 5(k) hereof or
shall have received the Advice.
SECTION 6. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement (the "Registration Expenses") will be borne by
the Company, regardless of whether a Shelf Registration Statement becomes
effective, including without limitation:
(i) all registration and filing fees and expenses (including
filings made with the NASD);
(ii) fees and expenses of compliance with federal securities or
state blue sky laws;
(iii) expenses of printing (including, without limitation,
expenses of printing or engraving certificates for the Transfer Restricted
Securities in a form eligible for deposit with Depository Trust Company and
of printing the Prospectus and any Preliminary Prospectus), messenger and
delivery services and telephone;
(iv) fees and disbursements of counsel for the Company and for
the Holders of the Transfer Restricted Securities (subject to the
provisions of Section 6(b) hereof);
(v) fees and disbursements of all independent certified public
accountants of the Company (including the expenses of any special audit and
"cold comfort" letters required by or incidental to the preparation and
filing of a Shelf Registration Statement and Prospectus and the disposition
of Transfer Restricted Securities);
(vi) fees and expenses associated with any NASD filing required
to be made in connection with the Shelf Registration Statement, including,
if applicable, the fees and expenses of any "qualified independent
Underwriter" (and its counsel) that is required to be retained in
accordance with the rules and regulations of the NASD; and
(vii) fees and expenses of listing the Transfer Restricted
Securities on any securities exchange or quotation system in accordance
with Section 5(r) hereof.
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, rating agency fees and the fees and expenses of any Person, including
special experts, retained by the Company. The Holders of Transfer Restricted
Securities shall bear the expense of any broker's commission or Underwriter's
discount or commission.
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(b) In connection with the Shelf Registration Statement, the
Company will reimburse the Holders of Transfer Restricted Securities being
registered pursuant to such Shelf Registration Statement for the reasonable fees
and disbursements of not more than one counsel chosen by the Holders of a
majority of the outstanding Transfer Restricted Securities (with holders of
Common Stock constituting Transfer Restricted Securities being deemed to be
Holders of the aggregate principal amount of Debentures converted into such
Common Stock for purposes of such calculation).
Notwithstanding the provisions of this Section 6(b), each Holder of
Transfer Restricted Securities shall pay all Registration Expenses to the extent
required by applicable law.
SECTION 7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each
of the Initial Purchasers, (ii) each Holder, (iii) each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) either of the Initial Purchasers or any Holder (any of the persons
referred to in this clause (iii) being hereinafter referred to as a "controlling
person") and (iv) the respective officers, directors, partners, employees,
representatives and agents of either of the Initial Purchasers or any Holder or
any controlling person (any person referred to in clause (i), (ii), (iii) or
(iv) may hereinafter be referred to as a "Non-Company Indemnitee"), to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in the Shelf Registration Statement,
Prospectus or Preliminary Prospectus (or any amendments or supplements thereto),
including any document incorporated by reference therein, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except, with respect to any Non-Company Indemnitee, insofar as such losses,
claims, damages, liabilities or judgments (1) are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information furnished in writing to the Company by such Non-Company Indemnitee
expressly for use therein or (2) with respect to any Preliminary Prospectus,
result from the fact that such Non-Company Indemnity sold Transfer Restricted
Securities to a person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final Prospectus, as amended or
supplemented, if the Company shall have previously furnished copies thereof to
such Non-Company Indemnitee in accordance with this Agreement and the final
Prospectus, as amended or supplemented, would have corrected such untrue
statement or omission.
(b) In case any action shall be brought against any Non-Company Indemnitee,
based upon the Shelf Registration Statement, Prospectus, or Preliminary
Prospectus (or any amendments or supplements thereto), and with respect to which
indemnity may be sought against the Company, such Non-Company Indemnitee shall
promptly notify the Company in writing and the Company shall assume the defense
thereof, including the employment of counsel and payment of all fees and
expenses; PROVIDED, HOWEVER, that the omission so to notify the Company shall
not relieve the Company from any liability that it may have to any Non-Company
Indemnitee (except to the extent that the Company is materially prejudiced or
otherwise forfeits substantive rights or defenses by reason of such failure).
Such Non-Company Indemnitee shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of counsel shall be paid by such Non-Company Indemnitee, unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the Company, (ii) the Company shall have failed to assume the defense and employ
counsel or (iii) the named parties to any such action (including any impleaded
parties) include both such Non-Company Indemnitee and the Company and it would
be inappropriate for the same counsel to represent such Non-Company Indemnitee
and the Company (in which case the Company shall not have the right to assume
the defense of such action on behalf of such Non-Company Indemnitee, it being
understood, however, that the Company shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for the Non-Company Indemnitees, which firm
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<PAGE>
shall be designated in writing by the Non-Company Indemnitees and whose fees and
expenses reasonably incurred shall be reimbursed as they are incurred). The
Company shall not be liable for any settlement of any such action effected
without the written consent of the Company, but if settled with the written
consent of the Company, the Company agrees to indemnify and hold harmless any
Non-Company Indemnitee from and against any amounts payable pursuant to such
written consent in connection with such settlement. Notwithstanding the
immediately preceding sentence, if in any case where the fees and expenses of
counsel are at the expense of the Company and a Non-Company Indemnitee shall
have requested the Company to reimburse such Non-Company Indemnitee for such
fees and expenses of counsel as incurred, the Company agrees that it shall be
liable for any settlement of any action effected without its written consent if
(i) each settlement is entered into more than 30 business days after the receipt
by the Company of the aforesaid request and (ii) the Company shall have failed
to reimburse such Non-Company Indemnitee in accordance with such request for
reimbursement prior to the date of such settlement. The Company shall not,
without the prior written consent of such Non-Company Indemnitee, effect any
settlement of any pending or threatened proceeding in respect of which such Non-
Company Indemnitee is or could have been a party and indemnity could have been
sought hereunder by such Non-Company Indemnitee, unless such settlement includes
an unconditional release of such Non-Company Indemnitee from all liability on
claims that are the subject matter of such proceeding.
(c) Each Holder of Transfer Restricted Securities agrees to
indemnify and hold harmless (i) the Company, (ii) each of the Initial
Purchasers, (iii) each other Holder, (iv) any person controlling (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company,
either of the Initial Purchasers and each other Holder and (v) the respective
officers, directors, partners, employees, representatives and agents of each of
the parties referred to in clauses (i), (ii), (iii) and (iv), to the same extent
as the foregoing indemnity from the Company to each of the Non-Company
Indemnitees, but only with respect to information relating to such Holder that
was furnished in writing by such Holder expressly for use in the Shelf
Registration Statement (or any amendment or supplement thereto). In no event
shall the liability of any selling Holder hereunder be greater in amount than
the dollar amount of the proceeds received by such Holder upon the sales of the
Transfer Restricted Securities giving rise to such indemnification obligation.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to herein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments in such proportion as is appropriate to
reflect the relative fault of the indemnifying party, on the one hand, and the
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party, on the one hand, and the indemnified party, on
the other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party, on the one hand, or the indemnified party, on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, each of the Initial Purchasers and each Holder of
Transfer Restricted Securities agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The losses, claims, damages, liabilities or judgments of an indemnified party
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim prior to the indemnifying party's
assumption of the defense thereof or subsequent thereto to the extent permitted
by the second sentence of Section 7(b) hereof. Notwithstanding the provisions
of this Section
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7, none of the Holders shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total amount received by such Holder
with respect to the sale of Transfer Restricted Securities exceeds the sum of
(A) the amount paid by such Holder for such Notes PLUS (B) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 7(d) are several in proportion to the respective
principal amount of Notes held by each of the Holders hereunder and not joint.
SECTION 8. RULE 144A
The Company hereby agrees with each Holder, for so long as any of
the Debentures or shares of Common Stock that are Transfer Restricted Securities
remain outstanding and during any such period in which the Company is not
subject to Section 13 or 15(d) of the Exchange Act, to make available to any
Initial Purchaser or any beneficial owner of the Debentures or shares of such
Common Stock in connection with any sale thereof and any prospective purchaser
of such Debentures or Common Stock from such Initial Purchaser or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Transfer Restricted Securities pursuant to Rule 144A.
SECTION 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Offering hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements, (b) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements and (c) furnishes the Company in writing information in accordance
with Section 3(g) and agrees to indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement and any person
controlling the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act to the extent contemplated by Section 7(c).
SECTION 10. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
Underwriter(s) that will administer the offering will be selected by the Holders
of the Transfer Restricted Securities included in such offering in the manner
specified in Section 3(c); PROVIDED, HOWEVER, that such Underwriters must be
reasonably satisfactory to the Company.
SECTION 11. MISCELLANEOUS
(a) REMEDIES. Each Holder of Transfer Restricted Securities, in
addition to being entitled to exercise all rights provided herein, and as
provided in the Purchase Agreement and granted by law, including recovery of
damages, will be entitled to specific performance of such Holder's rights under
this Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
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(b) NO INCONSISTENT AGREEMENTS. The Company will not on or
after the date of this Agreement enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders of
Transfer Restricted Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders of Transfer Restricted
Securities hereunder do not in any way conflict with and are not inconsistent
with the rights granted to the holders of the Company's securities under any
other agreements.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of a majority of the outstanding Transfer Restricted Securities affected by such
amendment, modification, supplement, waiver or departure (with holders of Common
Stock constituting Transfer Restricted Securities being deemed to be Holders of
the aggregate principal amount of Debentures converted into such Common Stock
for purposes of such calculation). Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders of Transfer Restricted Securities whose securities are being
sold pursuant to such Shelf Registration Statement and that does not directly or
indirectly affect the rights of other Holders of Transfer Restricted Securities
shall be valid only with the written consent of Holders of at least 66-2/3% of
the Transfer Restricted Securities being sold, in each case calculated in
accordance with the provisions of Section 3(c).
(d) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail (registered or certified, return receipt requested), telex, telecopier, or
air courier guaranteeing overnight delivery:
(i) if to a Holder of Transfer Restricted Securities, at the
address set forth on the records of the Registrar under the Indenture, with
a copy to the Registrar; and
(ii) if to the Company or an Initial Purchaser, initially at its
address set forth in the Purchase Agreement and thereafter at such other
address, notice of which is given in accordance with the provisions of this
Section.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged, if telecopied; and on
the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands or other communications shall
be concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in the Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; PROVIDED,
HOWEVER, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder of Transfer Restricted Securities unless
and to the extent such successor or assign acquired Transfer Restricted
Securities from such Holder; and provided further that nothing herein shall be
deemed to permit any assignment, transfer or any disposition of Transfer
Restricted Securities in violation of the terms of the Purchase Agreement. If
any transferee of any Holder shall acquire Transfer Restricted Securities, in
any manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement and by
taking and holding such Transfer Restricted Securities such person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
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(f) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAW RULES THEREOF.
(i) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) ENTIRE AGREEMENT. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the securities sold pursuant to the Purchase Agreement. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
PHP HEALTHCARE CORPORATION
By:/s/ Jack M. Mazur
-----------------------------------------
Name: Jack M. Mazur
Title: President
BY:
By:/s/ Benjamin D. Lorello
-----------------------------------------
Name: Benjamin D. Lorello
Title: Managing Director
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OFFERING MEMORANDUM STRICTLY CONFIDENTIAL
$60,000,000
[LOGO]
PHP HEALTHCARE CORPORATION
6 1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
Interest payable June 15 and December 15
-------------
The Debentures are convertible into Common Stock of PHP Healthcare
Corporation ("PHP" or 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 December 13, 1995, the closing price of the
Common Stock on the New York Stock Exchange was $22 5/8 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 Offering Memorandum, 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 of the Company and will be
effectively subordinated to all indebtedness and liabilities of subsidiaries of
the Company. The Indenture will 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."
SEE "RISK FACTORS" BEGINNING AT PAGE 8 HEREIN FOR CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------
THE DEBENTURES AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD WITHIN
THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERMS ARE DEFINED UNDER THE
SECURITIES ACT) EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS. ACCORDINGLY, THE DEBENTURES AND THE
UNDERLYING COMMON STOCK ARE BEING OFFERED AND SOLD ONLY TO (A)
"QUALIFIED INSTITUTIONAL BUYERS" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN COMPLIANCE WITH RULE 144A AND (B) OUTSIDE THE
UNITED STATES TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN
RELIANCE ON REGULATION S UNDER THE SECURITIES ACT. PROSPECTIVE
PURCHASERS ARE HEREBY NOTIFIED THAT SELLERS OF THE DEBENTURES
AND THE UNDERLYING COMMON STOCK MAY BE RELYING ON THE
EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A. SUBJECT TO LIMITED EXCEPTIONS, DEBENTURES AND
UNDERLYING COMMON STOCK SOLD IN RELIANCE UPON
REGULATION S MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO U.S. PERSONS (AS SUCH TERMS ARE
DEFINED IN THE SECURITIES ACT). FOR CERTAIN
RESTRICTIONS ON RESALES, SEE "NOTICE TO INVESTORS."
<TABLE>
<CAPTION>
PRICE TO DISCOUNTS AND PROCEEDS TO THE
INVESTORS (1) COMMISSIONS (2) COMPANY (3)
<S> <C> <C> <C>
Per Debenture 100% 3.0% 97.0%
Total (4) $60,000,000 $1,800,000 $58,200,000
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Initial Purchasers against certain
liabilities, including liabilities under the Securities Act. See "Plan of
Distribution."
(3) Before estimated expenses of $500,000 payable by the Company.
(4) The Company has granted the Initial Purchasers an option, exercisable
within 30 days of the date hereof, to purchase up to an additional
$9,000,000 aggregate principal amount of Debentures on the same terms as
set forth above to cover over-allotments, if any. If the Initial Purchasers
exercise such option in full, the total Price to Investors, Discounts and
Commissions and Proceeds to the Company will be $69,000,000, $2,070,000 and
$66,930,000, respectively. See "Plan of Distribution."
--------------------
The Debentures are being offered by the Initial Purchasers named herein,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that the Debentures will be available for delivery on
or about December 19, 1995 at the offices of , 388 Greenwich
Street, New York, New York 10013.
----------------
December 13, 1995
<PAGE>
PHP'S INTEGRATED SYSTEM OF CARE
[CHART]
--------------
THIS OFFERING MEMORANDUM IS HIGHLY CONFIDENTIAL AND HAS BEEN PREPARED SOLELY
IN CONNECTION WITH AN OFFERING IN COMPLIANCE WITH CERTAIN EXEMPTIONS UNDER THE
SECURITIES ACT FOR THE BENEFIT OF PROSPECTIVE INVESTORS INTERESTED IN THE
DEBENTURES AND QUALIFIED TO PURCHASE THE DEBENTURES IN TRANSACTIONS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT. THIS OFFERING MEMORANDUM IS PERSONAL TO
THE OFFEREE TO WHOM IT HAS BEEN DELIVERED AND DOES NOT CONSTITUTE AN OFFER TO
ANY OTHER PERSON OR TO THE PUBLIC GENERALLY TO SUBSCRIBE FOR OR OTHERWISE
ACQUIRE THE DEBENTURES. DISTRIBUTION OF THIS OFFERING MEMORANDUM TO ANY PERSON
OTHER THAN THE OFFEREE AND THOSE PERSONS, IF ANY, RETAINED TO ADVISE SUCH
OFFEREE WITH RESPECT THERETO IS UNAUTHORIZED AND ANY REPRODUCTION OR
DISTRIBUTION OF THIS OFFERING MEMORANDUM, IN WHOLE OR IN PART, AND ANY
DISCLOSURE OF ANY OF ITS CONTENTS TO ANY OTHER PERSON, IS PROHIBITED. THIS
OFFERING MEMORANDUM, AND ANY OTHER DOCUMENTS REFERRED TO HEREIN WHICH ARE
SUBSEQUENTLY PROVIDED TO THE OFFEREE, ARE TO BE RETURNED PROMPTLY IF THE OFFEREE
DOES NOT PURCHASE DEBENTURES OR IF THE OFFERING OF THE DEBENTURES IS TERMINATED.
SEE "NOTICE TO INVESTORS."
2
<PAGE>
THE INFORMATION CONTAINED IN THIS OFFERING MEMORANDUM HAS BEEN FURNISHED BY
THE COMPANY AND OTHER SOURCES BELIEVED BY IT TO BE RELIABLE. THE INITIAL
PURCHASERS HAVE NOT MADE ANY INDEPENDENT INVESTIGATION OF SUCH INFORMATION AND
MAKE NO REPRESENTATION OR WARRANTY AS TO THE ACCURACY OR COMPLETENESS OF ANY
SUCH INFORMATION. THIS OFFERING MEMORANDUM CONTAINS SUMMARIES, BELIEVED TO BE
ACCURATE, OF CERTAIN TERMS OF CERTAIN DOCUMENTS. ALL SUCH SUMMARIES ARE
QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH DOCUMENTS, COPIES OF WHICH ARE
AVAILABLE FROM THE COMPANY UPON REQUEST.
NEITHER THE COMPANY NOR ANY INITIAL PURCHASER IS MAKING ANY REPRESENTATION
TO ANY OFFEREE OR PURCHASER OF THE DEBENTURES REGARDING THE LEGALITY OF AN
INVESTMENT THEREIN BY SUCH OFFEREE OR PURCHASER UNDER APPROPRIATE LEGAL
INVESTMENT OR SIMILAR LAWS. EACH INVESTOR SHOULD CONSULT ITS OWN COUNSEL,
ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX, BUSINESS, FINANCIAL AND RELATED
ASPECTS OF A PURCHASE OF THE DEBENTURES.
THE COMPANY RESERVES THE RIGHT TO WITHDRAW THIS OFFERING OF ANY OR ALL OF
THE DEBENTURES AT ANY TIME, AND THE COMPANY AND THE INITIAL PURCHASERS RESERVE
THE RIGHT TO REJECT ANY COMMITMENT TO SUBSCRIBE FOR ANY DEBENTURES IN WHOLE OR
IN PART AND TO ALLOT TO ANY PROSPECTIVE INVESTOR LESS THAN THE FULL AMOUNT OF
ANY SUCH DEBENTURES SOUGHT BY SUCH INVESTOR. THE INITIAL PURCHASERS AND CERTAIN
RELATED ENTITIES MAY ACQUIRE FOR THEIR OWN ACCOUNT A PORTION OF ANY OF THE
DEBENTURES.
THE DISTRIBUTION OF THIS OFFERING MEMORANDUM AND THE OFFER OR SALE OF THE
DEBENTURES MAY BE RESTRICTED BY LAW IN CERTAIN JURISDICTIONS. PERSONS INTO WHOSE
POSSESSION THIS OFFERING MEMORANDUM OR ANY OF THE DEBENTURES COME MUST INFORM
THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. SEE "PLAN OF
DISTRIBUTION."
EACH PROSPECTIVE PURCHASER OF THE DEBENTURES MUST COMPLY WITH ALL APPLICABLE
LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION IN WHICH IT PURCHASES, OFFERS
OR SELLS THE DEBENTURES OR POSSESSES OR DISTRIBUTES THIS OFFERING MEMORANDUM AND
MUST OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED BY IT FOR THE PURCHASE,
OFFER OR SALE BY IT OF THE DEBENTURES UNDER THE LAWS AND REGULATIONS IN FORCE IN
ANY JURISDICTION TO WHICH IT IS SUBJECT OR IN WHICH IT MAKES SUCH PURCHASES,
OFFERS OR SALES AND NEITHER THE COMPANY NOR THE INITIAL PURCHASERS SHALL HAVE
ANY RESPONSIBILITY THEREFOR.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE DEBENTURES AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFERING MEMORANDUM. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF AN INVESTMENT IN THESE SECURITIES FOR AN
INDEFINITE PERIOD OF TIME.
THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE DEBENTURES IN THE UNITED
KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL SERVICES ACT 1986 AND THE
PUBLIC OFFERS OF SECURITIES REGULATIONS 1995 WITH RESPECT TO ANYTHING DONE BY
ANY PERSON IN RELATION TO THE DEBENTURES IN, FROM OR OTHERWISE INVOLVING THE
UNITED KINGDOM MUST BE COMPLIED WITH. SEE "PLAN OF DISTRIBUTION."
IN CONNECTION WITH THE OFFERING OF THE SECURITIES MADE HEREBY, THE INITIAL
PURCHASERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE COMMON STOCK OF THE COMPANY OR THE DEBENTURES OFFERED HEREBY
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS IN THE COMMON STOCK MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE REVISED STATUTES ANNOTATED,
1955, AS AMENDED ("RSA"), WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY
SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO NORTH CAROLINA RESIDENTS
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER
OF INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF
INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF THIS DOCUMENT.
------------------------
UNLESS OTHERWISE INDICATED, ALL FINANCIAL INFORMATION, SHARES AND PER SHARE DATA
IN THIS OFFERING MEMORANDUM ASSUMES (I) NO EXERCISE OF OUTSTANDING OPTIONS OR
WARRANTS TO PURCHASE SHARES OF COMMON STOCK, (II) NO EXERCISE OF CONVERSION
RIGHTS UNDER OUTSTANDING CONVERTIBLE SECURITIES, AND (III) NO EXERCISE OF THE
INITIAL PURCHASERS' OVER-ALLOTMENT OPTION. ALL SHARE AND PER SHARE DATA HAS BEEN
RESTATED TO REFLECT THE FIVE-FOR-FOUR STOCK SPLIT EFFECTED IN THE FORM OF A 25%
STOCK DIVIDEND DISTRIBUTED ON FEBRUARY 25, 1991, AND THE TWO-FOR-ONE STOCK SPLIT
EFFECTED IN THE FORM OF A 100% STOCK DIVIDEND DISTRIBUTED ON NOVEMBER 20, 1995.
4
<PAGE>
OFFERING MEMORANDUM SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS OFFERING MEMORANDUM OR
INCORPORATED BY REFERENCE HEREIN. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN
FACTORS TO BE CONSIDERED BY PROSPECTIVE INVESTORS.
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 15 ISOCs for its clients and has two more ISOCs
under development, owns a 30,000-member Medicaid HMO primarily serving the
District of Columbia, and manages inpatient and outpatient health care services
under 34 government contracts, providing care in over 70 health care facilities.
As of October 31, 1995, the Company contracted with or employed over 3,000
physicians.
The Health Care Financing Administration has estimated that national health
spending in 1994 was approximately $1 trillion. Health care in the United States
historically has been delivered through a fragmented system of health care
providers on a fee-for-service basis which provides few incentives for the
efficient utilization of resources and has contributed to increases in health
care costs. Employers, insurance companies and government agencies have
increasingly turned to managed care in an attempt to effectively manage the
costs of health care. This focus on cost-containment and the shift to managed
care is forcing hospital and physician providers to seek ways to organize
themselves into more efficient health care delivery systems. At the same time,
payors and their intermediaries, including HMOs and governmental entities, are
seeking to contract with organized networks that can provide a full array of
health care services. To achieve this, many payors and their intermediaries,
including HMOs and governmental entities, are increasingly looking to outside
companies which offer skilled management and advanced information systems. In
addition, these payors and intermediaries often seek to share the risk of
providing services through capitation arrangements which provide for fixed
payments for patient care over a specified period of time.
The Company's strategy is to meet the needs of a changing health care market
by developing integrated systems of care which the Company believes enables it
to deliver high quality, cost-effective medical services in a managed care
environment. The key elements of this strategy are as follows: (i) focus on
managed care; (ii) create and develop fully integrated health care delivery
networks; (iii) utilize information systems to enhance cost-effectiveness and
clinical outcomes; (iv) focus on primary care physicians who represent the
initial point of access into an integrated health care delivery system; (v)
design patient-oriented programs; and (vi) develop new markets through selective
acquisitions and joint ventures.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ $60,000,000 principal amount of 6 1/2% Convertible
Subordinated Debentures due 2002 (the "Debentures").
Payment of Interest............... June 15 and December 15, commencing June 15, 1996.
Conversion........................ Convertible into Common Stock of the Company at the
option of the holder 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 $27.25 per share, subject to adjustment
upon the occurrence of certain events.
Subordination..................... Subordinated to all present and future Senior
Indebtedness (as defined) of the Company and effectively
subordinated to all indebtedness and other liabilities
of subsidiaries of the Company. At October 31, 1995, 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 $42.8 million. See "Capitalization." The
indenture contains no limitation on the incurrence of
indebtedness or other liabilities by the Company and its
subsidiaries.
Redemption........................ Redeemable in whole or in part, at the option of the
Company, at the redemption prices set forth herein,
together with accrued interest, except that no
redemption may be made prior to December 17, 1998.
Redemption at Holder's Option..... In the event that there shall occur a Repurchase Event
(as defined), each holder of the Debentures shall have
the right, at the holder's option, to require the
Company to repurchase such holder's Debentures at 100%
of their principal amount, plus accrued interest. The
term Repurchase Event is limited to transactions
involving a Change in Control or a Termination of
Trading (each as defined), and does not include other
events that might adversely affect the financial
condition of the Company or result in a downgrade in the
credit rating of the Debentures. The Company's ability
to repurchase the Debentures following a Repurchase
Event is dependent upon the Company's having sufficient
funds and may be limited by the terms of the Company's
Senior Indebtedness or the subordination provisions of
the Indenture. There is no assurance that the Company
will be able to repurchase the Debentures upon the
occurrence of a Repurchase Event.
Registration Rights............... The Company has agreed to file with the Securities and
Exchange Commission (the "Commission") a registration
statement (the "Shelf Registration Statement") with
respect to the Debentures and the underlying Common
Stock. See "Description of Debentures -- Registration
Rights; Liquidated Damages."
Notice to Investors............... Transfers of the Debentures will be subject to certain
restrictions. See "Notice to Investors."
Use of Proceeds................... The net proceeds from the sale of the Debentures will be
used to repay indebtedness, to fund expansion of the
Company's Commercial Managed Health Care Services
Division and for general corporate purposes, including
working capital and possible acquisitions and joint
ventures. See "Use of Proceeds."
</TABLE>
6
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
ENDED OCTOBER 31,
YEAR ENDED APRIL 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS,
RATIOS AND OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 95,323 $ 117,790 $ 126,026 $ 148,683 $ 204,131 $ 91,818 $ 95,047
Direct costs................................ 79,958 100,813 116,840 140,397 182,053 80,867 76,794
--------- --------- --------- --------- --------- --------- ---------
Gross profit.............................. 15,365 16,977 9,186 8,286 22,078 10,951 18,253
General and administrative expenses......... 8,293 10,093 13,201 16,936 19,660 9,593 13,932
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)................... 7,072 6,884 (4,015) (8,650) 2,418 1,358 4,321
Other income (expense):
Interest expense.......................... (1,061) (283) (1,071) (3,288) (2,209) (1,384) (1,098)
Interest income........................... -- 409 74 186 422 209 404
Miscellaneous income (expense)............ 139 25 (325) (504) 1,015 371 69
Minority interest in earnings (losses) of
subsidiaries............................. -- 39 (225) (213) (159) (159) --
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income taxes....... 6,150 7,074 (5,562) (12,469) 1,487 395 3,696
Income tax expense (benefit)................ 2,415 2,807 (1,806) (3,135) 535 142 1,442
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)....................... $ 3,735 $ 4,267 $ (3,756) $ (9,334) $ 952 $ 253 $ 2,254
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per common share, fully
diluted.................................... $ 0.44 $ 0.42 $ (0.38) $ (0.93) $ 0.08 $ 0.02 $ 0.17
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common shares
outstanding, fully diluted................. 8,460 10,086 9,996 10,116 11,910 10,856 13,563
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of earnings to fixed charges (1)...... 4.36x 7.15x (1.58)x (1.89)x 1.41x 1.21x 3.24x
Ratio of EBITDA to interest expense (2)..... 8.85x 33.99x (1.43)x (1.53)x 3.21x 2.58x 6.16x
</TABLE>
<TABLE>
<CAPTION>
As of April 30, As of October 31,
----------------------------------------------------- --------------------
OPERATING DATA: 1991 1992 1993 1994 1995 1994 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Physicians employed or contracted.............. 318 333 346 1,462 2,120 2,200 3,452
Health care support and administrative staff... 2,500 2,800 2,900 2,700 2,700 2,700 3,100
ISOCs operating or under development........... 1 1 3 13 15 14 17
Divisional Revenues as a % of Total Revenues
(3)
Commercial................................... 1.0% 1.0% 6.8% 29.0% 50.1% 43.0% 49.4%
Government................................... 99.0% 99.0% 93.2% 68.8% 49.7% 56.5% 50.6%
<CAPTION>
OPERATING DATA:
<S> <C>
Physicians employed or contracted..............
Health care support and administrative staff...
ISOCs operating or under development...........
Divisional Revenues as a % of Total Revenues
(3)
Commercial...................................
Government...................................
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1995
--------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED (4)
--------- ---------------
<S> <C> <C>
Working capital...................................................................... $ 16,054 $ 53,889
Total assets......................................................................... 79,849 118,616
Short-term debt...................................................................... 2,213 845
Long-term debt....................................................................... 22,078 62,213
Stockholders' equity................................................................. 22,693 22,693
</TABLE>
- ------------------------------
(1) 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.
(2) EBITDA represents earnings from continuing operations before interest
expense, income taxes, depreciation and amortization and extraordinary
items. EBITDA is included herein because management believes that certain
investors find it to be a useful tool for measuring a company's ability to
service its debt; however, EBITDA does not represent cash flow from
operations, as defined by generally accepted accounting principles, should
not be considered as a substitute for net earnings as an indicator of the
Company's operating performance or cash flow as a measure of liquidity, and
should be examined in conjunction with the Consolidated Financial
Statements of the Company included elsewhere herein.
(3) For the year ended April 30 or the six months ended October 31.
(4) Adjusted to reflect the sale of the Debentures offered hereby and the
application of the net proceeds therefrom as described under "Use of
Proceeds."
7
<PAGE>
RISK FACTORS
In addition to the other information contained in this Offering Memorandum
and in the documents incorporated herein by reference, prospective purchasers of
the Debentures should carefully consider the factors set forth below before
purchasing the Debentures.
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 six months ended
October 31, 1995, 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. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
DEPENDENCE ON CERTAIN CONTRACTS
For the year ended April 30, 1995, and for the six months ended October 31,
1995, 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 six months ended October 31, 1995, 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. See "Business -- Operations -- Commercial
Managed Health Care Services." 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.
8
<PAGE>
The Company's accounts receivable as of October 31, 1995 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 $3,000,000 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, 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 $4.3 million due November 1, 1995, and an additional $4.3 million
due December 1, 1995. 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 six
months ended October 31, 1995, 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 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
9
<PAGE>
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.
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.
10
<PAGE>
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 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
11
<PAGE>
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. See "Business -- Health Care Regulation."
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 October 31, 1995, the Company's total long-term debt, net of current
portion, accounted for 49% of its total capitalization. As adjusted to give
effect to the offering being made hereby and the application of the estimated
net proceeds therefrom as described under the caption "Use of Proceeds," such
debt accounted for 73% of the Company's total capitalization. See
"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 October 31, 1995,
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 $42.8
million. As of October 31, 1995, after giving effect to the repayment of $21.2
million of indebtedness with proceeds from this offering, the Company will have
approximately $21.5 million of indebtedness outstanding which constitutes Senior
Indebtedness or to which the Debentures are effectively subordinated. 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 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
12
<PAGE>
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
The Debentures have not been registered under the Securities Act and will be
subject to significant restrictions on resale. See "Notice to Investors." 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 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 "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 (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. Upon completion of this
offering, 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.
13
<PAGE>
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."
14
<PAGE>
THE COMPANY
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 Healthcare Corporation and its subsidiaries.
USE OF PROCEEDS
The net proceeds from the sale of the $60,000,000 principal amount of
Debentures offered hereby are estimated to be $57,700,000 ($66,430,000 if the
Initial Purchasers' over-allotment option is exercised in full), after deducting
the Initial Purchasers' discounts and commissions and estimated expenses payable
by the Company in connection with this offering. Approximately $21,200,000 of
the net proceeds will be used to repay certain existing indebtedness consisting
of borrowings under the Company's bank credit agreement (bearing interest at the
bank's prime rate plus one percent and maturing from November 1996 to April
1998) borrowed in connection with financing working capital. The Company intends
to use the balance of the net proceeds of this offering, approximately
$36,500,000 ($45,230,000 if the Initial Purchasers' over-allotment option is
exercised in full), to fund expansion of the Company's Commercial Managed Health
Care Services division (including investments in the Company's existing and
future ISOCs) and for general corporate purposes, including working capital and
possible acquisitions and joint ventures. Although the Company is continually
considering acquisitions and joint ventures, except as disclosed in this
Offering Memorandum, the Company has no agreements, arrangements or
understandings with respect to any future acquisition or joint venture. Pending
application of the net proceeds as described above, the Company intends to
invest the net proceeds of this offering in short-term, investment grade,
interest bearing obligations.
15
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and total capitalization
of the Company at October 31, 1995 and as adjusted to give effect at that date
to the issuance of the Debentures offered hereby and the application by the
Company of the estimated net proceeds therefrom as discussed under "Use of
Proceeds." The table should be read in conjunction with the Company's
consolidated financial statements and related notes thereto included elsewhere
in this Offering Memorandum.
<TABLE>
<CAPTION>
OCTOBER 31, 1995
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Short-term debt........................................................................ $ 2,213 $ 845
--------- -----------
--------- -----------
Long-term debt, less current portion
Bank debt............................................................................ 19,865 --
Other debt........................................................................... 2,213 2,213
6 1/2% Convertible Subordinated Debentures due 2002.................................. -- 60,000
--------- -----------
Total long-term debt............................................................... 22,078 62,213
--------- -----------
Stockholders' equity
Preferred Stock, $0.01 par value, 500,000 shares authorized, none issued............. -- --
Common Stock, $0.01 par value, 25,000,000 authorized, 14,146,702 issued.............. 141 141
Additional paid-in capital........................................................... 29,426 29,426
Note receivable from sale of stock................................................... (900) (900)
Retained earnings.................................................................... 684 684
Treasury stock, 3,301,194 common shares, at cost..................................... (6,658) (6,658)
--------- -----------
Total stockholders' equity......................................................... 22,693 22,693
--------- -----------
Total capitalization........................................................... $ 44,711 $ 84,906
--------- -----------
--------- -----------
</TABLE>
16
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial data set forth below with respect to the
Company's consolidated statements of operations and balance sheets is derived
from the Consolidated Financial Statements of the Company as audited by Coopers
& Lybrand L.L.P., independent accountants, for the year ended April 30, 1995 and
KPMG Peat Marwick LLP, independent public accountants, for the prior four years,
and gives retroactive effect to the five-for-four stock split in the form of a
25% stock dividend distributed on February 25, 1991 to holders of record on
February 11, 1991, and the two-for-one stock split effected in the form of a
100% stock dividend distributed on November 20, 1995 to stockholders of record
on November 1, 1995. The financial data for the six months ended October 31,
1994 and 1995 are derived from the unaudited financial statements of the
Company. In the opinion of management, the selected financial data for the six
months ended October 31, 1994 and 1995 reflect all adjustments, which are of a
normal recurring nature, necessary to present fairly the financial data for the
six months then ended. Operating results for the six months ended October 31,
1995 are not necessarily indicative of results that may be expected for the
entire fiscal year ending April 30, 1996. The data presented below should be
read in conjunction with and is qualified by reference to the consolidated
financial statements of the Company and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, OCTOBER 31,
------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
--------- --------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS AND RATIOS)
STATEMENTS OF OPERATIONS DATA:
Revenues.................................. $ 95,323 $ 117,790 $ 126,026 $ 148,683 $ 204,131 $ 91,818 $ 95,047
Direct costs.............................. 79,958 100,813 116,840 140,397 182,053 80,867 76,794
--------- --------- ---------- ---------- --------- --------- ---------
Gross profit............................ 15,365 16,977 9,186 8,286 22,078 10,951 18,253
General and administrative expenses....... 8,293 10,093 13,201 16,936 19,660 9,593 13,932
--------- --------- ---------- ---------- --------- --------- ---------
Operating income (loss)................. 7,072 6,884 (4,015) (8,650) 2,418 1,358 4,321
Other income (expense):
Interest expense........................ (1,061) (283) (1,071) (3,288) (2,209) (1,384) (1,098)
Interest income......................... -- 409 74 186 422 209 404
Miscellaneous income (expense).......... 139 25 (325) (504) 1,015 371 69
Minority interest in earnings (losses)
of subsidiaries........................ -- 39 (225) (213) (159) (159) --
--------- --------- ---------- ---------- --------- --------- ---------
Earnings (loss) before income taxes..... 6,150 7,074 (5,562) (12,469) 1,487 395 3,696
Income tax expense (benefit).............. 2,415 2,807 (1,806) (3,135) 535 142 1,442
--------- --------- ---------- ---------- --------- --------- ---------
Net earnings (loss)................... $ 3,735 $ 4,267 $ (3,756) $ (9,334) $ 952 $ 253 $ 2,254
--------- --------- ---------- ---------- --------- --------- ---------
--------- --------- ---------- ---------- --------- --------- ---------
Net earnings (loss) per common share,
fully diluted............................ $ 0.44 $ 0.42 $ (0.38) $ (0.93) $ 0.08 $ 0.02 $ 0.17
--------- --------- ---------- ---------- --------- --------- ---------
--------- --------- ---------- ---------- --------- --------- ---------
Weighted average number of common shares
outstanding, fully diluted............... 8,460 10,086 9,996 10,116 11,910 10,856 13,563
--------- --------- ---------- ---------- --------- --------- ---------
--------- --------- ---------- ---------- --------- --------- ---------
Ratio of earnings to fixed charges (1).... 4.36x 7.15x (1.58)x (1.89)x 1.41x 1.21x 3.24x
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 30,
----------------------------------------------------- AT OCTOBER 31,
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital.................................... $ 7,949 $ 15,677 $ 20,753 $ 7,736 $ 15,422 $ 16,054
Total assets....................................... 32,639 55,742 73,821 87,111 71,150 79,849
Short-term debt.................................... 3,335 2,526 4,283 4,589 2,247 2,213
Long-term debt..................................... 8,459 7,414 28,888 39,643 24,454 22,078
Stockholders' equity............................... 9,797 32,626 25,733 17,296 20,328 22,693
</TABLE>
- ------------------------------
(1) The ratio of earnings to fixed charges is computed by dividing fixed
charges into earnings from contining 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.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE
IN THIS OFFERING MEMORANDUM.
GENERAL
In response to the industry shift to manage the disparate components of the
health care delivery system, PHP has transitioned to a managed care solutions
company. Over the past three years, the Company has altered its focus from an
historic dependence on government contracts to a focus on commercial managed
care markets. Prior to 1993, over 98% of PHP's revenue came from
government-related contracts. PHP's government service contracts required the
Company to manage health care providers in a variety of delivery settings. In
1992, management realized that the knowledge, expertise and skills which the
Company had acquired in managing health care providers for government agencies
could also be applied to serve the commercial managed care market. At the same
time, management supplemented the Company's existing competencies with
additional skills and capabilities in order to take full advantage of the
opportunities available in commercial managed care. The Company added to
existing capabilities by making several key acquisitions, investing in
information systems and recruiting experienced managed care executives. With
this added expertise, PHP has expanded its commercial business so that, in
fiscal 1995, its commercial business accounted for 50% of PHP's total revenues.
Revenues from the Commercial Managed Health Care Services division have
grown, in part as a result of acquisitions, to $102.2 million or 50% of total
revenues in 1995 from $1.3 million or 1% of total revenues in 1992. Operations
in this division consist of the Company's integrated system of care applied in
whole or in part to: (i) the Company's project with Blue Cross Blue Shield to
operate ten ISOCs in the State of New Jersey, (ii) family health centers which
are operated on a contract basis for large employers, and (iii) the Company's
wholly owned HMO in the District of Columbia, primarily serving the government
assisted Medicaid population in that area. In these operations, the Company
undertakes to provide specified health care benefits to the participating
populations. The Company is compensated for these services through a combination
of capitation fees, management fees, cost reimbursements, incentive fees related
to cost savings and profits from equity participation.
Revenues from the Government Managed Health Care Services division have
decreased slightly from a peak of $116.4 million in 1992 to $101.5 million in
1995. Operations in this division consist of health care services provided to
government agencies across a diverse scope of service groups including
ambulatory care, medical staffing, mental health, long-term care, and total
managed care. The Company generally performs these services under unit-price,
fixed-price, cost-reimbursement-plus-fee, and fixed-rate-labor hour contracts.
The Company's revenues have increased from $118.0 million in 1992 to $204.1
million in 1995. Gross profit margins decreased to 7% and 6% in 1993 and 1994,
respectively, from 14% in 1992. In 1995, the gross profit margin was 11%. The
Company earned net income of $952,000 in 1995 after net losses of $3.8 million
and $9.3 million in 1993 and 1994, respectively. The 1993 and 1994 losses were
due to increased business development costs related to commercial business
efforts, increased corporate support staff costs, government contract proposal
activity costs, increased interest expense resulting from various acquisitions
and capital expenditures to meet operational needs, and write-offs of
receivables under certain contracts.
18
<PAGE>
The following table sets forth, for the periods indicated, certain items in
the Company's Consolidated Statements of Operations expressed as a percentage of
revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED OCTOBER
YEAR ENDED APRIL 30, 31,
------------------------------------- ------------------------
1993 1994 1995 1994 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs...................................... 92.7 94.4 89.2 88.1 80.8
----- ----- ----- ----- -----
Gross profit...................................... 7.3 5.6 10.8 11.9 19.2
General and administrative expenses............... 10.5 11.4 9.6 10.4 14.7
----- ----- ----- ----- -----
Operating income (loss)........................... (3.2) (5.8) 1.2 1.5 4.5
Other income (expense)............................ (1.2) (2.6) (0.5) (1.0) (0.6)
----- ----- ----- ----- -----
Earnings (loss) before income taxes............... (4.4) (8.4) 0.7 0.5 3.9
Income tax expense (benefit)...................... (1.4) (2.1) 0.2 0.2 1.5
----- ----- ----- ----- -----
Net earnings (loss)............................... (3.0) (6.3) 0.5 0.3 2.4
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
The following table indicates revenues by the Company's service divisions
and the related percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, SIX MONTHS ENDED OCTOBER 31,
------------------------------------------------------------------- -------------------------------
1993 1994 1995 1994 1995
--------------------- --------------------- --------------------- -------------------- ---------
DIVISION REVENUE % REVENUE % REVENUE % REVENUE % REVENUE
- ---------------------------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Government.................. $ 117,409 93.2 $ 102,248 68.8 $ 101,455 49.7 $ 51,834 56.5 $ 48,104
Commercial.................. 8,617 6.8 43,204 29.0 102,220 50.1 39,528 43.0 46,943
Other....................... -- -- 3,231 2.2 456 0.2 456 0.5 --
---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Total................... $ 126,026 100.0 $ 148,683 100.0 $ 204,131 100.0 $ 91,818 100.0 95,047
---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
<CAPTION>
DIVISION %
- ---------------------------- ---------
<S> <C>
Government.................. 50.6
Commercial.................. 49.4
Other....................... --
---------
Total................... 100.0
---------
---------
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1995 COMPARED TO SIX MONTHS ENDED OCTOBER 31,
1994
The Company's revenues increased by 3.5% or $3.2 million to $95.0 million
for the six months ended October 31, 1995 compared to $91.8 million for the
prior year six month period. This overall increase results from an increase in
the Commercial Managed Health Care Services division and a decrease in the
Government Managed Health Care Services division. The prior year six month
Commercial Managed Health Care Services division revenues included $7.6 million
of non-recurring construction and pre-operational revenues on the BCBSNJ
project.
Commercial Managed Health Care Services division revenues increased by $7.4
million or 18.7%, to $46.9 million for the six months ending October 31, 1995,
compared with $39.5 million for the six months ended October 31, 1994. This net
increase is the result of several increases and decreases. The most significant
increase in Commercial Managed Health Care Service division revenues was
provided by the Company's Medicaid HMO and resulted from an expanded enrollment
and a new contract at a higher premium rate. Additional revenue increases also
resulted from: (1) increased utilization at two existing ISOC projects, (2) the
commencement of operations at a new ISOC project for a large employer in January
1995, (3) increased software sales at the Company's wholly owned subsidiary,
Health Cost Consultants ("HCC"), a case management and utilization review
services company, and (4) revenues resulting from the development of a new ISOC
project in Connecticut. Also, the Company experienced a net increase in revenues
related to the BCBSNJ ISOC project which became operational in January 1995. On
a comparative basis, the operational revenues earned during the current year
exceeded the amount of the pre-operational and construction revenues earned
during the prior year. A decrease in Commercial Managed Health Care Service
division revenue resulted from the sale of two outpatient surgery centers in
September 1994. Additional Commercial Managed Health Care Service division
revenue decreases resulted from: (1) the
19
<PAGE>
absence of construction revenues earned in the prior year related to an ISOC
project which became operational in January 1995, (2) the closing of a walk-in
primary care clinic in January 1995, and (3) the completion of several small
consulting projects.
Government Managed Health Care Service division revenues decreased by $3.7
million to $48.1 million for the six months ended October 31, 1995 compared to
$51.8 million for the six month period ended October 31, 1994. This decrease is
primarily related to the completion of six ambulatory care projects, two mental
health projects, and one medical staffing project. Offsetting these revenue
decreases were revenue increases resulting from: (1) the commencement of
operations on two new long-term care nursing home projects in June 1995, and (2)
the expansion of services and a corresponding increase in contract rate on one
PRIMUS project and one medical staffing project.
The Company's gross profit increased by 66.4% or $7.3 million, to $18.3
million for the six months ended October 31, 1995 compared with $11.0 million
during the prior year period. As a percentage of revenue, gross profit increased
to 19.2% for the current six month period compared to 11.9% during the prior
year. This gross profit improvement resulted from a significant increase in the
Commercial Managed Health Care Service division as well as an increase in the
Government Managed Health Care Service division.
The Commercial Managed Health Care Service division gross profit increase
was primarily attributable to an expanded enrollment and a new contract at a
higher premium rate at the Company's Medicaid HMO. A gross profit increase also
resulted from increased software sales at HCC. These Commercial Managed Health
Care Service division gross profit increases were slightly tempered by a
decrease resulting from the sale of the remaining two outpatient surgery centers
in September 1994.
The Government Managed Health Care Service division gross profit increase
was due to: (1) a decrease in expenses at the Company's PRIMUS and NAVCARE
projects resulting from enhanced management efforts to control costs, (2)
increased contract rates on two long-term care nursing home projects, (3) the
$300,000 settlement of the Company's outstanding claim with the Department of
the Army related to a former PRIMUS project, and (4) an expansion of services
and a corresponding increase in contract rate on one PRIMUS project. Government
Managed Health Care Service division gross profits decreased due to the
completion of certain projects as cited above for causing revenues to decrease,
and due to a decrease in utilization and contract rate at one NAVCARE project
which was completed in September 1995.
General and administrative expenses increased 44.8% or $4.3 million, to
$13.9 million for the six months ended October 31, 1995 from $9.6 million for
the same period in the prior year. As a percentage of revenue, general and
administrative expenses increased to 14.7% for the current year six month period
compared to 10.4% during the prior year. The increase is primarily a function of
the Company's Commercial Managed Health Care initiatives and is due to: (1)
increased corporate compensation costs related to the hiring and retention of
existing and additional management personnel, (2) increased general and
administrative expenses associated with CHP and its growing enrollment, (3)
additional general and administrative expenses associated with the new Virginia
Chartered business, (4) increased travel and consulting expenses related to
commercial business development efforts, and (5) increased facility expenses
resulting from the Company's new expanded Corporate headquarters office space.
Operating income more than doubled, increasing by $3.0 million to $4.3
million for the six months ended October 31, 1995 from $1.3 million for the six
months ended October 31, 1994. Operating margin increased to 4.5% from 1.5%.
This increase was primarily due to the increased gross profit margins, reduced
by increased general and administrative expenses.
Interest expense decreased 20.7%, or $286,000, to $1,098,000 for the six
months ended October 31, 1995 from $1,384,000 for the prior year six months.
This decrease is primarily a function of the decrease in the Company's long-term
debt resulting from the sale of the Reston office building in July 1994, and the
sale of the remaining two outpatient surgery centers in September 1994.
20
<PAGE>
The effective income tax rates of 39% for the six months ended October 31,
1995 and 35.9% for the six months ended October 31, 1994 represent the combined
federal and state income tax rates adjusted as necessary. The 1995 rate was
lower than the 1996 rate due to the impact of certain net operating loss
carryforwards.
YEAR ENDED APRIL 30, 1995 COMPARED TO YEAR ENDED APRIL 30, 1994
The Company's revenues increased by 37% or $55.4 million, to $204.1 million
in fiscal 1995 compared to $148.7 million in fiscal 1994. This growth was almost
entirely due to the Commercial Managed Health Care Services division.
Commercial Managed Health Care Services division revenue more than doubled
from $43.2 million for the year ended April 30, 1994 to $102.2 million for the
year ended April 30, 1995, an increase of $59.0 million. This increase in
revenue is attributable to an acquisition and the commencement of new ISOC
projects. The BCBSNJ project generated 58% of the division's revenue growth.
During 1995, the Company completed the pre-operational and construction phases
of this project and in January and February 1995 commenced operation of nine
community-based health care centers and related ISOC services. The Company
expects that fiscal 1996 revenues from this project will be less than the
amounts recognized in fiscal 1995 due to $30.0 million of non-recurring
construction and pre-operational revenues in fiscal 1995. The Company's Medicaid
HMO provided 41% of the revenue growth in the Commercial Managed Health Care
Services division. This growth was primarily due to twelve months of operations
in fiscal 1995 versus only eight months of operations in fiscal 1994, beginning
with its acquisition in August 1993. Revenue from the Company's Medicaid HMO
also increased due to a new contract at a higher premium rate with the District
of Columbia which commenced in October 1994 and an expansion of membership
enrollment. Additional revenue increases resulted from expanded utilization at
existing ISOC projects and the commencement of operations at a new ISOC project
for a large, self-insured employer. Offsetting these revenue increases was a
decrease in revenue, resulting from the sale in April 1994 of three outpatient
surgery centers formerly operated by the Company and the sale in September 1994
of the Company's two remaining outpatient surgery centers.
Government Managed Health Care Services division revenue decreased
marginally by 1% from $102.2 million in 1994 to $101.5 million in 1995. This
flat level of revenue was attributable to offsetting increases and decreases.
Revenue increases were due to: (i) an expansion of covered lives and increased
contract rate at a correctional facility project, (ii) a non-recurring write-off
of $3.1 million in fiscal 1994 resulting from actual costs being greater than
expected, and (iii) a contractual expansion of services at an existing PRIMUS
project. Revenue decreases resulted from the completion of five contracts during
fiscal 1995.
Other revenue consisted of the operations of the Reston, Virginia office
building which was acquired in May 1993 and sold in July 1994. Operational
revenues associated with this building decreased from $3.2 million to $456,000
in 1994 and 1995, respectively.
The Company's gross profit increased by $13.8 million, almost tripling from
$8.3 million in 1994 to $22.1 million in 1995. This increase was due to
significant improvement in both the Government and Commercial Managed Health
Care Services divisions.
The Commercial Managed Health Care Services division gross profit increase
was principally attributable to the Company's Medicaid HMO. Gross profit at the
HMO improved as a result of a new contract at a higher premium rate with the
District of Columbia which commenced in October 1994 and an expansion in
enrollment. A decrease in gross profit resulted from the sale in April 1994 of
three outpatient surgery centers formerly operated by the Company and the sale
in September 1994 of the Company's two remaining centers.
The Government Managed Health Care Services division gross profit increased
in 1995 for two reasons. First, the Company incurred two large write-offs in
fiscal 1994 that were non-recurring. One write-off of $2.1 million related to a
PRIMUS contract which was modified in fiscal 1995 and currently operates at a
modest profit. The second write-off of $3.1 million related to two long-term
care nursing home contracts. This write-off was prompted by lower than
anticipated margins as one of the facilities reached full utilization, an
anticipated rate increase at one facility that did not materialize, and actual
costs in excess of previous
21
<PAGE>
estimates. The Company did not experience similar write-offs in fiscal 1995. The
second reason for the gross profit increase in 1995 compared with 1994 is an
overall decrease in expenses at the Company's PRIMUS and NAVCARE projects,
resulting from enhanced management efforts to control costs. In addition to the
increases discussed above, the Government Managed Health Care Services division
gross profits decreased due to the completion of a large medical staffing
project in July 1994.
General and administrative expenses increased 16% or $2.7 million, to $19.6
million for fiscal 1995 from $16.9 million for fiscal 1994. This increase is
predominantly a function of the Company's initiatives in the Commercial Managed
Health Care Services division and is due to: (i) twelve months of general and
administrative expenses associated with the Company's Medicaid HMO in fiscal
1995, compared with only eight months in fiscal 1994, and (ii) increased
corporate compensation costs related to both the hiring of additional managed
health care professionals in conjunction with the Company's commercial market
initiatives and the expansion of support service personnel.
Interest expense decreased 33%, or $1.1 million, to $2.2 million in fiscal
1995 from $3.3 million in fiscal 1994. This decrease is primarily a function of
the decrease in the Company's long-term debt resulting from the sale of three
outpatient surgery centers in April 1994, the sale of the Reston office building
in July 1994, and the sale of the remaining two outpatient surgery centers in
September 1994.
Miscellaneous income and expense changed by $1,519,000 from an expense of
$504,000 in 1994 to income of $1,015,000 in 1995. This increase is the net
result of a few large income and expense items in fiscal 1995. Included in the
fiscal 1995 amount is an expense or loss amount of $750,000 related to the
sublease of the Company's former headquarters facility in Alexandria, Virginia,
an income amount of $650,000 related to the removal of a valuation allowance
which had been established in fiscal 1994 related to receivables from officers,
an income amount of $540,000 related to the removal of a valuation allowance
against a note receivable from a tenant in the Reston, Virginia building, and a
gain amount of $340,000 related to the sale of the remaining two outpatient
surgery centers.
The effective income tax rates of 36% in fiscal 1995 and 25% in fiscal 1994
represent the combined federal and state income tax rates adjusted as necessary.
The 1994 income tax rate is less than the 1995 income tax rate primarily as a
result of a valuation allowance relating to certain deferred tax assets.
The Company earned net income of $952,000 in 1995 compared with a net loss
of $9.3 million in 1994, resulting in primary and fully diluted earnings per
share of $0.08 in 1995, compared with a primary and fully diluted loss of $0.93
per share in 1994.
YEAR ENDED APRIL 30, 1994 COMPARED TO YEAR ENDED APRIL 30, 1993
The Company's revenues increased 18% to $148.6 million in 1994 compared with
$126 million in 1993. This overall growth largely resulted from significant
growth in the Commercial Managed Health Care Services division revenues.
Commercial Managed Health Care Services division revenue increased five-fold
from $8.6 million in fiscal 1993 to $43.2 million in 1994. This increase in
revenues occurred through acquisitions and the commencement of new projects.
During fiscal 1994, the Company acquired a Medicaid HMO, a case management and
utilization review company, and an outpatient surgery center. The Medicaid HMO,
acquired in August 1993, provided approximately two-thirds of the revenue growth
since its acquisition. Additionally, the Company commenced two new ISOC projects
in June 1993, involving the management of three family health centers for large,
self-insured employers. Also, in May 1994, the Company established a walk-in
family health center at the site of a former PRIMUS clinic.
Government Managed Health Care Services division revenue decreased by 13% to
$102.2 million. Substantially all of this net decrease resulted from the
completion of four PRIMUS/NAVCARE contracts. In addition, the eleven re-awarded
projects were at reduced contractual rates. Additional decreases in revenue
included: (i) a significant permanent reduction in the utilization of services
on an Army Hospital nurse staffing contract, (ii) decreased revenues on two
long-term care nursing home projects resulting from actual costs being greater
than expected, and (iii) a decrease in utilization of services on a Navy
Hospital
22
<PAGE>
nurse staffing contract which was completed in early fiscal 1995. The Company
was not awarded the follow-on contract. The impact of these revenue decreases
was somewhat offset by increases in revenue from an increase in covered lives
and contract price on a correctional facility contract, increased utilization of
services on the Company's two affordable health care clinics, increased
utilization of services on one mental health project and an expansion of
services on another mental health project.
Other revenue consisted of the operations of the Reston, Virginia office
building acquired in May 1993. This building was sold in July 1994.
PHP's gross profit decreased 10% to $8.3 million in fiscal 1994, compared to
$9.2 million in fiscal 1993. This decrease is a net result of significant
increases in the Commercial Managed Health Care Services division and
significant decreases in the Government Managed Health Care Services division.
A little over one-half of the increase in gross profit in the Commercial
Managed Health Care Services division was due to the Company's newly acquired
Medicaid HMO. Commercial Managed Health Care Services gross profits also
increased due to: (i) the acquisition in May 1993 of an outpatient surgery
center (which was subsequently sold), (ii) the commencement of operations at two
new ISOC projects in June 1993, and (iii) a managed care consulting services
contract started and completed in fiscal 1994. Also, in fiscal 1993 the Company
incurred a direct cost write-off related to a project to assist in the
development of a direct health care delivery system which upon contract
finalization was not reimbursed to the Company. In addition, Commercial Managed
Health Care Services gross profits were adversely affected by the operation of
three walk-in family health centers which were operated at the sites of former
PRIMUS contract sites. Because of the losses incurred, two of these locations
were closed down within five months; the third continued to operate until
December 1994.
The Government Managed Health Care Services division gross profit decreased
substantially due to three major reasons. First, during fiscal 1994 the Company
earned significantly less gross profit from its PRIMUS/NAVCARE contracts. This
occurred because: (i) four contracts were completed early in fiscal 1994; (ii)
the contractual rates on the eleven projects the Company was re-awarded were
reduced from prior levels; and (iii) the Company experienced higher labor,
pharmaceutical, and other medical services costs in the operation of these
contracts compared with the prior year. Second, the Company reported less gross
profit on two long-term care nursing home contracts due to lower than
anticipated margins as one of the facilities became fully utilized, the absence
of an anticipated rate increase at one facility, and actual costs in excess of
amounts previously estimated. These adjustments resulted in write-offs in the
fourth quarter of fiscal 1994 of $3.1 million. Lastly, the Company wrote down an
account receivable and established a contract loss provision amounting in total
to $2.1 million during the fourth quarter on a PRIMUS contract. This contract
was re-awarded to the Company in late fiscal 1993 and has been serving a
population with a substantially different demographic mix than the assumptions
used to compete for the contract award.
Gross profit from other services resulted from the operations of the
Company's office building in Reston, Virginia. This gross profit included a
one-time gain on lease termination of approximately $1,046,000. Subsequent to
year end, in July 1994 the Company sold this building. See Note 9 of Notes to
Consolidated Financial Statements.
General and administrative expenses increased to $16.9 million in 1994
compared to $13.2 million in 1993. This increase is largely a function of the
Company's managed health care service initiatives and is due to: (i) general and
administrative expenses associated with the Company's Medicaid HMO, acquired in
August 1993, (ii) increased corporate compensation costs related to the hiring
of additional managed health care professionals in conjunction with the
marketing of the Company's integrated systems of care, and (iii) increased
corporate compensation costs due to the expansion of support service personnel.
The Company had an operating loss of $8.6 million in 1994, compared to an
operating loss of $4.0 million in 1993. This decrease was the net result of
decreases in gross profit margin and increases in general and administrative
expenses discussed above.
Interest expense increased to $3.3 million in 1994 compared to $1.1 million
in 1993. This increase was due to an increase in the interest rate on the
Company's primary banking agreement from 4.4% at April 30,
23
<PAGE>
1993, to 7.75% at April 30, 1994. In addition, the Company incurred interest
expense in 1994 related to the $10.0 million in nonrecourse debt associated with
the purchase of the office building in Reston, Virginia in May 1993. Also, the
Company's interest expense increased due to higher outstanding debt amounts in
1994 compared with 1993 associated with certain investments the Company made
beginning in fiscal 1994 in the acquisition and development of property and
equipment at several project sites.
The effective income tax rates of 25% in 1994 and 33% in 1993 represent the
combined federal and state income tax rates adjusted for nondeductible and
nontaxable items. The 1994 income tax rate is less than the 1993 income tax rate
primarily as a result of a valuation allowance relating to certain deferred tax
assets. In the states where the 1994 loss is not allowed to be carried back
these losses can be utilized on a carryforward basis.
The Company incurred a net loss of $9.3 million in 1994, compared to a net
loss of $3.8 million in 1993, resulting in a net loss per share of $0.93 in
1994, compared with a net loss per share of $0.38 in 1993.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended April 30, 1995, operations used $3.9 million in cash.
This represents an increase in cash used by operations of $3.4 million compared
with the $500,000 used by operations in the prior year. In general, the increase
in cash used by operations is a result of an increase in accounts receivable
related to the BCBSNJ contract and the Company's Medicaid HMO.
The Company's number of days revenue in average outstanding receivables was
53 days for the six months ended October 31, 1995 compared to 33 days for the
prior year six month period. These changes are a result of changes in the
Company's mix of business, specifically certain commercial revenues that are on
a prepaid basis.
In July 1994, the Company, through a wholly owned subsidiary, sold its
office building in Reston, Virginia for a gross sales price of approximately
$14.8 million. Using the proceeds from the sale, the Company paid in full the
related non-recourse mortgage notes of approximately $9.4 million and made an
advance payment of $2 million on the Company's $15.0 million term note with its
primary bank.
In September 1994, the Company sold its remaining two outpatient surgery
centers for $11.8 million in cash. As part of the sale, the purchasers assumed
approximately $5 million in existing related notes payable. Using the proceeds
from this sale, the Company made an advance payment in October 1994 of $5
million on the $15.0 million term note with its primary bank.
In April 1995, the Company increased its available borrowings under its
revolving promissory note up to $22 million with its primary bank. In
conjunction with this increase, certain of the financial covenants were
restructured.
The Company's bank credit agreement provides for a secured credit facility,
collateralized by all of the Company's assets, and consists of a $22 million
revolving loan facility (the "Revolving Loan") and a $15 million term loan
facility with an outstanding balance of $4.1 million at April 30, 1995. Interest
on borrowings under the credit facility accrues at a rate per annum equal to the
bank's prime rate plus 1% and is payable monthly. Principal amounts outstanding
under the Term Loan are payable in quarterly installments of $342,000, with
final payment due upon maturity of the Term Loan in April 1998. The Revolving
Loan terminates and is due and payable in November 1996. The Revolving Loan
functions similar to a line of credit with daily advances and repayments and
contains a letter of credit facility under which the bank will issue, for the
account of the Company, irrevocable stand-by letters of credit in connection
with certain contract performance requirements. The amount of the outstanding
stand-by letters of credit reduces the amount of funds available under the
Revolving Loan. The credit agreement contains certain covenants which, in
addition to other restrictions, limit the amount of capital expenditures and
additional borrowings. Under the credit agreement, the Company is also precluded
from the payment of cash dividends without the bank's approval, and is required
to maintain certain financial ratios.
The Company believes that the current cash equivalents, anticipated cash
flow generated by operations and expanded borrowing capabilities will be
sufficient for known future capital needs of the Company. There
24
<PAGE>
may be, however, further expansion opportunities which require additional
external financing and the Company may, from time to time, consider obtaining
such funds through the public and private issuance of equity or debt securities.
IMPACT OF INFLATION
Inflation is considered in all contract proposals with contract terms in
excess of one year. The consideration of inflationary factors is particularly
important with respect to unit-price, fixed-rate-labor hour, and fixed-price
contracts. Historically, inflation has not had a significant impact of the
operations of the Company. While health care costs nationally are increasing,
the Company's primary exposure relating to this trend has been related to
salaries of health care professionals and costs of pharmaceuticals which the
Company estimates and prices into all of its long term contracts. The Company
believes that only one of its existing contracts could be significantly impacted
by other inflationary health care trends. The Company may however become
involved in future contracts where inflation and increasing health care costs
may be an important factor.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Set forth below is certain information with respect to the Company's
operations for the last six fiscal quarters. The information for each of these
quarters is unaudited, but includes all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for a fair
presentation of the information presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
FISCAL YEAR 1995 FISCAL YEAR 1996
------------------------------------------ ----------------------
JULY 31 OCT. 31 JAN. 31 APRIL 30 JULY 31 OCT. 31
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues............................ $ 43,638 $ 48,180 $ 57,004 $ 55,309 $ 46,171 $ 48,877
Direct costs........................ 37,919 42,948 52,078 49,108 37,654 39,141
--------- --------- --------- --------- --------- -----------
Gross profit...................... 5,719 5,232 4,926 6,201 8,517 9,736
General and administrative
expenses........................... 4,761 4,832 4,294 5,773 6,733 7,199
--------- --------- --------- --------- --------- -----------
Operating income.................. 958 400 632 428 1,784 2,537
Other income (expense):
Interest expense.................. (819) (565) (376) (449) (524) (573)
Interest income................... 84 125 106 107 201 203
Miscellaneous income (expense).... (20) 391 22 622 31 37
Minority interest................. (73) (86) -- -- -- --
--------- --------- --------- --------- --------- -----------
Earnings before income taxes...... 130 265 384 708 1,492 2,204
Income tax expense.................. 39 103 139 254 567 875
--------- --------- --------- --------- --------- -----------
Net earnings.................... $ 91 $ 162 $ 245 $ 454 $ 925 $ 1,329
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Net earnings per common share....... $ 0.01 $ 0.01 $ 0.02 $ 0.04 $ 0.07 $ 0.10
--------- --------- --------- --------- --------- -----------
Weighted average common shares
outstanding, fully diluted......... 10,205 11,125 11,506 12,481 12,825 13,603
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
</TABLE>
25
<PAGE>
BUSINESS
OVERVIEW
PHP Healthcare Corporation 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 HMOs, insurers, or employee health
benefit plans on behalf of the network. The Company manages 15 ISOCs for its
clients and has two more ISOCs under development, owns a 30,000-member Medicaid
HMO primarily serving the District of Columbia, and manages inpatient and
outpatient health care services under 34 government contracts, providing care in
over 70 health care facilities. As of October 31, 1995, the Company contracted
with or employed over 3,000 physicians.
INDUSTRY
The Health Care Financing Administration has estimated that national health
spending in 1994 was approximately $1 trillion. Health care in the United States
historically has been delivered through a fragmented system of health care
providers on a fee-for-service basis which provides few incentives for the
efficient utilization of resources and has contributed to increases in health
care costs. Employers, insurance companies and government agencies have
increasingly turned to managed care in an attempt to effectively manage the
costs of health care. This focus on cost containment and the shift to managed
care is forcing hospital and physician providers to seek ways to organize
themselves into more efficient health care delivery systems. At the same time,
payors and their intermediaries, including HMOs and governmental agencies, are
seeking to contract with organized networks that can provide a full array of
health care services. To achieve this, many payors and their intermediaries,
including HMOs and governmental entities, are increasingly looking to outside
companies which offer skilled management and advanced information systems. In
addition, these payors and intermediaries often seek to share the risk of
providing services through capitation arrangements which provide for fixed
payments for patient care over a specified period of time.
STRATEGY
The Company works closely with its clients to design systems which best suit
their needs and those of their constituents. PHP strives to assure that its
clients and their constituents receive cost effective, high quality care in a
timely fashion from the most appropriate health care provider. The Company
develops ISOCs to serve managed care organizations, self-insured employers,
health care providers and provider systems, and government agencies. It also
serves as a network integrator, using the ISOC model, to assist health care
providers in creating and managing integrated health care delivery systems. The
Company provides the business and medical management expertise, information
systems, and marketing to strategically link health care components into
delivery systems with significant competitive advantages. Key components and
concepts behind the Company's ISOC strategy include:
FOCUS ON MANAGED CARE. The Company designs physician and hospital networks
in a particular local market to meet the needs of HMOs and other managed care
payors in specified service areas, identifying and recruiting primary and
specialty care physicians and integrating such physicians with hospitals into a
network that provides comprehensive medical coverage to enrollees. The Company
seeks to benefit from the movement among employers and payors to reduce health
care costs and the trend toward prepaid managed health care. The Company
believes that its network structure and management techniques enable it to
effectively contain costs and negotiate favorable capitation and shared-risk
arrangements through implementation of information systems, utilization and
quality management systems, referral procedures and risk management programs,
and assistance with physician credentialing and contracting with payors.
CREATE AND DEVELOP FULLY INTEGRATED HEALTH CARE DELIVERY NETWORKS. The
Company designs and develops provider networks and physician practice management
capabilities centered around the primary care provider. Each multi-specialty
provider network is designed to meet the specific medical needs of a targeted
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community. The Company believes that these networks can (i) provide physicians
and hospitals with greater access to managed care contracts by facilitating
contractual relationships with multiple HMOs, (ii) establish a single point of
entry into an integrated heath care delivery network for HMOs and other payors
and (iii) offer patients a comprehensive range of medical care in convenient
locations through primary and specialty providers conveniently located in target
markets.
UTILIZE INFORMATION SYSTEMS. The Company's information systems enable
physicians, nurses, hospitals, insurance companies, administrators and others
involved in patient care to share information on a timely basis without
duplication. Information is collected on all aspects of each patient encounter
within the ISOC, including measures reflecting clinical outcomes, access,
service availability, cost-efficiency, and patient satisfaction. Physicians are
directly assisted in the exam room with an automated patient record that is
electronically updated with progress notes and other data, such as laboratory
results. An outcomes tracking system provides information on patient
satisfaction, patient health status and ambulatory care and hospital outcomes.
The utilization review/case management system provides critical information
regarding the need for referrals and the management of high cost episodes of
care. Finally, a data warehouse/repository provides physicians with a
longitudinal medical record, containing complete medical records of all
patients. It provides administrators with complete clinical and financial
records of each encounter of every member of the ISOC, which allows both fixed
and ad hoc reporting capabilities for comparing physician performance within the
system, as well as "benchmark" comparisons of financial and clinical performance
of the ISOC to other health care plans.
FOCUS ON PRIMARY CARE PHYSICIANS. The Company's strategy is to affiliate
(on an exclusive basis where appropriate) with primary care physicians which the
Company believes are increasingly the principal determinants of the location of
patient care and the amount and degree of ancillary services, including
referrals to specialists. The primary care physician represents the initial
point of access into a fully integrated health care delivery system in which, in
many cases, the primary care physician is capable of providing similar levels of
quality of care for significantly less cost than specialist providers. PHP's
ISOC models are based on a foundation of primary care physicians and related
care-givers who are employed or managed by the Company, and who deliver care at
Company-owned or managed primary care facilities and offices. These centers
provide laboratory, radiology and pharmacy services in addition to primary care
physician and nursing services. Purchasing, billing, payroll and all
administrative functions are performed and managed by experienced executive and
administrative personnel, freeing physicians and other care-givers to devote
their time to patient care.
DESIGN PATIENT ORIENTED PROGRAMS. PHP's ISOCs are constructed with the
recognition that the need and demand for costly health care services are, to a
large degree, generated by the decisions and actions of patients. PHP has the
ability to manage patient-oriented educational programs. Disease-specific
offerings, wellness training, prevention programs, decision assist programs,
after hours nurse triage and other components are all integrated into the
system. The result is a system of care that empowers patients to become
knowledgeable and active participants who, in partnership with their providers,
optimize decisions affecting resource utilization, as well as individual health
and productivity.
DEVELOP NEW MARKETS. The Company's growth strategy is based on actively
developing existing and new markets, and making selective acquisitions and joint
ventures in such markets. The Company develops existing markets by: (i)
capturing additional revenues from existing practices as patients migrate from
traditional fee-for-service plans to capitated managed care programs, (ii)
adding new physicians to existing networks and (iii) contracting with payors to
expand the number of capitated lives within existing physician practices. In
addition, the Company grows by developing new physician and hospital networks in
identified markets to serve managed care organizations, self-insured employers,
health care providers and provider systems and government agencies through
selected acquisitions and joint ventures and by serving as a network integrator.
DEVELOPMENT
PHP was founded in 1975. At that time, the Company's primary focus was the
provision of health care services to government agencies. The Company's
government contracts required the Company to manage
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health care providers in a variety of delivery sites. These sites include
hospitals (both acute care and psychiatric), skilled nursing facilities,
staffing services, and, most significantly, primary care settings. In 1992,
management realized that the knowledge, expertise and skills which the Company
had acquired in managing health care providers for government agencies could
also be applied to serve the commercial managed care market. At the same time,
management supplemented the Company's existing competencies with additional
skills and capabilities in order to take full advantage of the opportunities
available in commercial managed care. Over the past several years, therefore,
PHP invested resources to (i) acquire enhanced capabilities in benefit design,
network development and medical management, (ii) develop health care information
systems capable of supporting integrated health care delivery systems and (iii)
employ and retain executives with experience in the commercial managed care
environment.
In 1993, PHP acquired EastWest Research Corporation ("EastWest"), a
consulting firm specializing in the design, development, and maintenance of
provider networks. The EastWest acquisition provided the Company with the
capabilities necessary to identify specialists and inpatient facilities to
complement PHP's primary care centers and create a total care system within a
community. A second key acquisition was the acquisition of Health Cost
Consultants, Inc. ("HCC"), a consulting firm engaged in the design and
implementation of utilization management systems, case management techniques,
and medical protocols that can be applied at point-of-service and from remote
locations. This system permits support personnel and primary care physicians to
make the necessary decisions for each patient on-site and to coordinate care
with specialists and hospitals directly. In addition, over the past two years
the Company has actively recruited and hired additional medical personnel with
managed care expertise. With the addition of these resources, the Company
acquired the means necessary to integrate and manage health care providers in
provider networks to address the needs of commercial managed care entities.
Further, these resources provided the Company with the capability to demonstrate
to such entities that PHP's integrated systems can potentially improve access,
enhance quality and reduce cost.
PHP recently established a Company-owned ISOC to provide services to D.C.
Chartered beneficiaries in the District of Columbia and announced the formation
of a limited liability company with St. Vincent's Health Services Corporation
that will establish and manage an ISOC in Fairfield County, Connecticut. The
Company also incorporated Virginia Chartered Health Plan, Inc. ("Virginia
Chartered") in the Commonwealth of Virginia and received a license from the
Commonwealth's Bureau of Insurance to operate an HMO in August of 1995. Initial
enrollment began in Richmond and the Tidewater area in October 1995. In November
1995, the Company agreed, subject to regulatory approval, to sell a 30% interest
in Virginia Chartered to University Health Services, Inc. ("UHS"), a non-stock
corporation created by Virginia Commonwealth University. The Company intends to
model Virginia Chartered on its Medicaid HMO in the District of Columbia.
Virginia Chartered will be supported, pursuant to a management contract, by the
corporate services of the Company's Medicaid HMO in the District of Columbia.
Approximately 50 employees are expected to be assigned to Virginia Chartered,
providing the necessary management functions to develop and manage an ISOC in
the health plan's service area.
OPERATIONS
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 to
refocus its business from that of a government contractor to that of a full
service managed care company. To better serve the needs of the commercial and
government health care marketplace, the Company has realigned its operations
into two related but distinct divisions: Commercial Managed Health Care Services
and Government Managed Health Care Services.
COMMERCIAL MANAGED HEALTH CARE SERVICES
BLUE CROSS BLUE SHIELD OF NEW JERSEY. In March 1994, PHP entered into an
agreement with Medigroup, Inc., a wholly owned subsidiary of Blue Cross and Blue
Shield of New Jersey, Inc. ("BCBSNJ"), to provide ten complete integrated
systems of care for beneficiaries throughout the State of New Jersey. Under this
contract, PHP designed and built and is currently managing ten
family-health-center-based ISOCs throughout New Jersey. As part of the
management agreement, PHP recruited physicians and other center staff,
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developed an integrated referral network of medical and surgical specialists,
and designed the utilization, case management and quality assurance systems. All
ten ISOCs are currently operational. The BCBSNJ contract is for a term of ten
years on a cost-reimbursement-plus-management fee basis. The contract provides
for PHP to participate in certain cost savings experienced by BCBSNJ and
requires PHP to refund a portion of its management fee if the costs savings do
not meet certain targets.
The agreement with BCBSNJ provides BCBSNJ the right to terminate the
agreement without cause upon 90 days' notice. If it elects to terminate the
agreement on this basis, BCBSNJ is required to pay to PHP a termination fee,
payable over a three-year period, in an amount dependent on the remaining term
of the agreement. The termination payment would be $45 million if such a
termination were effected prior to 1997, and the amount of the termination
payment is reduced by $5 million on January 1 of each year thereafter, beginning
with January 1, 1997.
The agreement also contains provisions permitting termination for cause in
the event of a material breach, the failure to achieve certain cost savings
targets over a period of time, certain changes in control of PHP, certain
regulatory changes that result in BCBSNJ no longer offering managed care
products, 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, that the
Company will be successful in preventing such a termination.
CONNECTICUT HEALTH ENTERPRISES. In November 1995, PHP and St. Vincent's
Health Services Corporation ("St. Vincent's"), an affiliate of the Daughters of
Charity National Health System East, Inc. (the "Daughters of Charity-East"),
formed Connecticut Health Enterprises, L.L.C. ("CHE"), a limited liability
company that will develop an ISOC in Fairfield County, Connecticut. The ISOC is
expected to operate as an alliance of PHP, St. Vincent's, Fairfield County
physicians and other hospitals and ancillary providers.
CORPORATE HEALTH CENTERS. The Company has introduced key elements of its
ISOC to self-insured employers through its contracts to deliver
employer-sponsored health care at primary care facilities developed and operated
by PHP. The Company's corporate health center contracts generally provide for
PHP to design, construct, equip and operate the centers. In late 1992, PHP
commenced operations on two contracts at two assembly facilities to provide
occupational health care services for Chrysler Corporation employees. In June
1993, the Company opened two family practice centers in the Tampa/Clearwater,
Florida service area for GTE Corporation ("GTE"), and one family health venture
for Bethlehem Steel Corporation ("Bethlehem") near its Pennsylvania
headquarters. The GTE centers provide primary medical care to approximately
25,000 GTE employees, retirees and their families and the Bethlehem facility
serves approximately 37,000 Bethlehem employees, retirees and their families. In
addition, the Company has developed a network of area medical and surgical
specialists to assist the other GTE health care professionals in providing
comprehensive health care services to the GTE beneficiaries. In February 1995,
PHP commenced operations of a family health center for Northwestern Steel & Wire
Company ("Northwestern") providing medical services for approximately 10,000
Northwestern employees, retirees and dependents in Sterling, Illinois. PHP also
developed an outside provider network of medical and surgical specialists to
complement the primary care services offered in the center. The Company's
corporate health center contracts call for payment based on a
cost-reimbursement-plus-fixed-fee, or fixed-rate per labor hour basis and
generally provide for terms ranging from three to five years. The initial term
of the GTE contract expires on December 31, 1995 and a proposed renewal of the
agreement is under discussion.
D.C. CHARTERED HEALTH PLAN. D.C. Chartered Health Plan, Inc. ("D.C.
Chartered") was formed in August 1988 and acquired by PHP in August 1993. D.C.
Chartered was a pioneer in the development of managed health care for Medicaid
beneficiaries receiving Aid to Families with Dependent Children
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("AFDC"). Currently, over 29,000 AFDC recipients and approximately 1,000
commercial employees and their dependents are enrolled in D.C. Chartered. The
District of Columbia first started providing managed care for Medicaid
beneficiaries in 1988. D.C. Chartered was one of the first to offer managed care
to Medicaid beneficiaries in the District. Approximately 44,000 Medicaid
beneficiaries are currently enrolled in managed care plans (over 65% of whom are
D.C. Chartered members) pursuant to a District mandate which began
implementation in the spring of 1994.
Each member enrolled in D.C. Chartered is assigned a primary care physician.
D.C. Chartered has over 600 physicians under contract, including 93 primary care
physicians (eight of whom exclusively support D.C. Chartered). D.C. Chartered's
members receive prescriptions, health education, nutrition counseling,
transportation to and from appointments, and -- when necessary -- referrals to
specialists and hospital services. Following D.C. Chartered's acquisition by
PHP, the Company installed key elements of its ISOC to support the health plan,
including network development, utilization review and quality assurance
services. As PHP's ISOC continued to evolve, additional capabilities have been
implemented at D.C. Chartered, including the Company's information systems. In
March 1995, PHP opened a primary care health center in the District of Columbia.
The Chartered Family Health Center ("FHC") is modeled on PHP's ISOC model. D.C.
Chartered also contracts with nine D.C. hospitals which are included in the
ISOC. The FHC has a full-time staff of board certified family, pediatric,
obstetrics/gynecology and internal medicine physicians. D.C. Chartered's staff
also includes nurses, radiology and laboratory technicians, pharmacists and
medical assistants.
Under a provider agreement with the D.C. Department of Human Services (the
"Department"), D.C. Chartered receives a monthly fixed, per capita fee
subdivided between a risk and non-risk portion for services provided to AFDC and
AFDC-related Medicaid enrollees. Under the agreement, the capitated fee is
allocated to a non-risk portion covering physician, outpatient, and other
services and a risk portion covering inpatient hospital services. At the end of
each contract period, for the non-risk portion, D.C. Chartered must provide an
accounting of its costs and services to enable the Department to determine the
final amount due to D.C. Chartered or the Department under the agreement. The
non-risk portion of the capitation fee may not exceed the federal
fee-for-service upper payment limit for covered Medicaid services. D.C.
Chartered assumes full financial risk for inpatient hospital services and
assumes all gains or losses from the provision of such services. The agreement
requires D.C. Chartered to maintain an escrow account in an amount based on its
estimated expenditures, which the Department may use to recover capitation
payments and the cost of care for enrollees in the event of a default. The
Department reserves the right to terminate the agreement if a default occurs.
The agreement is subject to annual renewal.
D.C. Chartered's business strategy lies in its fundamental commitment to
promoting access and emphasizing prevention and health maintenance, as well as
treatment. Many elements of D.C. Chartered focus on increasing access to its
services by (i) improving knowledge and awareness of benefits, (ii) providing
extensive wellness and preventative health care services, and (iii) directly
providing transportation to and from health care appointments. Management
believes that this commitment enhances D.C. Chartered's ability to control cost,
and improves accountability within the system.
GOVERNMENT MANAGED HEALTH CARE SERVICES
PHP provides a wide variety of health care services under various contracts
with government agencies. Under its government contracts, the Company provides
managed care services in five service groups: (i) ambulatory care -- outpatient
primary care for defined populations; (ii) medical staffing -- the recruitment
and provision of qualified medical, nursing and mental health specialists and
technicians; (iii) mental health -- inpatient and outpatient psychiatric
services for certain defined populations; (iv) long-term care -- the management
of skilled and intermediate care nursing facilities; and (v) total managed care
- -- comprehensive health care programs for defined beneficiary populations. The
Company's government contracts are generally awarded for a base period of less
than one year, have two to four one-year renewals at the option of the
government agency and generallly may be modified or terminated for the
convenience of the government agency at any time during the contract.
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AMBULATORY CARE. PHP provides managed outpatient primary care services for
various defined populations. Included in the Company's Ambulatory Care service
group are its PRIMUS and NAVCARE programs. PHP is under contract with the U.S.
Departments of the Army, Navy and Air Force to provide managed outpatient health
care services to military dependents, retired military personnel and their
dependents, and in certain circumstances, active military personnel, as part of
the Army and Air Force PRIMUS programs and the Navy NAVCARE program. PHP
established the first PRIMUS center in 1985 and is a leading provider of these
services to the military. Pursuant to these contracts, the Company designs,
equips, staffs and manages primary care centers which provide a wide variety of
medical and pharmaceutical services to the eligible population. These services
include the provision of physicians, nurses, pharmacists and technical and
support staff. These services are generally provided in Company-owned and
Company-operated facilities consistent with the basic plan of the PRIMUS/NAVCARE
program. All of the Company's PRIMUS and NAVCARE centers meet the standards for
accreditation established for ambulatory care clinics by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO"), an independent commission
which conducts voluntary accreditation programs. The centers provide various
preventive services, including physical examinations, pharmaceutical products,
orthopedic and other medical services, including minor surgery, for pediatric
and adult populations. The PRIMUS and NAVCARE centers are designed with
laboratory and radiology equipment on location and are open 365 days per year
with extended hours Monday through Friday. All military beneficiaries entitled
to receive care at military treatment facilities are eligible for care at the
PRIMUS and NAVCARE centers at no cost to them.
The Company leases six and owns three facilities for its PRIMUS and NAVCARE
centers. The terms of these leases expire from fiscal years 1996-1999. The
Company will remain obligated under some of the leases and will own such
facilities regardless of the duration or funding of the related PRIMUS and
NAVCARE contracts. These types of contracts are generally awarded on a
unit-price and/or fixed fee basis. The units of service upon which payments are
based are outpatient visits, with the contractual payment per visit varying
depending on the type of service provided. The fixed fee portion is generally a
per month amount to cover basic operating costs.
MEDICAL STAFFING. The military has turned to private sector contractors to
provide medical staff and management support to its hospitals. Through its
national recruiting network and program staffing experience, PHP recruits
qualified medical, nursing and mental health specialists and technicians to
augment military health care staff on a long-term basis. PHP currently provides
staff to render nursing services for the Madigan Army Hospital in the state of
Washington, social work services for 30 Army bases located in over nineteen
states, and radiology services for Offutt Air Force Base in Nebraska. These
types of contracts are generally awarded on a fixed-rate-labor hour basis.
MENTAL HEALTH. PHP staffs and manages, for the South Carolina Department of
Mental Health, the Dowdy Gardner Psychiatric Nursing Care Center for geriatric
patients with chronic medical problems. In addition, the Company staffs and
manages inpatient and outpatient psychiatric services for the Army at
Fitzsimmons Army Medical Center in Colorado and at Fort Hood in Texas. These
types of contracts are generally awarded on a fixed-price or unit-price basis.
For contracts awarded on a unit-price basis, the payment is based upon inpatient
beds per day.
LONG-TERM CARE. In October 1989, PHP began applying its expertise, gained
in providing skilled nursing and specialty services to geriatric patients, to
the field of long-term care. During fiscal year 1990, the Company began staffing
and managing a new 150 bed skilled and intermediate care nursing facility under
a contract with the Alabama Department of Veterans Affairs. During fiscal 1991,
the Company began staffing and managing a similar 220 bed facility for veterans
under a contract with the South Carolina Department of Mental Health. The
Company believes it is one of only a few private companies working with state
governments to meet the long-term care needs of a rapidly growing population of
military veterans. These types of contracts are generally awarded on a
unit-price basis. The units upon which payment is based are inpatient beds per
day. In August 1994 the Company was selected to manage three skilled and
intermediate care nursing facilities for the Alabama Department of Veteran
Affairs. This contract award included the facility currently managed by the
Company and two other facilities, one with 150 beds, the other with 120 beds.
The term of this contract is three years and the price is on a per inpatient bed
day basis.
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TOTAL MANAGED CARE. PHP provides specialized comprehensive managed health
care programs for maximum, medium and minimum security facilities. The Company
presently provides such a program for the Arkansas Department of Corrections
under a unit-price contract. The units upon which payment is based are average
number of inmates per month. This contract was re-awarded to the Company in July
1991 for an initial year with five option years; the price for each of the last
four option years will be negotiated annually. Correctional facilities are
complex and unique environments for delivering medical and mental health care
services. The Company incorporates into its correctional facilities programs its
understanding of how these facilities must be managed and how security and other
special issues affect program design and administration.
GOVERNMENT CONTRACTING REGULATION
During the fiscal year ended April 30, 1995, approximately 50% of the
Company's revenues were derived from 34 separate contracts with various
government agencies to provide health care to various government sponsored
populations. The Company received approximately 33% of its total revenues under
27 contracts with agencies of the federal government. The approximate
percentages of government contract revenues realized by the Company by type of
revenue were as follows: unit-price contracts, 72%; fixed-price contracts, 13%;
cost-reimbursement-plus-fee contracts, 9%; and fixed-rate-labor hour contracts,
6%. The Company's contracts with government agencies generally provide for
payment by the agencies on a monthly or bi-weekly basis and do not involve
reimbursement to the Company under the Medicare or Medicaid programs or direct
payment to the Company by patients.
The Company's contracts with government agencies are obtained primarily
through the competitive bidding process as governed by applicable federal and
state statutes and regulations. Contracts are generally awarded for a base
period of less than one year and corresponding with the government agency's
fiscal year, having 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.
The Company generally performs services under fixed-price, unit-price,
cost-reimbursement-plus-fee and fixed-rate-labor hour contracts. Under
fixed-price contracts, the government agency pays the Company an agreed upon
price for services rendered. Under unit-price contracts, the Company receives a
fixed dollar amount per unit of service provided, intended to cover direct
costs, related indirect costs and fee. Under cost-reimbursement-plus-fee
contracts, the government agency reimburses the Company for allowable costs
incurred and pays the Company a negotiated fixed fee, up to contract funding
amounts. Under fixed-rate-labor hour contracts, the Company receives a fixed
hourly rate intended to cover salary costs, other direct costs, related indirect
costs and fee.
Under fixed-price, unit-price and fixed-rate-labor hour contracts, the
Company realizes benefits or detriments resulting from unanticipated cost
variances. Under unit-price contracts, the Company also realizes benefits and
detriments occasioned by unanticipated variances in unit quantities and
resulting revenues.
Under the Truth in Negotiations Act, the U.S. Government is entitled for
three years after final payment on certain negotiated contracts or contract
modifications to examine all of the Company's cost records with respect to such
contracts to determine whether the Company furnished complete, accurate, and
current cost or pricing data to the Government in connection with the
negotiation of the price of the contract or modification. The U.S. Government
also has the right after final payment to seek a downward adjustment to the
price of a contract or modification if it determines that the contractor failed
to disclose complete, accurate, and current data.
Section 31 of the Federal Acquisition Regulation governs the allowability of
costs incurred by the Company in the performance of U.S. Government contracts to
the extent that such costs are included in its
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proposals or are allocated to its U.S. Government contracts during performance
of those contracts. In the opinion of management of the Company, costs proposed,
incurred, and billed to the U.S. Government in connection with the Company's
performance of its U.S. Government contracts complied with Section 31 of the
Federal Acquisition Regulation in all material respects.
The Company's U.S. Government contracts are subject to possible termination,
reduction or modification as a result of changes to or reductions in the
Government's requirements or budgetary resources. Contracts may be modified or
terminated for the convenience of the U.S. Government at any time during the
term of the contract. If a contract is modified, the price of the contract would
be equitably adjusted to reflect the change or reduction. If a contract were to
be terminated for convenience, the Company would be reimbursed for its
allocable, reasonable and allowable costs incurred through the date of
termination and would be paid a reasonable profit or fee on the work actually
performed. If it is determined that the terminated contract would have been in a
loss position if fully performed, a "loss ratio" will be applied to reduce the
Company's recovery of incurred costs so that the recovery will reflect a
proportionate amount of that anticipated loss. In either event, the Company
would be entitled to recover the costs incurred directly as a result of the
termination of the contracts, such as filing a settlement proposal.
The Company believes that it has complied in all material respects with
applicable government requirements. 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.
State governments with which the Company contracts have statutory or
regulatory provisions relating to government contracting which are generally
comparable to the U.S. Government.
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 six
months ended October 31, 1995, 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 poor. 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 enhancement of 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 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, among other things, for
converting the federal share of the Medicaid program to a block grant and for
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.
HEALTH CARE REGULATION
The health care industry is subject to extensive federal regulation relating
to licensure, conduct of operations and prices for services.
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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 health maintenance organizations ("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 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
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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.
COMPETITION
The Company has numerous competitors who compete with the Company for
contracts to provide health care services to federal, state and local government
agencies and to employers and others in the private sector. The competition for
a particular contract may consist of national, regional and/or local providers,
depending on the type of health care services involved. A number of these firms
are larger and have greater financial resources and larger technical staffs than
the Company. Federal, state and local government agencies also can be considered
to be in competition with the Company, in that they may provide services of a
similar nature to those provided by the Company. It is not possible to predict
the extent of competition which present or future activities of the Company will
encounter because of changing competitive conditions, government requirements,
government budgeting, technological developments and other factors.
LEGAL PROCEEDINGS
The Company is a defendant in various legal proceedings incidental to its
business, including actions involving medical malpractice claims, employment
matters and contractual arrangements. In the opinion of management, after
consultation with counsel, these proceedings will not have a material adverse
effect on the Company's financial position, results of operations or cash flows.
See Note 11(c) of Notes to the Consolidated Financial Statements and Note 6 of
Notes to the Condensed Consolidated Financial Statements.
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MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information with respect to the
Company's directors and officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Charles H. Robbins 65 Chairman, Chief Executive Officer and a Director
Jack M. Mazur 53 President and a Director
Michael D. Starr 52 Senior Executive Vice President, Treasurer, Chief Executive
Officer, Government Managed Care Services and a Director
John P. Cole 54 Executive Vice President
John E. Murphy 60 Executive Vice President
William J. Lubin 43 Senior Vice President and Chief Executive Officer, Commercial
Managed Care Services
Robert L. Bowles, Jr. 55 President, D.C. Chartered Health Plans, Inc.
Anthony M. Picini 40 Senior Vice President and Chief Financial Officer
Frank L. Provato, M.D. 47 Senior Vice President and Corporate Medical Director
Ben Rosenbaum III 56 Corporate Secretary and General Counsel
Jerrold J. Hercenberg 45 Senior Vice President and Counsel for Managed Care and General
Counsel, D.C. and Virginia Chartered Health Plans
Julien J. Lavoie 64 Senior Vice President, Information Systems and a Director
Debbie L. Scheff-Gricius 42 President, Health Cost Consultants, Inc.
David E. Berman 46 Senior Vice President
George E. Schaefer, M.D. 73 Senior Vice President, Medical Affairs and a Director
Paul T. Cuzmanes 50 Director
Joseph G. Mathews 61 Director
Charles P. Reilly 53 Director
Donald J. Ruffing 74 Director
</TABLE>
The following are brief summaries of the business experience during at least
the past five years of each of the directors and officers of the Company.
CHARLES H. ROBBINS founded the Company in 1976 and has been Chairman of the
Board since its inception. He also served as President of the Company from its
inception through October 1995. From 1973 to 1975, Mr. Robbins was Vice
President and Director of Operations of Tabershaw/Cooper Associates, Inc., a
medical consulting firm, and Technical Director, Health and Medical Systems of
Informatics Inc.; from 1971 to 1973 he was Manager, Medical Information Systems
of Computer Science Corporation; and from 1961 to 1970 he held various positions
with the Office of the Surgeon General of the United States Army and the Army
Medical Department. In those positions, Mr. Robbins was engaged in directing
studies and developing programs relating to various health care related
activities.
JACK M. MAZUR has been a director of the Company since 1976 and has served
as President since October 1995. Prior to his election as President, Mr. Mazur
was Chief Executive Officer of the Company's Commercial Managed Care Services
Division. From August 1989 to October 1995, Mr. Mazur served as Senior
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Executive Vice President of the Company, from June 1986 to October 1993 as
Secretary of the Company, and from 1976 through May 1986 as an advisor to the
President and Chairman and as Assistant Secretary of the Company.
MICHAEL D. STARR has been employed by the Company in various financial and
operational positions since 1976 and has been a director since 1985. Mr. Starr
was Controller of the Company from 1976 to 1981, Vice President, Finance and
Administration from 1981 to 1986, and has been Executive Vice President since
March 1986.
JOHN P. COLE joined the Company in 1993 and heads the marketing of the
Company's commercial products and services. He previously served as President of
J.P. Cole and Associates, a health care marketing firm, and in senior management
positions with major insurance companies, including Prudential, Blue Cross of
California, Lincoln National Corporation and Aetna Health Plans.
JOHN E. MURPHY, a retired Colonel in the United States Air Force, joined the
Company as Vice President of Managed Care in 1991 and became Executive Vice
President in 1995. Colonel Murphy's 35 years of health care management
experience include 31 years of Active Duty in the Air Force Medical Service.
From 1985 to 1989, he served as the Assistant Surgeon General for Health Care
Support, United States Air Force, as Chief of the Medical Services Corps, and
was an advisor to the Surgeon General on matters of health services
administration and management. During his appointment as Assistant Surgeon
General, Mr. Murphy served as the Chief Hospital Administrator for a health care
system consisting of 80 hospitals and 42 free-standing ambulatory care health
centers with an annual budget of $3 billion.
WILLIAM J. LUBIN joined PHP in August 1994 as Senior Vice President for
Managed Care. In late 1994 he assumed the position of Chief Operating Officer,
Commercial Managed Care. In October 1995, he became Chief Executive Officer of
Commercial Managed Care Services. Prior to joining PHP, Mr. Lubin held
management positions with Aetna Health Plans, Travelers Insurance Companies,
Lincoln National, and Blue Cross and Blue Shield of Connecticut.
ROBERT L. BOWLES, JR. joined the Company in August 1993 in connection with
the Company's acquisition of D.C. Chartered Health Plan, Inc. Mr. Bowles is the
founder of D.C. Chartered and has more than 30 years experience in
administration and management of health care services and operations for
corporations and the military.
ANTHONY M. PICINI has been with the Company since 1989. Previously, Mr.
Picini was with the accounting firm of KPMG Peat Marwick, where he managed the
auditing and accounting of both public and private companies.
FRANK L. PROVATO, M.D. has been with the Company since 1993. He is
responsible for developing health care solutions for clients, providing input on
physician recruitment and the total quality management program, and establishing
clinical protocols and standards of medical care. Dr. Provato has 23 years of
diverse background in clinical medicine, health care administration,
occupational health, and employee benefits administration. Prior to joining PHP,
he served as Vice President and Corporate Medical Director for GTE Corporation,
where he was responsible for the development of health care cost management
strategies and the implementation of a GTE-sponsored primary care health center
in Tampa, Florida.
BEN ROSENBAUM III has been with the Company since 1993. Prior to joining the
Company, he was a partner with the law firm Carey, Rosenbaum, Niemi & Skaggs.
Mr. Rosenbaum has been engaged in the practice of law since 1966 and has been a
member of numerous professional, business and civic organizations, including the
Health Care Forum of the American Bar Association.
JERROLD J. HERCENBERG has been with the Company since March 1995. Before
joining PHP, Mr. Hercenberg was a partner with McDermott, Will & Emery's
Washington office and a member of the law firm's Health Department. Prior
thereto, Mr. Hercenberg served as Senior Legal Advisor in the office of the
Administrator, Health Care Financing Administration.
JULIEN J. LAVOIE joined the Company as a Director in 1989. Mr. Lavoie was
Federal Program Manager of EDS Communications Corporation, a contract services
company, from 1987 to 1991, when he became Vice
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President of the Company. Previously, Mr. Lavoie served as President of
Productivity Management Services, Inc., a service company in the U.S. government
privatization program, from 1986 to 1987, and was Vice President, Integration
Services, for the Martin Marietta Data Systems Corporation, a major government
contractor, from 1983 to 1986.
DEBBIE L. SCHEFF-GRICIUS is President of Health Cost Consultants, Inc., the
Company's utilization management subsidiary. She has over ten years experience
in the health care industry and over fifteen years experience in information
systems. At HCC, Ms. Scheff-Gricius was responsible for the in-house development
of a utilization review and case management system, marketed nationwide, which
is currently being used to manage all business operations within the Company.
Ms. Scheff also served as Vice President, Promotion and Self Insurance Institute
of America. As Vice President of The Commons Management Group, Ms. Scheff
managed the development and implementation of health care data systems for
clients in private industry, business coalitions, HMOs, PPOs, Utilization Review
Organizations, and hospitals.
DAVID E. BERMAN founded EastWest Research Corporation where he served as
President from 1978 until joining the Company as Senior Vice President in 1994.
Mr. Berman is responsible for strategic business development and special
projects. Mr. Berman has over fifteen years of health care consulting
experience, directing numerous engagements involving HMO, PPO, IPA and PHO
development, financial and actuarial studies, feasibility analyses, strategic
planning, CON development, policy research and evaluation, and technical
assistance under the Medicare and Medicaid programs.
GEORGE E. SCHAEFER, M.D. served as Vice President/Medical Director of the
Company from 1980 to 1993 and a Director of the Company since 1981. Dr. Schaefer
currently serves as Vice President Medical Affairs. Prior to joining the
Company, Dr. Schaefer was a private consultant from 1978 to 1980. Dr. Schaefer
was Surgeon General of the United States Air Force from 1975 to 1978 and retired
from the Air Force with the rank of Lieutenant General. Dr. Schaefer held
various positions with the Air Force, commencing as a Flight Surgeon in 1947,
through various command positions from 1949 to 1975, and became Deputy Surgeon
General and then Surgeon General of the Air Force in 1975.
PAUL T. CUZMANES joined the Company as a Director in October 1989. Mr.
Cuzmanes is a partner with the law firm of Wilson, Elser, Moskowitz, Edelman &
Dicker and has been engaged in the practice of law since 1976. Mr. Cuzmanes
specializes in health care law, commercial law and the representation of
municipalities. He is also a fellow in the American Society of Pharmaceutical
Law.
JOSEPH G. MATHEWS joined the Company as a Director in July 1993. Since 1985,
Mr. Mathews has owned and operated Joseph G. Mathews & Associates, an insurance
brokerage firm. Mr. Mathews' professional designations include Chartered
Financial Consultant and Master of Science Financial Services. In addition to
serving on the Company's Board, Mr. Mathews is a member of the boards of
directors of Lake of the Ozarks General Hospital, Mark Twain Bank, Sanford Brown
College and Learfield Communication. Mr. Mathews also serves on the Lindenwood
College Board.
CHARLES P. REILLY joined the Company as a Director in 1991. Mr. Reilly is
the managing general partner of Shamrock Investments, a financial advisory and
investment firm that specializes in the health care industry. From 1979 until
founding Shamrock Investments in 1987, Mr. Reilly served as Director, Senior
Executive Vice President and Chief Development Officer for American Medical
International Corporation, a large multi-hospital management company. In that
position, Mr. Reilly was responsible for the acquisition of new health care
facilities and related business both in the United States and abroad, oversaw
the development of the company's integrated health care services and facilities
and directed the activities of AMI Group Health Services, a division of American
Medical International Corporation. Mr. Reilly currently serves as Chairman of
the Board of Directors of Dynamic Health, Inc., an acute care hospital company,
and as a director of G & L Realty Corporation, a NYSE health care real estate
investment trust. Mr. Reilly has served as a director, trustee and governing
council member of the Federation of American Healthcare Systems, The National
Committee for Quality Health Care and the American Hospital Association, and has
previously served as a board director for several corporations. From August 1994
to August 1995, Mr. Reilly was an employee of the Company, serving as chairman
of the Executive Council.
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<PAGE>
DONALD J. RUFFING joined the Company as a Director in 1991. Mr. Ruffing is a
retired Colonel in the United States Air Force. In 1990, Mr. Ruffing served as a
team member of the Peer and Application Reviews, Refugee Mental Health Programs
for the National Institute of Mental Health. From 1980 to 1985, Mr. Ruffing
served as a project manager for the Company at St. Elizabeth's Hospital. Mr.
Ruffing completed 32 years in medical services management with the Air Force.
Upon his retirement, he was the Chief of the Air Force Medical Service Corps,
Office of the Surgeon General, where he was responsible for developing plans,
policies and procedures for the management of the Air Force Medical Service
Corps.
39
<PAGE>
DESCRIPTION OF DEBENTURES
The Debentures will be 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
proposed form of Indenture are available from the Company or the Initial
Purchasers upon request.
GENERAL
The Debentures will be unsecured obligations of the Company, will be limited
to $69,000,000 in aggregate principal amount (including the Initial Purchasers'
over-allotment option) and will mature on December 15, 2002. The Debentures will
bear interest at the rate per annum shown on the front cover of this Offering
Memorandum 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 will be
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 will be 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 will be 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 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.
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<PAGE>
The conversion price will be 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 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 will provide that, in the event of the occurence 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
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<PAGE>
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 will, to the extent set forth in the Indenture, be 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, 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 will be 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.
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The Indenture does not limit or prohibit the incurrence of Senior
Indebtedness. At October 31, 1995, 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 $42.8 million. The Company also expects to incur
Senior Indebtedness from time to time in the future.
OPTIONAL REDEMPTION
The Debentures will be 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>
REDEMPTION
YEAR 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.
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 or
promptly following 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.
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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. Such written notice is irrevocable.
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 66 2/3% 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.
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.
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RULE 144A INFORMATION REQUIREMENT
The Company has agreed to furnish to the Holders or beneficial holders of
the Debentures and prospective purchasers of the Debentures designated by the
holders of the Debentures, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act until the earlier
of the date on which the Company registers the Debentures and the underlying
Common Stock for resale under the Securities Act or the Resale Restriction
Termination Date.
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 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 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
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<PAGE>
Indenture; (f) evidence and provide for the acceptance of appointment by a
successor Trustee with respect to the Debentures; (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 Holder, (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 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
Debentures sold to Qualified Institutional Buyers in reliance on Rule 144A
under the Securities Act will be initially deposited with, or on behalf of, 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").
Debentures sold to persons outside the United States in offshore transactions
pursuant to Regulation S under the Securities Act ("Regulation S Purchasers")
will be 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. In
addition, Qualified Institutional Buyers may request that Debentures held by
them and represented by the Rule 144A Global Debenture be issued in the form of
Certificated Debentures. If DTC is at any time unwilling or unable to continue
as depositary for Debentures represented by the Rule 144A Global Debenture and a
successor depositary is not named within 90 days the Company will issue
Certificated Debentures in exchange for Debentures represented by the Rule 144A
Global Debenture, which will bear any legend required under the caption "Notice
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to Investors." 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. For a description of the restrictions on transfer of the
Debentures, see "Notice to Investors."
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations (collectively, the "Participants" or "DTC's
Participants" and to facilitate the clearance and settlement of transactions in
such securities between Participants through electronic book-entry changes in
accounts of its Participants. DTC's Participant's include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or "DTC's Indirect Participants")
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly. Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through DTC's Participants or
DTC's Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Rule 144A Global Debenture, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the principal
amount of the Rule 144A Global Debenture and (ii) ownership of the Debentures
evidenced by the Rule 144A Global Debenture will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by DTC
(with respect to DTC's Participants), DTC's Participants and DTC's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Debentures
evidenced by the Rule 144A Global Debenture will be limited to such extent.
So long as DTC or its nominee is the registered owner of any Debentures, DTC
or such nominee will be considered the sole holder under the Indenture of any
Debentures evidenced by the Rule 144A Global Debenture. Beneficial owners of
Debentures evidenced by the Rule 144A Global Debenture will not be considered
the owners or holders thereof under the Indenture for any purpose, including
with respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC relating to the
Debentures.
Payments in respect of the principal of, premium, if any, and interest on
any Debentures registered in the name of DTC or its nominee on the applicable
record date will be payable by the Trustee to or at the direction of DTC or its
nominee in its capacity as the registered holder under the Indenture. Under the
terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Debentures, including Debentures represented by the Rule 144A Global
Debenture, are registered as the owners thereof for the purpose of receiving
such payments. Consequently, neither the Company nor the Trustee has or will
have any responsibility or liability for the payment of such amounts to
beneficial owners of Debentures. The Company believes, however, that it is
currently the policy of DTC to immediately credit accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of DTC. Payments by DTC's Participants and DTC's Indirect Participants
to the beneficial owners of Debentures will be governed by standing instructions
and customary practice and will be the responsibility of DTC's Participants and
DTC's Indirect Participants.
Neither the Company nor the Trustee will be liable for any delay by DTC or
its nominee in identifying the beneficial owners of Debentures and the Company
and the Trustee may conclusively rely on, and will be protected in relying on,
instructions from DTC or its nominees for all purposes.
PAYMENTS OF PRINCIPAL AND INTEREST
The Indenture will require 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
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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 will be 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
The Company and the Initial Purchasers will enter into a Registration Rights
Agreement on or prior to the closing date for the offering being made hereby
(the "Closing Date"). Pursuant to the Registration Rights Agreement, the Company
will agree to file with the Commission within 60 days after the Closing Date a
registration statement (the "Shelf Registration Statement") on Form S-1 or Form
S-3, if the use of such form is then available, to cover resales of Transfer
Restricted Securities by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Company will use its best efforts to cause the Shelf
Registration Statement to be declared effective by the Commission on or prior to
90 days from the Closing Date. 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).
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
is filed and declared effective but shall thereafter 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.
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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 or the Initial Purchasers upon request.
ABSENCE OF PUBLIC MARKET
The Debentures have not been registered under the Securities Act and will be
subject to significant restrictions on resale. See "Notice to Investors." 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 October 31, 1995, 10,934,080 shares
of Common Stock (including 88,572 shares held in escrow) were outstanding and
held by approximately 950 shareholders of record.
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.
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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.
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.
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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 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 Investors and the merger of J.P. Cole & Associates, Inc. and Paragon
Ambulatory Surgery, Inc. into the Company. Under these registration rights
agreements, Shamrock Investors has the right to demand one registration on Form
S-3 of the shares of Common Stock held by it. In addition, Shamrock Investors,
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 955,714
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 to be filed following completion of this offering. See
"Description of Debentures -- Registration Rights; Liquidated Damages."
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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 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.
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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.
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
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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 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
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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.
PLAN OF DISTRIBUTION
Under the terms and subject to the conditions contained in the Purchase
Agreement dated the date hereof, each Initial Purchaser named below has
severally agreed to purchase, and the Company has agreed to sell to such Initial
Purchaser, the principal amount of Debentures set forth opposite the name of
such Initial Purchaser below.
<TABLE>
<CAPTION>
INITIAL PURCHASER PRINCIPAL AMOUNT
- -------------------------------------------------------------------------------------- ----------------
<S> <C>
........................................................................... $ 30,000,000
...................................................................................... 30,000,000
----------------
Total............................................................................. $ 60,000,000
----------------
----------------
</TABLE>
The Initial Purchasers are obligated to take and pay for the total principal
amount of Debentures offered hereby (other than those covered by the
over-allotment option described below) if any are taken.
The Company has been advised by the Initial Purchasers that the Initial
Purchasers propose to offer the Debentures offered hereby initially at the price
set forth on the cover page hereof to Qualified Institutional Buyers in reliance
on Rule 144A under the Securities Act, and outside the United States to certain
persons in offshore transactions in reliance on Regulation S under the
Securities Act. See "Notice to Investors." After the initial offering, the price
to investors may be changed by the Initial Purchasers.
The Initial Purchasers have agreed that, except as set forth above, they
will not offer, sell or deliver the Debentures (i) as part of their distribution
at any time or (ii) otherwise until 40 days after the later of the commencement
of the offering and the last closing date with respect to the Debentures, within
the United States or to, or for the account or benefit of U.S. persons, and the
Initial Purchasers will have sent to each dealer to which they sell Debentures
during the restricted period a confirmation or other notice setting forth the
restrictions on offers and sales of the Debentures within the United States or
to, or for the account or benefit of, U.S. persons. Terms used in this paragraph
have the meanings given to them in Regulation S under the Securities Act.
Resales of the Debentures and the Common Stock issuable upon conversion of the
Debentures are restricted as described under "Notice to Investors."
In addition, until 40 days after the later of the commencement of the
offering and the last closing date with respect to the Debentures, an offer or
sale of the Debentures within the United States by a dealer that is not
participating in the offering may violate the registration requirements of the
Securities Act if such offer or sale is made otherwise than in accordance with
Rule 144A under the Securities Act or pursuant to another valid exemption
therefrom.
Each Initial Purchaser has represented to and agreed with the Company and
the other Initial Purchaser that (i) it has not offered or sold and prior to the
date that is six months after the closing date with respect to
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the offering being made hereby will not offer or sell any Debentures to persons
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
have not constituted and will not constitute an offer to the public within the
meaning of the Public Offers of Securities Regulations 1995 (the "Regulations"),
(ii) it has complied with and will comply with all applicable provisions of the
Financial Services Act 1986 and the Regulations with respect to anything done by
it in relation to the Debentures in, from, or otherwise involving the United
Kingdom, and (iii) it has only issued or passed on and will only issue or pass
on in the United Kingdom any document in connection with the offer of the
Debentures to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom such document may otherwise lawfully be issued or passed
on.
The Company has granted to the Initial Purchasers an option, exercisable for
30 days from the date of this Offering Memorandum, to purchase up to an
additional $9,000,000 aggregate principal amount of the Debentures at the
offering price set forth on the cover page hereof less discounts and
commissions. The Initial Purchasers may exercise such option to purchase an
additional aggregate principal amount of Debentures solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
Debentures offered hereby.
The Company and the Initial Purchasers have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
The Debentures have not been registered under the Securities Act and may not
be offered or sold except as set forth above. The Initial Purchasers have
advised the Company that they presently intend to make a market in the
Debentures; however, they are not obligated to do so and any such market-making
activity may be discontinued at any time without notice. Accordingly, no
assurance can be given as to the liquidity of or the trading market for the
Debentures.
The Debentures have been designated for trading in the PORTAL Market.
The Company and each of its officers and directors and certain of its
stockholders, holding in the aggregate 3,186,834 shares of Common Stock
outstanding as of October 31, 1995, have agreed that for a period of 120 days
after the date of this Offering Memorandum they will not, without the prior
written consent of , 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 except, in the case of the
Company, in certain limited circumstances.
NOTICE TO INVESTORS
Each purchaser of Debentures from the Initial Purchasers, by its acceptance
thereof, will be deemed to have acknowledged, represented to and agreed with the
Company and the Initial Purchasers as follows:
1. It understands and acknowledges that the Debentures are being offered
for resale in transactions not requiring registration under the
Securities Act or any other securities laws, including sales pursuant to
Rule 144A under the Securities Act, that the Debentures and the Common Stock
issuable upon conversion of the Debentures (the Debentures and such Common
Stock are collectively referred to herein as the "Restricted Securities")
have not been registered under the Securities Act or any other applicable
securities law and, unless so registered, may not be offered, sold or
otherwise transferred except in compliance with the registration
requirements of the Securities Act or any other applicable securities law,
pursuant to an exemption therefrom or in a transaction not subject thereto
and in each case in compliance with the conditions for transfer set forth in
paragraph (4) below.
2. It is either:
a.
a "qualified institutional buyer" as defined in Rule 144A
promulgated under the Securities Act (a "QIB"), and is aware that
any sale of the Debentures to it will be made in reliance on Rule 144A.
Such acquisition will be for its own account or for the account of
another QIB; or
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b.
an institution that, at the time the buy order for the Debentures
was originated, was outside the United States and was not a U.S.
person (and was not purchasing for the account or benefit of a U.S.
person) within the meaning of Regulation S under the Securities Act.
3. It acknowledges that neither the Company nor the Initial Purchasers
nor any person representing the Company or the Initial Purchasers has
made any representation to it with respect to the Company or the offering or
sale of any Debentures, other than the information contained in this
Offering Memorandum, which has been delivered to it and upon which it is
relying in making its investment decision with respect to the Debentures. It
has had access to such financial and other information concerning the
Company and the Debentures as it has deemed necessary in connection with its
decision to purchase the Debentures, including an opportunity to ask
questions of and request information from the Company and the Initial
Purchasers.
4. It is purchasing the Debentures for its own account, or for one or
more investor accounts for which it is acting as a fiduciary or
agent, in each case for investment, and not with a view to, or for offer or
sale in connection with, any distribution thereof in violation of the
Securities Act, subject to any requirement of law that the disposition of
its property or the property of such investor account or accounts be at all
times within its or their control and subject to its or their ability to
resell the Restricted Securities pursuant to Rule 144A, Regulation S or any
exemption from registration available under the Securities Act. It agrees on
its own behalf and on behalf of any investor account for which it is
purchasing the Debentures and each subsequent holder of the Restricted
Securities by its acceptance thereof will agree not to offer, sell or
otherwise transfer such Restricted Securities prior to the date which is
three years after the later of the date of original issue and the last date
on which the Company or any affiliate of the Company was the owner of such
Restricted Securities (or any predecessor thereto) (the "Resale Restriction
Termination Date") unless such offer, sale or other transfer is (a) to the
Company, (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) for so long as the Restricted
Securities are eligible for resale pursuant to Rule 144A, to a person the
holder reasonably believes is a QIB that purchases for its own account or
for the account of a QIB to whom notice is given that the transfer is being
made in reliance on Rule 144A, (d) pursuant to offers and sales that occur
outside the United States within the meaning of Regulation S under the
Securities Act, or (e) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of its
property or the property of such investor account or accounts be at all
times within its or their control. The foregoing restrictions on resale will
not apply subsequent to the Resale Restriction Termination Date. Each
purchaser acknowledges that the Company and the Trustee or The Bank of New
York, as transfer agent of the Company's Common Stock, as applicable,
reserve the right prior to any offer, sale or other transfer prior to the
Resale Restriction Termination Date of the Restricted Securities pursuant to
clauses (d) or (e) above to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to the Company and the
Trustee or The Bank of New York, as transfer agent of the Company's Common
Stock, as applicable. Each purchaser acknowledges that each Restricted
Security will contain a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR
NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY) UNLESS SUCH OFFER, SALE
57
<PAGE>
OR OTHER TRANSFER IS (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C)
FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A,
TO A PERSON THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT
TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE [TRUSTEE'S] [TRANSFER
AGENT'S] RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES
(D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE
FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE [TRUSTEE]
[TRANSFER AGENT]. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE THEN
HOLDER OF THIS SECURITY AFTER THE RESALE RESTRICTION TERMINATION DATE.
5. If it is (i) a purchaser in a sale that occurs outside the United
States within the meaning of Regulation S under the Securities Act
and (ii) a "dealer" or a person "receiving a selling concession, fee or
other remuneration" within the meaning of Regulation S under the Securities
Act, it acknowledges that until the expiration of the "40-day restricted
period" within the meaning of Rule 903(c)(3) of Regulation S under the
Securities Act, any offer or sale of the Restricted Securities shall not be
made by it within the United States within the meaning of Regulation S or to
a U.S. person or for the account or benefit of a U.S. person within the
meaning of Rule 902(o) of the Securities Act.
6. It acknowledges that it is not acquiring the Debentures for or on
behalf of, and will not transfer the Debentures to, any person
considered to be using assets of any pension or welfare plan (as defined in
Section 3 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that is subject to Title I of ERISA or Section 4975 of the Code,
except that such a purchase for or on behalf of such a pension or welfare
plan shall be permitted:
(a)
to the extent such purchase is made by or on behalf of a bank
collective investment fund maintained by the purchaser in which
no plan (together with any other plans maintained by the same employer
organization) has an interest in excess of 10% of the total assets in
such collective investment fund and the conditions of Section III of
Prohibited Transaction Class exemption 91-38 issued by the Department of
Labor are satisfied;
(b)
to the extent such purchase is made by or on behalf of an
insurance company pooled separate account maintained by the
purchaser in which no plan (together with any other plans maintained by
the same employer or employee organization) has an interest in excess of
10% of the total of all assets in such pooled separate account and the
conditions of Section III of Prohibited Transaction Class Exemption 90-I
issued by the Department of Labor are satisfied;
(c)
to the extent that such purchase is made by or on behalf of an
"insurance company general account" maintained by the purchaser
and the amount of such general account's reserves and liabilities for the
general account contract(s) (as such term is used in Prohibited
Transaction Class Exemption 95-60 issued by the U.S. Department of Labor)
held by or on behalf of any plan, as defined by the annual statement of
life insurance companies approved by the National Association of
Insurance Commissioners (the "NAIC Annual Statement"), together with the
amount of the reserves and liabilities for the general account
contract(s) held by or on behalf of all other plans maintained by the
same employer (or any affiliate thereof as defined in Section V(a)(1) of
Prohibited Transaction Class Exemption 95-60) or by the same employee
organization, as defined
58
<PAGE>
by the NAIC Annual Statement, in the general account does not exceed 10%
of the total reserves and liabilities of the general account (exclusive
of separate account liabilities) plus surplus as set forth in the NAIC
Annual Statement filed with the state of domicile of the insurer and the
conditions of Section IV of Prohibited Transaction Class Exemption 95-60
are satisfied; PROVIDED, HOWEVER, that, for purposes of determining
whether the foregoing percentage limitation is satisfied, the amount of
reserves and liabilities for the general account contract(s) held by or
on behalf of a plan shall be determined before reduction for credits on
account of any reinsurance ceded on a coinsurance basis; or
(d)
to the extent such purchase is made on behalf of such a plan by
(i) an investment advisor registered under the Investment
Advisers Act of 1940 that had as of the last day of its most recent
fiscal year total assets under its management and control in excess of
$50 million and had stockholders' or partners' equity in excess of
$750,000, as shown in its most recent balance sheet prepared in
accordance with generally accepted accounting principles, or (ii) a bank
as defined in Section 202(a)(2) of the Investment Advisers Act of 1940
with equity capital in excess of one million dollars as of the last day
of its most recent fiscal year and, in either case, such investment
adviser or bank is otherwise a qualified professional asset manager, as
such term is used in Prohibition Transaction Exception 84-14 issued by
the Department of Labor, and the assets of such plan when combined with
the assets of other plans established or maintained by the same employer
(or affiliate thereof) or employee organization and managed by such
investment advisor or bank represent no more than 20% of the total client
assets managed by such investment advisor or bank and the conditions of
Part I of such exemption are otherwise satisfied.
7. It acknowledges that the Company, the Initial Purchasers and others
will rely upon the truth and accuracy of the foregoing
acknowledgements, representations and agreements and agrees that, if any of
the acknowledgements, representations or warranties deemed to have been made
by it by its purchase of Debentures are no longer accurate, it shall
promptly notify the Initial Purchasers and the Company. If it is acquiring
any Debentures as a fiduciary or agent for one or more investor accounts, it
represents that it has sole investment discretion with respect to each such
account and that it has full power to make the foregoing acknowledgements,
representations and agreements on behalf of each such account.
59
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Debentures offered hereby and the Common
Stock issuable upon conversion of the Debentures will be passed upon for the
Company by Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), Washington, D.C. Certain legal matters in connection
with this offering will be passed upon for the Initial Purchasers by Dewey
Ballantine, New York, New York.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company as of and for the year
ended April 30, 1995, included in this Offering Memorandum, have been audited by
Coopers & Lybrand L.L.P., independent certified public accountants, as stated in
their report appearing herein. That report 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 for
the effects of a two-for-one stock split effected as a stock dividend in
November 1995.
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,
included in this Offering Memorandum 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 herein.
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.
AVAILABLE INFORMATION
Each purchaser of the Debentures from the Initial Purchasers will be
furnished with a copy of this Offering Memorandum and any related amendments or
supplements to this Offering Memorandum (as so
60
<PAGE>
amended or supplemented, unless the context otherwise requires, the "Offering
Memorandum"). Each person receiving this Offering Memorandum acknowledges that
(i) such person has been afforded an opportunity to request from the Issuers,
and to review and has received, all additional information considered by it to
be necessary to verify the accuracy and completeness of the information herein,
(ii) such person has not relied on the Initial Purchasers or any person
affiliated with the Initial Purchasers in connection with its investigation of
the accuracy of such information or its investment decision and (iii) except as
provided pursuant to (i) above, no person has been authorized to give any
information or to make any representation concerning the Debentures offered
hereby other than those contained herein and, if given or made, such other
information or representation should not be relied upon as having been
authorized by the Company or the Initial Purchasers. While any Debentures remain
outstanding, the Company will make available, upon request, to any holder and
any prospective purchaser of Debentures the information required pursuant to
Rule 144A(d)(4) under the Securities Act during any period in which the Company
is not subject to Section 13 or 15(d) of the Exchange Act. Any such request and
requests for the agreements summarized herein should be directed to: Anthony M.
Picini, Senior Vice President and Chief Financial Officer of the Company, at
11440 Commerce Park Drive, Reston, Virginia 22091 (telephone number
703-758-3600).
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 periodic reports, proxy statements and other information with
the Commission. Such reports and other information filed by the Company with the
Commission in accordance with the Exchange Act may be inspected, without charge,
at the Public Reference Section of the Commission located at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of all
or any portion of the material may be obtained from the Public Reference Section
of the Commission upon payment of the prescribed fees. Such materials can also
be inspected at the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
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 Offering
Memorandum and made a part hereof: the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1995; the Company's Quarterly Reports on Form
10-Q for the quarter ended July 31, 1995 and the quarter ended October 31, 1995;
the Company's Current Reports on Form 8-K dated January 11, 1995, March 22, 1995
and November 30, 1995; 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 Offering Memorandum 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 Offering Memorandum.
The Company will provide without charge to any person to whom this Offering
Memorandum is delivered, upon written or oral requests of such person, a copy of
any or all of the documents which have been incorporated by reference in this
Offering Memorandum, 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 and Chief Financial Officer of the Company, at 11440 Commerce Park
Drive, Reston, Virginia 22091 (telephone number 703-758-3600).
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants for the Year Ended April 30, 1995...................................... F-2
Report of Independent Accountants for the Years Ended April 30, 1993 and 1994............................ F-3
Consolidated Balance Sheets at April 30, 1994 and 1995................................................... F-4
Consolidated Statements of Operations for the Years Ended April 30, 1993, 1994 and 1995.................. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended April 30, 1993, 1994 and 1995........ F-6
Consolidated Statements of Cash Flows for the Years Ended April 30, 1993, 1994 and 1995.................. F-7
Notes to Consolidated Financial Statements............................................................... F-8
Quarterly Financial Information:
Condensed Consolidated Balance Sheets at April 30, 1995 and October 31, 1995............................. F-25
Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended October 31,
1995 and 1994........................................................................................... F-26
Condensed Consolidated Statements of Cash Flow for the Six Months Ended October 31, 1995 and 1994........ F-27
Notes to Condensed Consolidated Financial Statements..................................................... F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
PHP Healthcare Corporation:
We have audited the consolidated balance sheet of PHP Healthcare Corporation
and subsidiaries as of April 30, 1995 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The consolidated financial statements
of the Company as of April 30, 1994 and for each of the years in the two-year
period ended April 30, 1994, prior to the restatement described in the following
paragraph, were audited by other auditors whose report thereon, dated September
12, 1994, expressed an unqualified opinion on those statements and also included
an explanatory paragraph related to the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," in fiscal year
1994.
We also audited the adjustments described in the first paragraph of Note 8
that were applied to retroactively restate the 1995, 1994 and 1993 consolidated
financial statements and footnotes thereto for the effects of a two-for-one
stock split effected as a stock dividend in November, 1995. In our opinion, such
adjustments are appropriate and have been properly applied to the 1995, 1994 and
1993 consolidated financial statements and footnotes thereto.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
PHP Healthcare Corporation and subsidiaries as of April 30, 1995 and the results
of their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
July 6, 1995, except for the first paragraph of Note 8
as to which the date is November 20, 1995.
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
PHP Healthcare Corporation:
We have audited the consolidated balance sheet of PHP Healthcare Corporation
and subsidiaries as of April 30, 1994, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the years in the
two-year period ended April 30, 1994. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
PHP Healthcare Corporation and subsidiaries at April 30, 1994, and the results
of their operations and their cash flows for each of the years in the two-year
period ended April 30, 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 6 to the consolidated financial statements, the
Company adopted the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", in fiscal
year 1994.
KPMG PEAT MARWICK LLP
Washington, D.C.
September 12, 1994
F-3
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1994 AND 1995
ASSETS
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT SHARE DATA)
Current assets:
Cash and cash equivalents.............................................................. $ 2,370 $ 1,178
Accounts receivable, net (note 3)...................................................... 18,915 24,537
Contract settlement receivable, net (note 3)........................................... 6,700 8,022
Pharmaceutical and medical supplies.................................................... 1,537 1,089
Receivables from officers (note 10).................................................... 1,586 2,912
Income tax receivable (note 6)......................................................... 3,332 592
Other current assets................................................................... 1,689 2,099
--------- ---------
Total current assets................................................................. 36,129 40,429
Property and equipment, net (note 4)..................................................... 37,431 23,096
Excess of cost over fair value of net assets acquired, net of accumulated amortization of
$1,244 in 1994 and $810 in 1995 (note 9)................................................ 12,109 3,092
Deferred income taxes (note 6)........................................................... -- 1,125
Receivables from officers, net (note 10)................................................. -- 885
Other assets............................................................................. 1,442 2,523
--------- ---------
$ 87,111 $ 71,150
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable to banks (note 5).................................. $ 2,534 $ 1,368
Current maturities of notes payable -- other (note 5).................................. 2,055 879
Accounts payable....................................................................... 7,944 6,405
Claims payable -- medical services..................................................... 6,388 6,000
Accrued salaries and benefits.......................................................... 7,374 8,129
Deferred income taxes (note 6)......................................................... -- 1,507
Billings in excess of costs............................................................ 2,098 719
--------- ---------
Total current liabilities............................................................ 28,393 25,007
Notes payable to banks, net of current maturities (note 5)............................... 36,469 23,280
Notes payable -- other, net of current maturities (note 5)............................... 3,174 1,174
Deferred gain on sale of building (note 9)............................................... -- 1,085
Deferred lease obligation (note 11)...................................................... 207 272
--------- ---------
Total liabilities.................................................................... 68,243 50,818
--------- ---------
Minority interest (note 9)............................................................... 1,572 4
--------- ---------
Stockholders' equity (notes 7, 8, 9 and 10):
Preferred stock, $.01 par value, 500,000 shares authorized, none issued................ -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 14,141,702 and 14,146,702
shares issued in 1994 and 1995, respectively.......................................... 141 141
Additional paid-in-capital............................................................. 27,723 29,373
Note receivable from sale of stock (note 7)............................................ -- (900)
Retained deficit....................................................................... (2,522) (1,570)
Treasury stock, 3,990,084 common shares in 1994 and 3,330,020 common shares in 1995, at
cost.................................................................................. (8,046) (6,716)
--------- ---------
Total stockholders' equity........................................................... 17,296 20,328
Commitments and contingencies (notes 3, 5, 10, and 11)...................................
--------- ---------
$ 87,111 $ 71,150
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Revenues..................................................................... $ 126,026 $ 148,683 $ 204,131
Direct costs................................................................. 116,840 140,397 182,053
---------- ---------- ----------
Gross profit............................................................. 9,186 8,286 22,078
General and administrative expenses.......................................... 13,201 16,936 19,660
---------- ---------- ----------
Operating income (loss).................................................... (4,015) (8,650) 2,418
Other income (expense):
Interest expense........................................................... (1,071) (3,288) (2,209)
Interest income............................................................ 74 186 422
Miscellaneous income (expense) (note 10)................................... (325) (504) 1,015
Minority interest in earnings of subsidiaries.............................. (225) (213) (159)
---------- ---------- ----------
Earnings (loss) before income taxes...................................... (5,562) (12,469) 1,487
Income tax expense (benefit) (note 6)........................................ (1,806) (3,135) 535
---------- ---------- ----------
Net earnings (loss).......................................................... $ (3,756) $ (9,334) $ 952
---------- ---------- ----------
---------- ---------- ----------
Net earnings (loss) per common share (note 8):
Primary.................................................................... $ (.38) $ (.93) $ .09
---------- ---------- ----------
---------- ---------- ----------
Fully diluted.............................................................. $ (.38) $ (.92) $ .08
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of common shares outstanding (note 8):
Primary.................................................................... 9,996 10,085 11,226
---------- ---------- ----------
---------- ---------- ----------
Fully diluted.............................................................. 9,996 10,117 11,910
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE RETAINED TREASURY STOCK
---------------------- PAID-IN FROM SALE EARNINGS ----------------------
SHARES AMOUNT CAPITAL OF STOCK (DEFICIT) SHARES AMOUNT
--------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balances at April 30, 1992............ 14,124 $ 141 $ 27,219 $ -- $ 10,568 3,826 $ (5,302)
Shares issued to directors.......... 18 -- 84 -- -- -- --
Purchase of treasury stock.......... -- -- -- -- -- 400 (3,221)
Net loss............................ -- -- -- -- (3,756) -- --
--------- ----- ----------- ----- ----------- ----- ---------
Balances at April 30, 1993............ 14,142 141 27,303 -- 6,812 4,226 (8,523)
Treasury stock issued in
acquisition........................ -- -- 420 -- -- (236) 477
Net loss............................ -- -- -- -- (9,334) -- --
--------- ----- ----------- ----- ----------- ----- ---------
Balances at April 30, 1994............ 14,142 141 27,723 -- (2,522) 3,990 (8,046)
Shares issued to directors.......... -- -- 60 -- -- (26) 52
Exercise of stock options........... 4 -- 14 -- -- -- --
Treasury stock issued in
acquisition........................ -- -- 1,079 -- -- (434) 875
Sale of treasury stock.............. -- -- 497 (900) -- (200) 403
Net earnings........................ -- -- -- -- 952 -- --
--------- ----- ----------- ----- ----------- ----- ---------
Balances at April 30, 1995............ 14,146 $ 141 $ 29,373 $ (900) $ (1,570) 3,330 $ (6,716)
--------- ----- ----------- ----- ----------- ----- ---------
--------- ----- ----------- ----- ----------- ----- ---------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balances at April 30, 1992............ $ 32,626
Shares issued to directors.......... 84
Purchase of treasury stock.......... (3,221)
Net loss............................ (3,756)
-------------
Balances at April 30, 1993............ 25,733
Treasury stock issued in
acquisition........................ 897
Net loss............................ (9,334)
-------------
Balances at April 30, 1994............ 17,296
Shares issued to directors.......... 112
Exercise of stock options........... 14
Treasury stock issued in
acquisition........................ 1,954
Sale of treasury stock.............. --
Net earnings........................ 952
-------------
Balances at April 30, 1995............ $ 20,328
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash flows from operating activities:
Net earnings (loss)............................................................ $ (3,756) $ (9,334) $ 952
Adjustments to reconcile net earnings (loss) to net cash used in operating
activities:
Minority interest in earnings of subsidiaries................................ 225 213 159
Depreciation and amortization................................................ 2,964 4,158 3,401
Increase (decrease) in deferred income taxes................................. (258) 99 382
Other items, net............................................................. 589 650 (378)
Changes in operating assets and liabilities, net of effects from
purchase/sale of subsidiaries:
Decrease (increase) in accounts receivable, net............................ (1,057) 1,439 (6,069)
Increase in contract settlement receivable, net............................ -- (4,100) (1,322)
Decrease (increase) in income tax receivable............................... (1,546) (1,185) 2,741
Decrease (increase) in pharmaceutical and medical supplies................. (645) (35) 264
Decrease (increase) in other current assets................................ (331) 1,706 (499)
Increase in other assets................................................... (440) (681) (1,081)
Increase (decrease) in accounts payable.................................... 2,000 1,672 (1,539)
Increase (decrease) in claims payable...................................... -- 1,523 (388)
Increase in accrued salaries and benefits.................................. 734 1,815 852
Increase (decrease) in billings in excess of costs......................... (1,099) 1,616 (1,465)
Increase (decrease) in deferred lease obligation........................... 1 (25) 63
--------- --------- ---------
Net cash used in operating activities.................................... (2,619) (469) (3,927)
Cash flows from investing activities:
Acquisition of property and equipment.......................................... (11,148) (20,769) (6,217)
Net proceeds from the sale of property and equipment........................... -- -- 14,045
Acquisition of property held for sale.......................................... (2,021) -- --
Deposit on acquisition of subsidiary........................................... (3,200) 3,200 --
Acquisition of subsidiaries, net of cash acquired (note 9)..................... (142) (3,842) (811)
Disposition of subsidiaries, net of cash conveyed (note 9)..................... -- 8,992 10,790
--------- --------- ---------
Net cash provided by (used in) investing activities...................... (16,511) (12,419) 17,807
--------- --------- ---------
Cash flows from financing activities:
Net proceeds under revolving promissory notes.................................. 9,017 4,939 6,590
Borrowings on notes payable.................................................... 20,040 14,102 751
Repayments on notes payable.................................................... (6,227) (5,699) (20,845)
Receivables from officers...................................................... (602) (1,587) (1,561)
Purchase of treasury stock..................................................... (3,221) -- --
Issuance of treasury stock to directors........................................ -- -- 112
Proceeds from the exercise of stock options.................................... -- -- 14
Distributions paid to limited partners......................................... (209) (485) (133)
Contributions from limited partners............................................ 260 -- --
--------- --------- ---------
Net cash provided by (used in) financing activities...................... 19,058 11,270 (15,072)
--------- --------- ---------
Net decrease in cash and cash equivalents................................ (72) (1,618) (1,192)
Cash and cash equivalents, beginning of year..................................... 4,060 3,988 2,370
--------- --------- ---------
Cash and cash equivalents, end of year........................................... $ 3,988 $ 2,370 $ 1,178
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest..................................................................... $ 949 $ 3,203 $ 1,922
Income taxes................................................................. 16 5 22
Supplemental disclosure of non-cash investing and financing activities (note 9):
Sale of treasury stock for note receivable..................................... -- -- $ 900
Forfeiture of acquisition note and corresponding excess cost over fair value of
assets acquired............................................................... -- -- $ 50
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1994 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND BUSINESS
PHP Healthcare Corporation and its subsidiaries (the Company) operate in a
single industry providing health care and related support services primarily on
a contractual basis to federal, state and local government agencies, and
commercial entities.
In fiscal 1992, the Company commenced the management of ambulatory surgery
centers acquired or developed through its majority owned subsidiary, Paragon
Ambulatory Surgery, Inc. (Paragon). In fiscal 1995, the Company acquired the
remaining ownership interest in Paragon. Immediately thereafter, the Company
sold all of its interest in the remaining two ambulatory surgery centers managed
by Paragon.
In fiscal 1994, the Company acquired the operations of a health maintenance
organization, D.C. Chartered Health Plan, Inc. (CHP), serving the District of
Columbia Medicaid and Aid for Families with Dependent Children (AFDC) residents.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PHP Healthcare
Corporation and its majority owned subsidiaries. All significant intercompany
account balances and transactions have been eliminated in consolidation.
(C) REVENUE RECOGNITION
The Company engages in fixed-price, unit-price, cost-reimbursement-plus-fee,
and fixed-rate-labor hour contracts. Revenue on fixed-price contracts and
unit-price contracts is recognized using either the percentage-of-completion
method or as services are performed based on contracted rates. The percentage-
of-completion method measures revenue principally by comparing the cost of
services performed to date with the total estimated cost of services required
through completion applied to the entire estimated contract value. Revenue on
cost-reimbursement-plus-fee contracts is recognized on the basis of direct and
indirect costs incurred during the period plus the fee earned. Revenue on
fixed-rate-labor hour contracts is recognized as services are performed based on
contractual rates.
Billings in excess of costs represents amounts billed in accordance with
contract provisions for which future contract services are to be performed.
Costs to complete estimates are reviewed periodically and revised as
required. Provisions are made for the full amount of anticipated losses, if any,
on all contracts in the period in which they are first determinable.
Costs under cost-reimbursement contracts with the federal government are
subject to government audit upon contract completion. Therefore, all contract
costs, including direct and indirect expenses, are potentially subject to
adjustment prior to final reimbursement. Management believes that adequate
provisions for such adjustments, if any, have been made in the accompanying
consolidated financial statements. All indirect expense recovery rates for
fiscal year 1990 and prior have been approved by the U.S. government.
Patient service revenue is reported at the estimated net realizable amounts
from patients, third party payors, and others for services rendered primarily
based on contractually determined rates.
The percentages of the Company's revenues derived from individual customers
comprising more than 10% of consolidated revenues were as follows: 72%, 49% and
33% for 1993, 1994 and 1995, respectively, from the federal government; none,
15% and 22% for 1993, 1994 and 1995, respectively, from the District of
Columbia; none, none and 17% for 1993, 1994, and 1995, respectively, from Blue
Cross/Blue Shield of New Jersey.
F-8
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's accounts and contract settlement receivables related to the
individual customers noted above are $9.3 million, $9.95 million, and $7.2
million from the federal government, the District of Columbia, and Blue
Cross/Blue Shield of New Jersey, respectively, at April 30, 1995.
(D) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of 3 months or less to be
cash equivalents. Cash equivalents consist of money market accounts and
certificates of deposit amounting to $1.7 million and $100,000 at April 30, 1994
and 1995, respectively.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on buildings,
furniture and equipment is computed on a straight-line or accelerated method
over estimated useful lives of 3 to 30 years. Leasehold improvements and
equipment under capital lease are amortized using the straight-line method over
the shorter of the lease term or estimated useful lives of the assets.
Construction in progress consists of all construction related costs,
excluding land acquisition cost, incurred for property under development.
Depreciation on these properties commences when construction is complete and the
assets are placed into service.
Property held for sale, consisting of land and equipment, are stated at the
lower of cost or net realizable value. Property held for sale is included as
other current assets.
(F) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of the purchase price over the estimated fair value of tangible
and identifiable intangible net assets acquired is capitalized and amortized on
a straight-line basis over periods of estimated benefit of 10 to 40 years.
Contingent amounts payable related to acquired entities achieving certain
profitability goals are recorded as additional excess cost over fair value of
assets acquired ($977,000 and $569,000 in 1994 and 1995, respectively) and are
amortized on a straight line basis over the remaining amortization period. The
Company assesses the recoverability of this intangible asset by determining
whether the balance can be recovered through estimated undiscounted future
operating cash flows of the acquired operation. The amount of impairment, if
any, is measured based on projected discounted future operating cash flows.
(G) PRECONTRACT COSTS
Recoverable costs directly related to contracts incurred prior to
commencement of services are capitalized as precontract costs and amortized to
contract expense over the estimated period of benefit, generally 1 to 2 years
and are included as other current assets.
(H) INCOME TAXES
Effective May 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES (SFAS 109).
The cumulative effect of this change in accounting for income taxes on the
consolidated financial statements was immaterial. SFAS 109 requires a change
from the deferred method of accounting for income taxes. Under the asset and
liability method of SFAS 109, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
F-9
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pursuant to the deferred method under APB Opinion 11, which was applied in
1993 and prior years, deferred income taxes are recognized for income and
expense purposes using the tax rate applicable for the year of the calculation.
Under the deferred method, deferred taxes are not adjusted for subsequent
changes in tax rates.
(I) HEALTH CARE SERVICES EXPENSE AND CLAIMS PAYABLE
Medical health care services expense includes claims paid and payable and
capitation payments paid to certain providers. Claims payable are estimated
based on actuarial evaluations of providers' claims submitted and include
provisions for incurred but not reported claims. Health care services expense is
included as direct costs.
(J) TREASURY STOCK
The Company uses the cost method of accounting for treasury stock. Issuances
of treasury stock are relieved from treasury at the then weighted average cost
per share. The difference between the issuance value of the shares and the
weighted average cost per share is recorded as additional paid-in-capital.
(K) EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is computed by dividing net earnings (loss)
by the weighted average number of common shares outstanding, which are adjusted
for the assumed exercise of stock options, stock warrants, and convertible debt,
if dilutive. Common share equivalents, which include dilutive stock options and
warrants, are computed using the treasury stock method. The convertible debt is
computed using the "if converted" method.
(L) RECLASSIFICATIONS
Certain amounts in the 1993 and 1994 consolidated financial statements have
been reclassified to conform with the 1995 presentation.
(2) JOINT VENTURE
In February 1992, the Company and Blue Cross of California entered into an
agreement to form and fund a joint venture management company in connection with
a development effort related to the operation of the CHAMPUS Reform Initiative
(CRI) contract for California and Hawaii. As of April 30, 1993, approximately
$1.1 million was advanced by the Company to fund incremental direct costs
incurred by the management company. On July 28, 1993 the Department of Defense
announced the award of the CRI contract to another bidder. Accordingly, in
fiscal 1993, the Company wrote-off its investment in the joint venture
management company represented by the advances of $1.1 million.
F-10
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) ACCOUNTS RECEIVABLE
Accounts receivable, net includes the following at April 30 (in thousands):
<TABLE>
<CAPTION>
Contract receivables: 1994 1995
--------- ---------
<S> <C> <C>
Billed:
Contracts in process......................................... $ 8,508 $ 10,921
Final billings on completed contracts........................ -- 260
Contract claim............................................... 1,900 1,900
--------- ---------
10,408 13,081
--------- ---------
Unbilled:
Incurred costs and accrued profits........................... 8,331 11,876
Retainages................................................... 154 485
--------- ---------
8,485 12,361
--------- ---------
Total contract receivables................................. 18,893 25,442
Patient service receivables.................................... 1,554 385
Other receivables.............................................. 554 748
--------- ---------
Total...................................................... 21,001 26,575
Less allowance for doubtful accounts receivable................ (2,086) (2,038)
--------- ---------
Accounts receivable, net................................... $ 18,915 $ 24,537
--------- ---------
--------- ---------
</TABLE>
In April 1994, the Company submitted a Request for Equitable Adjustment
(REA) under a contract with the Department of the Army for material changes in
the nature of the contract requirements from those represented during the
contract proposal process. The REA was denied by the Army and the Company has
submitted a claim for its increased costs of performance under the contract
pursuant to the Contracts Dispute Act of 1978. Billed accounts receivable of
$1.9 million as of April 30, 1994 and 1995, have been fully reserved pending
further actions by the Board of Contract Appeals.
Substantially all net receivables are expected to be collected within one
year.
CONTRACT SETTLEMENT RECEIVABLE
CHP, the Company's wholly owned health maintenance organization, earns
substantially all of its revenue under a prepaid Medicaid contract with the D.C.
Department of Human Services (DCDHS) to provide health care services to the
Medicaid recipients of the District of Columbia. The Medicaid program is jointly
funded by the District of Columbia and the Health Care Finance Administration
(HCFA) of the Department of Health and Human Services (HHS).
Under a three-year contract ended September 30, 1994, interim payments were
provided on an enrollment basis with a final settlement at the end of the
contract period, subject to a defined upper payment limit as determined by HCFA
of HHS. Final settlement with DCDHS and HCFA is subject to an audit of CHP's
activities. The Company believes final settlement should result in amounts due
the Company at April 30, 1995 in excess of $20 million, which is expected to be
lower than the actual upper payment limit. Due to the complexity inherent in the
contract and the definition of the settlement process as provided for in the
contract, the Company has recorded amounts due under the contract of $6.7
million and $8.0 million at April 30, 1994 and 1995, which represents the
Company's conservative interpretation of amounts due under the contract. The
Company believes that final settlement will occur during fiscal 1996. In
addition, proposed congressional legislation is pending which upon passage would
in management's opinion result in a retroactive entitlement of the full recovery
of the settlement receivable.
F-11
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) ACCOUNTS RECEIVABLE (CONTINUED)
Effective October 1, 1994, CHP entered into a new one-year contract with
DCDHS. CHP receives capitation payments for the inpatient services under the
risk portion of the contract. Additionally, CHP receives interim payments with
an annual final settlement for the other services under the non-risk portion of
the contract. At April 30, 1995, CHP recorded accounts receivable of $1.9
million, for the difference between what was due under the contract versus what
was received. Final settlement of amounts due under this contract is subject to
an audit of the Company's activities by DCDHS.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at April 30 (in thousands):
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Land......................................................................... $ 6,451 $ 3,969
Buildings.................................................................... 22,822 9,202
Leasehold improvements....................................................... 4,807 6,612
Equipment.................................................................... 11,260 12,277
Furniture and fixtures....................................................... 3,544 3,914
Vehicles..................................................................... 125 125
Construction in progress..................................................... 178 7
---------- ----------
49,187 36,106
Less accumulated depreciation and amortization............................... (11,756) (13,010)
---------- ----------
Property and equipment, net................................................ $ 37,431 $ 23,096
---------- ----------
---------- ----------
</TABLE>
As of April 30, 1994 and 1995, $1,056,000 in furniture and fixtures and
related accumulated depreciation of $202,000 and $415,000, respectively, were
obligated under capital leases.
Depreciation and amortization expense for property and equipment totaled
$2.6 million, $3.6 million and $3.1 million for the years ended April 30, 1993,
1994 and 1995, respectively.
F-12
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) NOTES PAYABLE
(A) NOTES PAYABLE TO BANKS
The notes payable to banks consists of the following at April 30 (in
thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Various term notes, collateralized by certain land, building, fixtures and equipment, with
market adjusting interest rates ranging between 6.75% and 7.25% at April 30, 1994, with
final payment due dates from March 1995 to February 1998; the Company was released from
these obligations in October 1994 (note 9(b)).............................................. $ 2,124 --
Term note of $15 million collateralized by all assets, interest due monthly at 1% above bank
prime (10% at April 30, 1995), principal due in quarterly installments of $342,000 with
final payment due in April 1998............................................................ 12,857 4,102
Revolving promissory note, collateralized by all assets, with a maximum credit line of $15
million in 1994 and $22 million in 1995, interest due monthly at 1% above bank prime (10%
at April 30, 1995), due August 1996........................................................ 13,956 20,546
Nonrecourse term notes of $10 million, collateralized by certain real property, interest due
monthly at 6.25% for the first three years and 8% for the next two years, principal due
April 1998, repaid in July 1994 (note 9(c))................................................ 9,416 --
Term note of $650,000, collateralized by the assignment of a certificate of deposit of equal
amount, interest due monthly at a minimum of the bank's certificate of deposit rate plus
2%, due December 1995, repaid in July 1994................................................. 650 --
--------- ---------
Total notes payable to banks............................................................ 39,003 24,648
Less current maturities............................................................... (2,534) (1,368)
--------- ---------
Notes payable to banks, net of current maturities....................................... $ 36,469 $ 23,280
--------- ---------
--------- ---------
</TABLE>
Scheduled maturities of notes payable to banks at April 30, 1995 are as
follows (in thousands): $1,368 in 1996, $21,914 in 1997, and $1,366 in 1998.
The Company repaid $7 million on its term note during fiscal 1995 upon the
sale of its office building and two ambulatory surgery centers and as a result,
the quarterly term note repayments were reduced to $342,000 from $536,000.
The revolving promissory note contains a letter of credit facility whereby
the bank will issue for the account of the Company, irrevocable stand-by letters
of credit in connection with certain contract performance requirements. The
amount of outstanding stand-by letters of credit reduces the amount of funds
available under the revolving note agreement. Under this agreement, the Company
had issued stand-by letters of credit amounting to approximately $1 million and
$2.2 million at April 30, 1994 and 1995, respectively.
The revolving promissory note functions similar to a line of credit with
daily advances and repayments. Accordingly, revolving promissory note activity
is presented as a net amount in the consolidated statements of cash flows.
During the year ended April 30, 1994, the Company secured an additional
temporary revolving credit facility from its primary bank of $4.5 million
bearing interest at the bank's prime rate plus 1%. Borrowings under this
facility were repaid in full in April 1994, and the facility is no longer
available.
The Company's credit agreement contains certain covenants which, in addition
to other restrictions, limit the amount of capital expenditures and additional
borrowings. The Company is also precluded from the payment of cash dividends
without the bank's approval, and is required to maintain certain financial
ratios.
F-13
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) NOTES PAYABLE (CONTINUED)
(B) NOTES PAYABLE -- OTHER
The notes payable -- other consists of the following at April 30 (in
thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Installment debt with a face value of $2 million, collateralized by a security interest in
Paragon's management agreement with the ambulatory surgery centers, discounted at an
effective interest rate of 8.5% with varying semi-annual installment payments beginning
December 1992, due June 1995; the Company was released from this obligation in October 1994
(note 9(b)).................................................................................. $ 929 --
Term note of $3.8 million, secured by an assignment of partnership interests, interest based
on the prime rate with a base of 7.5% and a ceiling of 10%, principal and interest due in
five annual installments ending April 1997. The Company was released from this obligation in
October 1994 (note 9(b))..................................................................... 2,278 --
Various collateralized term notes of $651,000 in 1994 and $591,000 in 1995, interest from 6%
to 12.7% with various installment payments due August 1997................................... 536 393
Insurance notes of $457,000 in 1994 and $246,000 in 1995, monthly installments of principal
and interest, interest from 7.3% to 7.6% due November 1995................................... 271 166
Obligations under capital leases, for certain equipment and fixtures, monthly installments of
principal and interest of $27,000, interest at 4.1%, due May 1998............................ 1,215 935
Convertible promissory notes of $500,000, interest due annually on April 30 at 7%, convertible
into common stock at $4.50 per share starting September 1995, due September 1999 (notes 7(a)
and 9(a)).................................................................................... -- 500
Promissory notes of $417,000, interest at 7%, monthly payments due August 1995 (note 9(a)).... -- 59
--------- ---------
Total notes payable -- other.............................................................. 5,229 2,053
Less current maturities................................................................. (2,055) (879)
--------- ---------
Notes payable -- other, net of current maturities......................................... $ 3,174 $ 1,174
--------- ---------
--------- ---------
</TABLE>
Scheduled maturities of notes payable -- other at April 30, 1995 are as
follows (in thousands): $879 in 1996, $324 in 1997, $323 in 1998, $27 in 1999,
and $500 in 2000.
The Company's weighted average interest rate on short-term borrowings
outstanding at April 30, 1994 and 1995 was 7.3% and 8.7%, respectively.
F-14
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES
Income tax expense (benefit) consists of the following at April 30 (in
thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- --------- ---------
<S> <C> <C> <C>
1993:
Federal..................................................... $ (794) $ (866) $ (1,660)
State....................................................... (70) (76) (146)
--------- --------- ---------
$ (864) $ (942) $ (1,806)
--------- --------- ---------
--------- --------- ---------
1994:
Federal..................................................... $ (2,911) $ 90 $ (2,821)
State....................................................... (323) 9 (314)
--------- --------- ---------
$ (3,234) $ 99 $ (3,135)
--------- --------- ---------
--------- --------- ---------
1995:
Federal..................................................... $ (270) $ 752 $ 482
State....................................................... (30) 83 53
--------- --------- ---------
$ (300) $ 835 $ 535
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax expense (benefit) differs from the amounts computed by applying
the U.S. federal income tax rate of 34 percent to earnings (loss) before income
taxes as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)..................... $ (1,891) $ (4,239) $ 506
Increase (decrease) in income tax resulting from:
State income tax expense (benefit), net of federal income
taxes...................................................... (96) (496) 69
Non-deductible subsidiary losses (excluded earnings)........ 71 113 (205)
Amortization of excess cost over fair value of assets
acquired................................................... 46 49 196
Nondeductible items related to sale of subsidiary........... -- -- 1,489
Change in the valuation allowance allocated to income tax
expense.................................................... -- 1,515 (1,707)
Other....................................................... 64 (77) 187
--------- --------- ---------
$ (1,806) $ (3,135) $ 535
--------- --------- ---------
--------- --------- ---------
Effective income tax rate..................................... (32.5%) (25.1%) 36.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 30,
1994 and 1995, are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to differing recognition methods.......... $ 1,209 $ 560
Property and equipment, principally due to difference in depreciation.......... 655 823
Land and building, due to valuation methods.................................... 230 793
Accrued employee benefits...................................................... 821 1,092
Accrued contract and sublease losses........................................... 338 295
State and federal net operating loss carryforwards............................. 855 1,722
Alternative minimum tax credit carryforwards................................... 455 400
--------- ---------
Total gross deferred tax assets.............................................. 4,563 5,685
Less valuation allowance....................................................... (2,160) --
--------- ---------
Net deferred tax assets...................................................... $ 2,403 $ 5,685
--------- ---------
Deferred tax liabilities:
Accounts receivable, principally due to differing recognition methods.......... $ 1,722 $ 5,503
Property and equipment, principally due to difference in depreciation.......... 487 414
Precontract costs.............................................................. 118 73
Deferred lease obligations..................................................... 76 77
--------- ---------
Total deferred tax liabilities............................................... $ 2,403 $ 6,067
--------- ---------
Net deferred income tax liability............................................ $ -- $ 382
--------- ---------
--------- ---------
</TABLE>
The valuation allowance for deferred tax assets was $2,160,000 at April 30,
1994. The valuation allowance was reduced in fiscal year 1995 by $2,160,000 and
is zero as of April 30, 1995. Completion of fiscal year 1994 income tax returns
during fiscal year 1995 resulted in a decrease of $453,000 to the income tax
receivable due to the inability to carryback certain subsidiary losses.
Accordingly, there was a corresponding increase in net deferred tax assets
during fiscal year 1995.
For the year ended April 30, 1993, the deferred income tax benefit results
from differences between the amount of income and expense recognized for
financial statement reporting and tax filing purposes. The major items
comprising these differences and the related tax effects are as follows (in
thousands):
<TABLE>
<CAPTION>
1993
---------
<S> <C>
Excess tax over book revenues......................................................... $ (301)
Contract retainages................................................................... (182)
Reduction in valuation of assets...................................................... (211)
Excess book over tax loss on sublease................................................. (135)
Excess book over tax depreciation..................................................... (84)
Compensatory stock options............................................................ (74)
Excess book over tax vacation expense................................................. 18
Other................................................................................. 27
---------
$ (942)
---------
---------
</TABLE>
As of April 30, 1995, the Company has federal and state net operating loss
carryforwards of approximately $3.7 million and $4.6 million, respectively,
available to offset future federal and state taxable income,
F-16
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
expiring principally in fiscal years 2008 and 2009. These carryforwards have
certain annual dollar limits. In addition, the Company has alternative minimum
tax credit carryforwards of approximately $400,000 which are available to reduce
future federal regular income taxes, if any, over an indefinite period.
(7) CAPITAL STOCK
(A) NOTE RECEIVABLE
On September 29, 1994, the Company sold 200,000 shares of treasury stock at
$4.50 per share for a note receivable in the amount of $900,000 to a financial
advisory services firm in which the managing director is also a director of the
Company and the two partners in the firm are also employees of the Company. The
note receivable is collateralized by a pledge and escrow of 300,000 shares of
the Company's common stock and by convertible notes payable of $500,000 by the
Company to the same parties.
(B) ADDITIONAL PAID-IN-CAPITAL AND TREASURY STOCK
The Company purchased 400,000 shares of its common stock at an average price
of $8.06 per share during the year ended April 30, 1993. These shares are held
as treasury stock.
In August 1993, the Company issued 236,048 shares of treasury stock in
exchange for 100% of the common stock of D.C. Chartered Health Plan, Inc.
Additionally, the acquisition terms provided for a guarantee of the future
market price of 132,370 shares of the stock at $4.38 per share on August 31,
1995. The Company recognized additional paid-in-capital of $173,736, equal to
the difference between the market price on the date of acquisition and the
guaranteed future market price for those shares.
In September 1994, the Company issued 380,000 shares of treasury stock in
exchange for the minority interests in Paragon and issued 54,286 shares of
treasury stock in exchange for 100% of the common stock of J.P. Cole &
Associates. The J.P. Cole & Associates acquisition terms provided for future
consideration of an additional 88,572 shares of the Company's treasury stock,
which are held in escrow (note 10(d)).
(C) STOCK RIGHTS
On April 10, 1992, the Board of Directors of the Company declared a dividend
distribution of one preferred stock purchase right (the Rights) for each share
of common stock outstanding at April 20, 1992 or issued thereafter. The Board of
Directors also designated and reserved 50,000 shares of preferred stock as
"Series A Junior Preferred Stock". Each Right when exercisable, entitles the
registered holder to purchase from the Company one one-thousandth of a share of
Series A Junior Participating Preferred Stock, at an exercise price of $85,
subject to adjustment. The Rights will become exercisable after public
announcement that, without consent of a majority of disinterested members of the
Board of Directors, a third party has acquired or obtained beneficial ownership
of 15% or more of the outstanding Common Shares or 10 business days after
commencement or public announcement of an offer of such an event. The Rights,
which do not have voting rights, expire in April 2002, and may be redeemed in
whole by the Company at $.01 per Right at any time prior to their expiration or
the acquisition by a third party of 15% or more of the Company's Common Stock.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power is sold, provision shall be made so that each holder of a Right shall have
the right to receive, upon exercise thereof at the then current exercise price,
that number of shares of common stock of the surviving company which at the time
of such transaction would have a market value of two times the exercise price of
the Right. At April 30, 1994, and 1995, 10,151,618 and 10,816,682 rights are
outstanding, respectively.
(D) DIRECTORS' RETAINER PLAN
Commencing on May 1, 1993, and thereafter for any fiscal quarter, each
Director of the Company may elect to have the full amount of his retainer paid
in the form of common shares of the Company under this plan. The number of
shares issued is calculated based on the then current market value of the stock.
The
F-17
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) CAPITAL STOCK (CONTINUED)
Board of Directors of the Company has authorized 100,000 common shares for
issuance under this plan. In October 1994, the Company issued 25,778 shares of
treasury stock to the Board of Directors, pursuant to the Directors' Plan.
(8) STOCK OPTIONS AND WARRANTS
On October 16, 1995, the Board of Directors of the Company declared a
two-for-one split of its Common Stock, payable on November 20, 1995. This was
effected in the form of a 100 percent stock dividend of 7,073,351 shares to
shareholders on record as of November 1, 1995. Stockholders' equity has been
restated to give retroactive recognition to the stock split for all periods
presented by reclassifying from additional paid in capital to common stock the
par value of the additional shares arising from the split. In addition, for all
periods presented, all references in the consolidated financial statements and
footnotes thereto to number of shares, per share amounts, weighted average
shares outstanding, as well as, stock option, stock warrant and related price
information have been restated to give retroactive effect to the two-for-one
stock split effected on November 20, 1995.
In November 1986, the Board of Directors adopted and the shareholders
approved the Company's 1986 Stock Option Plan. Effective May 1, 1991, the Board
of Directors adopted, and effective September 30, 1991 the shareholders
approved, the Amended and Restated PHP Healthcare Corporation 1986 Stock Option
Plan (the Plan).
The Plan provided for the granting of options to purchase a maximum of
1,500,000 shares of the Company's stock to eligible employees and officers of
the Company. In November 1994, the shareholders approved an increase in the
maximum to 3,500,000 shares. The Plan provides for the granting of options which
qualify as incentive stock options as well as non-qualified stock options. All
incentive stock options granted under the Plan must have an exercise price of
not less than 100% of the fair market value of the common stock on the date of
grant, and non-qualified stock options must have an exercise price of not less
than 60% of the fair market value of the common stock on the date of grant. All
options granted prior to April 30, 1991, under the Plan may be exercised no
earlier than two years from the date of grant. All options granted since April
30, 1991, are exercisable ratably on an annual basis over three to five years
from the date of grant. Options are canceled 90 days after termination of
employment if not exercised.
The following is a summary of activity of the stock option plan in 1993,
1994 and 1995:
<TABLE>
<CAPTION>
SHARES PRICE AMOUNT
---------- ------------- -------------
<S> <C> <C> <C>
Options outstanding at April 30, 1992........................ 1,409,500 1.95-11.25 $ 12,723,449
Options granted in1993..................................... 70,000 4.06 284,375
Options exercised in 1993.................................. -- -- --
Options canceled in 1993................................... 4,600 6.50-11.25 43,675
---------- ------------- -------------
Options outstanding at April 30, 1993........................ 1,474,900 1.95-11.25 12,964,149
Options granted in 1994.................................... 34,000 3.00 102,000
Options exercised in 1994.................................. -- -- --
Options canceled in 1994................................... 14,100 6.50-11.25 129,175
---------- ------------- -------------
Options outstanding at April 30, 1994........................ 1,494,800 1.95-11.25 12,936,974
Options granted in 1995.................................... 2,678,650 3.04-5.94 11,567,330
Options exercised in 1995.................................. 5,000 2.88 14,375
Options canceled in 1995................................... 1,334,150 3.04-11.25 12,235,072
---------- ------------- -------------
Options outstanding at April 30, 1995........................ 2,834,300 $ 1.95-11.25 $ 12,254,857
---------- ------------- -------------
---------- ------------- -------------
Options exercisable at April 30, 1995........................ 91,738
----------
----------
</TABLE>
F-18
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) STOCK OPTIONS AND WARRANTS (CONTINUED)
On June 10, 1994, the Stock Option Committee of the Board of Directors
adopted a resolution whereby each holder of outstanding stock options under the
Plan is allowed to surrender outstanding stock options on or before September
15, 1994, in return for an equal number of options with an exercise price equal
to 60% of the fair market value of the Company's common stock on June 10, 1994.
The new options vest ratably in one-third increments over three years and expire
in ten years. A total of 1,315,700 options were surrendered and canceled with a
corresponding issuance of new options with a grant price of $3.04 under the
provisions of this resolution.
The Company has also granted options outside of the Plan. The following is a
summary of stock option activity outside of the Plan in 1993, 1994 and 1995:
<TABLE>
<CAPTION>
SHARES PRICE AMOUNT
---------- ------------- -------------
<S> <C> <C> <C>
Options outstanding at April 30, 1992........................ 152,500 3.80-5.50 $ 683,250
Options granted in 1993.................................... -- -- --
Options exercised in 1993.................................. -- -- --
Options canceled in 1993................................... 67,500 3.80 256,500
---------- ------------- -------------
Options outstanding at April 30, 1993........................ 85,000 3.80-5.50 426,750
Options granted in 1994.................................... -- -- --
Options exercised in 1994.................................. -- -- --
Options canceled in 1994................................... -- -- --
---------- ------------- -------------
Options outstanding at April 30, 1994........................ 85,000 3.80-5.50 426,750
Options granted in 1995.................................... 324,286 4.50 1,459,287
Options exercised in 1995.................................. -- -- --
Options canceled in 1995................................... -- -- --
---------- ------------- -------------
Options outstanding at April 30, 1995........................ 409,286 $ 3.80-5.50 $ 1,886,037
---------- ------------- -------------
---------- ------------- -------------
Options exercisable at April 30, 1995........................ 220,000
----------
----------
</TABLE>
To the extent any options are granted at an exercise price less than the
fair market value at the date of the grant, the Company records compensation
expense equal to the difference in such prices ratably over the applicable
vesting period. The Company recorded compensation expense of $207,000, $207,000,
and $1,065,000 in 1993, 1994, and 1995, respectively, in the consolidated
statement of operations relating to options.
In conjunction with the acquisition of EastWest Research Corporation on
November 1, 1992, the Company issued 20,000 stock warrants at $5.75 per share,
20,000 stock warrants at $7.50 per share, and 20,000 stock warrants at $12.00
per share. In December 1994, 25% of these warrants were canceled. The 45,000
remaining warrants are exercisable in varying percentages after two years and
expire seven years from the date of issuance. The value assigned to these
warrants was immaterial. The number of these stock warrants which are
exercisable at April 30, 1995 is 4,500.
(9) ACQUISITION, DEVELOPMENT, AND SALE OF SUBSIDIARIES
(A) ACQUISITION OF REMAINING INTERESTS IN PARAGON
Effective September 29, 1994, the Company acquired the remaining 49%
ownership interest in Paragon for $125,000 in cash, notes payable of $917,000
and 380,000 shares of the Company's treasury stock. After one year, $500,000 of
the notes payable are convertible into Company stock at a conversion price of
$4.50 per share. The acquisition was accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated to the acquired
share of tangible and identifiable intangible assets and liabilities based on
their respective fair values. The excess cost over the estimated fair value of
the acquired share of
F-19
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) ACQUISITION, DEVELOPMENT, AND SALE OF SUBSIDIARIES (CONTINUED)
net assets approximated $1.9 million. Subsequent to the acquisition, Paragon was
merged into the Company. The results of operations for Paragon have been
included in the consolidated statements from November 5, 1991, when the Company
first purchased the majority interest. If the purchase of the remaining
ownership interest had occurred on May 1, 1993 or 1994, the effect on the
Company's results of operations would have been immaterial.
(B) SALE OF SURGERY CENTERS
Effective April 1, 1994, Paragon sold 100% of its interest in three separate
surgery centers represented by four wholly owned subsidiaries for approximately
$9.3 million in cash. The related gain on disposition of approximately $200,000
is included as miscellaneous income in fiscal year 1994.
Effective September 30, 1994, the Company sold 100% of its interest in two
separate ambulatory surgery centers for approximately $11.75 million in cash
plus the assumption of related notes payable of approximately $5 million. The
related gain on disposition after the write-off of the excess cost over the
estimated fair value of net assets resulting from the acquisition of the centers
is approximately $340,000 and is included as miscellaneous income in fiscal year
1995.
(C) PURCHASE AND SALE OF OFFICE BUILDING
On May 4, 1993, the Company, through a wholly owned subsidiary, purchased an
office building in Reston, Virginia for approximately $12 million. The building
contains approximately 165,000 square feet of rentable commercial office space
of which approximately 113,000 square feet was under lease at the time of the
purchase. The Company is utilizing a portion of the available office space for
consolidation and expansion of its corporate operations. In conjunction with the
purchase, the Company obtained financing in the form of nine year, nonrecourse
mortgage notes of approximately $10 million with interest rates which vary
during the term of the notes from 6.25% to 8.0% per annum.
In July 1994, the Company, through a wholly owned subsidiary, sold the
office building in Reston, Virginia for approximately $14.8 million. The Company
leases approximately 55,000 square feet of the building under a 15 year lease
and accordingly, the gain on this sale of approximately $1.2 million has been
deferred and is being amortized ratably over the life of this lease. In
conjunction with this sale, the Company repaid in full non-recourse notes of
approximately $9.4 million.
(D) ACQUISITION OF HEALTH MAINTENANCE ORGANIZATION
On August 31, 1993, the Company exchanged 236,048 shares of common stock
valued at $722,897 for 100% of the common stock of D.C. Chartered Health Plan,
Inc. (CHP). Additionally, the Company provided a guarantee of the future price
of a portion of those shares issued valued at $173,736, as described in note
7(b). This acquisition was accounted for using the purchase method of accounting
and accordingly, the purchase price was allocated to the acquired tangible and
identifiable intangible assets and assumed liabilities based on their respective
fair values. The excess cost over the estimated fair value of the acquired net
assets of approximately $1.9 million is being amortized on a straight line basis
over 40 years. The results of operations for CHP are included in the
consolidated statements from August 31, 1993. If the purchase had occurred on
May 1, 1992 or 1993, the effect on the Company's results of operations and net
loss per common share would have been immaterial. Unaudited pro forma
consolidated revenues of the Company would have been approximately $149.6
million and $160.5 million for the years ended April 30, 1993 and 1994.
(E) ACQUISITION OF UTILIZATION MANAGEMENT FIRM
On September 10, 1993, the Company acquired 100% of the common stock of
Health Cost Consultants, Inc. (HCC) for $332,000 in cash and a two year note of
$175,000. This acquisition was accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated to the acquired
tangible and identifiable intangible assets and assumed liabilities based on
their respective fair values. There
F-20
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) ACQUISITION, DEVELOPMENT, AND SALE OF SUBSIDIARIES (CONTINUED)
was no excess cost over the estimated fair value of the acquired net assets. The
results of operations for HCC are included in the consolidated statements from
September 10, 1993. If the purchase had occurred on May 1, 1992 or 1993, the
effect on the Company's net income and loss per share would have been
immaterial.
(F) SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Acquisition of subsidiaries
Fair value of assets acquired........................................... $ 94 $ 7,597 $ 1,343
Excess of cost over fair value of assets acquired....................... 778 4,900 2,439
Liabilities assumed including seller financed long-term debt............ (616) (6,725) --
Notes payable issued.................................................... -- -- (1,017)
Value of stock and guarantee issued..................................... -- (897) (1,954)
--------- --------- ---------
Cash paid............................................................... 256 4,875 811
Less cash acquired...................................................... (114) (1,033) --
--------- --------- ---------
Acquisition of subsidiaries, net of cash acquired....................... $ 142 $ 3,842 $ 811
--------- --------- ---------
--------- --------- ---------
Disposition of subsidiaries
Fair value of assets sold............................................... -- $ 9,886 $ 5,964
Write-off of excess of cost over fair value of assets................... -- 4,114 11,130
Liabilities assumed by purchaser........................................ -- (4,670) (5,721)
--------- --------- ---------
Cash received........................................................... -- 9,330 11,373
Less cash conveyed...................................................... -- (338) (583)
--------- --------- ---------
Disposition of subsidiaries, net of cash................................ -- $ 8,992 $ 10,790
--------- --------- ---------
--------- --------- ---------
</TABLE>
(10)RELATED-PARTY TRANSACTIONS
(A) LEGAL AND FINANCIAL ADVISORY SERVICES
During 1993, 1994, and 1995, legal services were provided by law firms in
which one director of the Company is a partner. During the years ended April 30,
1993, 1994, and 1995 total billings approximated $298,000, $315,000, and
$257,000, respectively, all of which was expensed in the consolidated statements
of operations. At April 30, 1993, 1994, and 1995 amounts due the law firms
approximated $9,000, $200,000 and $142,000, respectively.
In 1993, 1994, and 1995, financial advisory services were provided the
Company by a firm in which the managing general partner was also a director of
the Company and the two partners in the firm are also employees of the Company.
During 1993, 1994 and 1995, total billings approximated $39,000, $10,000, and
$86,000, respectively. At April 30, 1993, 1994, and 1995, no amounts were due
the firm.
In 1993, financial advisory services relating to acquisitions were provided
to Paragon by the same firm in which the managing general partner and one other
partner were two of the minority shareholders of the subsidiary. During fiscal
years 1993 and 1994, and 1995, total billings from this firm to Paragon
approximated $491,000, none and none, respectively. These amounts were included
in the cost of surgery center acquisitions. At April 30, 1993, 1994 and 1995, no
amounts were due the firm for these services. In addition, during 1993, 1994 and
1995, approximately $50,000, none and none, respectively, was paid to the
financial advisory firm for rent of shared office facilities with Paragon.
(B) SENIOR EXECUTIVE LOAN PROGRAM
On November 5, 1992, the Board of Directors approved a Senior Executive Loan
Program (the Program). Loans made pursuant to this Program may not exceed two
and one-half times the executive's
F-21
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10)RELATED-PARTY TRANSACTIONS (CONTINUED)
annual salary. The loans are to be repaid in one year and bear interest at two
percent above the Company's short-term borrowing rate. The loans are
collateralized by Company stock owned by the senior executive or a second
position in stock previously pledged provided there remains sufficient equity in
the stock. In 1994, the Program was amended to increase the maximum credit limit
from two and one-half to three and one-half times the executive's total annual
salary and the due dates on the amounts outstanding were extended for twelve
months to March 1995. In 1995, the due dates were extended an additional twelve
months. As of April 30, 1994 and 1995, a total of $1.6 million and $2.9 million,
respectively, was outstanding (including accrued interest) to two
directors/officers under the Program.
(C) OTHER NOTES AND ADVANCES
The Company has advanced amounts to an officer of a subsidiary of the
Company in the form of promissory notes due from October 1995 to April 1998. The
notes bear interest rates from 8% to 10.75%. One of the notes is collateralized
by the officer's stock in the Company. As of April 30, 1994 and 1995, the
amounts outstanding were $383,000 and $357,000, respectively.
In accordance with the Board of Directors' approval, the Company makes
premium payments relating to certain insurance policies on behalf of certain
officers of the Company. These advances are owed to the Company and are
collateralized by assignment of the underlying cash surrender value and related
death benefit. During 1994, $650,000 of these amounts were reserved,
representing the excess of the advances over the accumulated cash surrender
value. During 1995, the officers signed promissory notes bearing interest at 7%
and due in April 2002 for the amounts advanced; accordingly, the previously
recorded reserve was eliminated. The establishment of the reserve and subsequent
elimination are included as miscellaneous expense and income. The promissory
notes total $885,000 at April 30, 1995.
(D) J.P. COLE & ASSOCIATES
During fiscal year 1994, the Company entered into an agreement with an
affiliate, J.P. Cole & Associates, which performed exclusive marketing services
for the Company. The operating results of the affiliate have been combined with
the Company's consolidated financial statements since August 1993. One of the
minority shareholders of the affiliate is a director of the Company. A sales and
service agreement with the affiliate provided for the payment of commissions
related to successful marketing efforts as defined.
Effective September 30, 1994, the Company purchased the affiliate for
$100,000 in cash, 142,858 shares of the Company's common stock, and options to
purchase 142,858 shares of the Company's common stock at $4.50 per share. Under
the terms of the purchase agreement, 88,572 shares of the 142,858 shares of the
common stock issued are held in escrow subject to forfeiture absent the
achievement of certain performance conditions. Additionally, options to purchase
54,286 shares of common stock are immediately exercisable and options to
purchase 88,572 shares of common stock are exercisable subject to achievement of
certain performance conditions.
(11)COMMITMENTS AND CONTINGENCIES
(A) LEASES AS LESSEE
The Company has several noncancelable operating leases, principally for
office space and equipment, that expire on various dates over the next fifteen
years. The office leases provide for increased real estate taxes and building
operating costs through annual adjustments. Total rental expense for operating
leases for the years ended April 30, 1993, 1994 and 1995 was approximately $3.25
million, $3.1 million, and $4.3 million, respectively.
Future minimum rental payments under noncancelable operating leases at April
30, 1995, are as follows: $3.2 million in 1996, $3.1 million in 1997, $2.2
million in 1998, $1.2 million in 1999, $1.0 million in 2000, and $9.3 million
thereafter.
F-22
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11)COMMITMENTS AND CONTINGENCIES (CONTINUED)
At April 30, 1994 and 1995, the deferred lease obligations of $207,000, and
$272,000 respectively, represent the excess of rent expense, recorded on a
straight-line basis, over the cash payments required under certain leases.
(B) LEASES AS LESSOR
The Company leased office space to third parties in the building which it
owned (see note 9(c)) and sublets office space at another facility. These leases
expire on various dates over the next nine years and provide for increased real
estate taxes and building operating costs through annual adjustments. For the
years ended April 30, 1994 and 1995, total rental income from operating leases
of $2.2 million and $600,000 are included as revenues. Additionally, income from
lease terminations of $1.0 million is included as revenue for the year ended
April 30, 1994.
In fiscal year 1995, the Company removed a $540,000 valuation allowance
related to a tenant note receivable because its collectibility was no longer
considered uncertain. Payments on this note are to commence in August 1995 for a
duration of two years.
In July 1994, the Company entered into a sublease agreement as lessor for
approximately 15,700 square feet of office space in Alexandria, Virginia. The
resultant net loss for amounts owing on the original lease for this space of
approximately $750,000 is included as miscellaneous expense in fiscal year 1995.
(C) COMMITMENTS AND CONTINGENCIES -- OTHER
The Company is a defendant in various legal actions. The principal actions
allege or involve claims under contractual arrangements, employment matters and
medical malpractice with an estimated possible range of loss between
approximately $400,000 and $1.2 million in excess of insurance coverage. The
Company has recorded reserves of $400,000 related to these actions at April 30,
1995. In the opinion of management, after consultation with legal counsel, the
possible additional losses related to these actions, if any, will not result in
any material adverse effect on the Company's consolidated financial position,
results of operations, or cash flows. The Company maintains medical malpractice
insurance coverage which provides for reimbursement of any claim amounts in
excess of $250,000 per incident.
(12)EMPLOYEE BENEFIT AND HEALTH PLANS
(A) EMPLOYEE BENEFIT PLAN
The Company has a qualified defined contribution savings plan covering
substantially all full-time employees as allowed under Section 401(k) of the
Internal Revenue Code. The plan permits participant contributions and requires a
minimum contribution from the Company, which vests over two years, based on
participants' contributions. Participants may elect to defer up to 12% of their
annual compensation by contributing to the plan. Total expenses related to this
plan for the years ended April 30, 1993, 1994 and 1995 were $181,000, $235,000,
and $187,000, respectively.
A second qualified defined contribution savings plan was adopted in November
1993 for all employees of one of the Company's subsidiaries. Subsequent to the
merger of this subsidiary into the Company in September 1994, the plan was
terminated. No contribution from the Company was required and participants were
allowed to defer up to 17% of their annual compensation by contributing to the
plan.
(B) EMPLOYEE WELFARE PLAN
The Company has a contributory employee welfare benefit plan covering
substantially all employees which provides health and medical benefits to the
plan participants. Participation is at the discretion of the employee. Claims in
excess of $100,000 per person per year are underwritten by an insurance company.
Total cost of the plan for the years ended April 30, 1993, 1994, and 1995 was
$1.5 million, $2.6 million, and $2.4 million, respectively.
F-23
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13)FOURTH QUARTER INFORMATION (UNAUDITED)
Fourth quarter 1994 revenues, earnings and earnings per share amounts
declined from previous quarters primarily as a result of certain events that
occurred during the fourth quarter. The more significant events, on a pre-tax
basis, relate to: a reduction of $1.5 million on an account receivable and a
related $550,000 contract loss provision on a government contract for which the
Company has filed a claim; a reduction in revenue of $3.1 million on two
long-term contracts accounted for using the percentage of completion method
resulting from actual and future billings and costs varying from previous
estimates; a reduction in revenue of $1.1 million on ten PRIMUS/NAVCARE
contracts resulting from decreased utilization of contract services and
increased contract costs; and legal fees and settlements on three malpractice
lawsuits totaling approximately $800,000.
F-24
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 30 AND OCTOBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
APRIL 30,
1995
--------- OCTOBER 31,
1995
-----------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS,
EXCEPT SHARE DATA)
Current assets:
Cash and cash equivalents............................................................ $ 1,178 $ 3,293
Accounts receivable, net (note 2).................................................... 24,537 30,260
Contract settlement receivable, net (note 2)......................................... 8,022 8,022
Pharmaceutical and medical supplies.................................................. 1,089 995
Receivables from officers............................................................ 2,912 3,090
Income tax receivable................................................................ 592 388
Other current assets................................................................. 2,099 3,366
--------- -----------
Total current assets............................................................... 40,429 49,414
Property and equipment, net............................................................ 23,096 22,457
Excess of cost over fair value of assets acquired, net of accumulated amortization of
$810 in April and $885 in October..................................................... 3,092 3,017
Deferred income taxes.................................................................. 1,125 1,125
Receivables from officers, net......................................................... 885 885
Other assets........................................................................... 2,523 2,951
--------- -----------
$ 71,150 $ 79,849
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable to bank (note 3)................................. $ 1,368 $ 1,368
Current maturities of notes payable -- other (note 3)................................ 879 845
Accounts payable..................................................................... 6,405 8,659
Claims payable -- medical services................................................... 6,000 8,469
Accrued salaries and benefits........................................................ 8,129 9,580
Income taxes payable................................................................. -- 1,442
Deferred income taxes................................................................ 1,507 1,507
Billings in excess of costs.......................................................... 719 1,490
--------- -----------
Total current liabilities.......................................................... 25,007 33,360
Notes payable to bank, net of current maturities (note 3).............................. 23,280 19,865
Notes payable -- other, net of current maturities (note 3)............................. 1,174 2,213
Deferred gain on sale of building...................................................... 1,085 1,045
Other liabilities...................................................................... 272 669
--------- -----------
Total liabilities.................................................................. 50,818 57,152
--------- -----------
Minority interest...................................................................... 4 4
--------- -----------
Stockholders' equity (note 5):
Preferred stock, $.01 par value, 500,000 shares authorized, none issued.............. -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 14,146,702 shares issued
in April and October................................................................ 141 141
Additional paid-in-capital........................................................... 29,373 29,426
Note receivable from sale of stock................................................... (900) (900 )
Retained earnings (deficit).......................................................... (1,570) 684
Treasury stock, 3,330,020 common shares in April and 3,301,194 common shares in
October, at cost.................................................................... (6,716) (6,658 )
--------- -----------
Total stockholders' equity......................................................... 20,328 22,693
Contingencies (notes 2 and 6)..........................................................
--------- -----------
$ 71,150 $ 79,849
--------- -----------
--------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-25
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS AND SIX MONTHS ENDED OCTOBER 31, 1994 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
-------------------- --------------------
1994 1995 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 48,180 $ 48,877 $ 91,818 $ 95,047
Direct costs................................................. 42,948 39,141 80,867 76,794
--------- --------- --------- ---------
Gross profit............................................... 5,232 9,736 10,951 18,253
General and administrative expenses.......................... 4,832 7,199 9,593 13,932
--------- --------- --------- ---------
Operating income........................................... 400 2,537 1,358 4,321
Other income (expense):
Interest expense........................................... (565) (573) (1,384) (1,098)
Interest income............................................ 125 203 209 404
Miscellaneous income....................................... 391 37 371 69
Minority interest in earnings of subsidiaries.............. (86) -- (159) --
--------- --------- --------- ---------
Earnings before income taxes................................. 265 2,204 395 3,696
Income tax expense........................................... 103 875 142 1,442
--------- --------- --------- ---------
Net earnings............................................. $ 162 $ 1,329 $ 253 $ 2,254
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings per common and common equivalent share (note
5).......................................................... $ 0.01 $ 0.10 $ 0.02 $ 0.17
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of common and common equivalent
shares outstanding (note 5)................................. 11,018 13,211 10,765 12,957
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-26
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---------- ---------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Net cash provided by operating activities.................................................... $ 4,683 $ 5,924
---------- ---------
Cash flows from investing activities:
Acquisition of property and equipment...................................................... (2,499) (1,333)
Disposition of property and equipment...................................................... 151 --
Net proceeds from sale of property and equipment........................................... 14,181 --
Acquisition of subsidiaries, net of cash acquired.......................................... (694) --
Disposition of subsidiaries, net........................................................... 10,826 --
---------- ---------
Net cash provided by (used in) investing activities...................................... 21,965 (1,333)
---------- ---------
Cash flows from financing activities:
Net repayments under revolving promissory notes............................................ (9,023) (2,731)
Borrowings on notes payable................................................................ 504 1,918
Repayments on notes payable................................................................ (19,206) (1,597)
Increase in receivables from officers...................................................... -- (178)
Proceeds from the exercise of stock options................................................ -- 112
Distributions paid to limited partners..................................................... (133) --
---------- ---------
Net cash used in financing activities.................................................... (27,858) (2,476)
---------- ---------
Net increase (decrease) in cash and cash equivalents..................................... (1,210) 2,115
Cash and cash equivalents, beginning of period............................................... 2,370 1,178
---------- ---------
Cash and cash equivalents, end of period..................................................... $ 1,160 $ 3,293
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-27
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
In the opinion of the Company, the interim condensed consolidated financial
statements include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The interim condensed consolidated
financial statements should be read in conjunction with the Company's April 30,
1994 and 1995 audited consolidated financial statements. The year-end condensed
consolidated balance sheet data was derived from audited consolidated financial
statements but does not include all disclosures required by generally accepted
accounting principles. The interim operating results are not necessarily
indicative of the operating results for the full fiscal year. Certain amounts in
the fiscal year 1995 condensed consolidated financial statements have been
reclassified to conform with the fiscal year 1996 presentation.
(B) NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued SPAS
No. 123, "Accounting for Stock-Based Compensation." As permitted by the
Standard, the Company does not intend to adopt the provisions for recognizing
compensation expense for grants to employees of stock, stock options, and other
equity instruments based on a new fair value method. Accordingly, this Standard
is not expected to have any impact on amounts recorded in the Company's
consolidated financial statements. However, beginning with fiscal year 1997, the
Standard will require the Company to disclose additional information in the
footnotes to its annual consolidated financial statements, including pro forma
net income and earnings per share under the new fair value method.
(2) ACCOUNTS RECEIVABLE
(A) CONTRACT CLAIM
In April 1994, the Company submitted a Request for Equitable Adjustment
(REA) under a contract with the Department of the Army for material changes in
the nature of the contract requirements from those represented during the
contract proposal process. The REA was denied by the Army and the Company has
submitted a claim for its increased costs of performance under the contract
pursuant to the Contracts Dispute Act of 1978. Billed accounts receivable of
$1.9 million as of April 30, were fully reserved pending further actions by the
Board of Contract Appeals. In September 1995 the Company reached a settlement
with the Department of the Army in the amount of $300,000. Accordingly, the
Company recognized $300,000 of revenue.
(B) CONTRACT SETTLEMENT RECEIVABLE
CHP, the Company's wholly owned health maintenance organization, earns
substantially all of its revenue under a prepaid Medicaid contract with the D.C.
Department of Human Services (DCDHS) to provide health care services to the
Medicaid recipients of the District of Columbia. The Medicaid program is jointly
funded by the District of Columbia and the Health Care Finance Administration
(HCFA) of the United States Department of Health and Human Services (HHS).
Under a three-year contract ended September 30, 1994, interim payments were
provided on an enrollment basis with a final settlement at the end of the
contract period, subject to a defined upper payment limit as determined by HCFA
of HHS. Final settlement with DCDHS and HCFA is subject to an audit of CHP's
activities. The Company believes final settlement should result in amounts due
the Company at April 30, 1995 in excess of $20 million, which is expected to be
lower than the actual upper payment limit. Due to the complexity inherent in the
contract and the definition of the settlement process as provided for in the
contract, the Company has recorded amounts due under the contract of $8.0
million at April 30 and
F-28
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) ACCOUNTS RECEIVABLE (CONTINUED)
October 31, 1995, which represents the Company's conservative interpretation of
amounts due under the contract. The Company believes that final settlement will
occur during fiscal 1996. In addition, proposed congressional legislation is
pending which upon passage would in management's opinion result in a retroactive
entitlement of the full recovery of the settlement receivable.
Effective October 1, 1994, CHP entered into a new contract with DCDHS. CHP
receives capitation payments for the inpatient services under the risk portion
of the contract. Additionally, CHP receives interim payments with an annual
final settlement for the other services under the non-risk portion of the
contract. At April 30 and October 31, 1995, CHP recorded accounts receivable of
$1.9 million and $7.7 million, respectively, for the difference between what was
due under the contract versus what was received. Final settlement of amounts due
under this contract is subject to an audit of the Company's activities by DCDHS.
(3) NOTES PAYABLE
(A) NOTES PAYABLE TO BANK
The notes payable to bank consists of the following:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1994 1995
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Term note of $15 million collateralized by all assets, interest due monthly at 1% above
bank prime (9.75% at October 31, 1995), principal due in quarterly installments of
$342,000 with final payments due in April 1998........................................... $ 4,102 $ 3,418
Revolving promissory note, collateralized by all assets, with a maximum credit line of $22
million, interest due monthly at 1% above bank prime (9.75% at October 31, 1995), due
November 1996............................................................................ 20,546 17,815
--------- -----------
Total notes payable to bank............................................................. 24,648 21,233
Less current maturities............................................................... (1,368) (1,368)
--------- -----------
Notes payable to bank, net of current maturities........................................ $ 23,280 $ 19,865
--------- -----------
--------- -----------
</TABLE>
On November 27, 1995, the Company extended its credit agreement with its
primary bank, in particular, the revolving promissory note was extended until
November 30, 1996 under similar terms.
F-29
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) NOTES PAYABLE (CONTINUED)
(B)NOTES PAYABLE -- OTHER
The notes payable -- other consists of the following:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1994 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Various collateralized term notes of $2,025,000, interest from 10.4% to 12.7% with various
installment payments due October 2000..................................................... $ 393 $ 1,478
Insurance notes of $732,000, monthly installments of principal and interest, interest from
6.8% to 7.6% due April 1996............................................................... 166 289
Obligations under capital leases, for certain equipment and fixtures, monthly installments
of principal and interest of $27,000, interest at 4.1%, due May 1998...................... 935 791
Convertible promissory notes of $500,000, interest due annually on April 30 at 7%,
convertible into common stock at $9.00 per share starting September 1995, due September
1999...................................................................................... 500 500
Promissory notes of $417,000, interest at 7%, repaid in August 1995........................ 59 -
----------- -----------
Total notes payable -- other............................................................. 2,053 3,058
Less current maturities................................................................ (879) (845)
----------- -----------
Notes payable -- other, net of current maturities........................................ $ 1,174 $ 2,213
----------- -----------
----------- -----------
</TABLE>
(4) CONVERTIBLE DEBT
On November 29, 1995, the Company announced its intention to make a private
offering of $60 million in aggregate principal amount of convertible
subordinated debentures due 2002. The Company expects to finalize the offering
in December, 1995. The debentures will be unsecured obligations, convertible
into PHP common stock and subordinated to all present and future senior
indebtedness of the Company.
The debentures and the underlying common stock have not been registered
under the Securities Act of 1933 (Securities Act) and may not be offered or sold
absent registration or an applicable exemption from the registration
requirements of the Securities Act and applicable state securities laws.
The debentures will be offered only to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) in reliance on the registration
on the exemption from the registration requirements provided by Rule 144A, and
outside the United States to certain persons in reliance on Regulation S under
the Securities Act.
(5) STOCK SPLIT
On October 16, 1995, the Board of Directors of the Company declared a
two-for-one split of its Common Stock payable on November 20, 1995. This was
effected in the form of a 100 percent stock dividend of 7,073,351 shares to
shareholders on record as of November 1, 1995. Stockholders' equity has been
restated to give retroactive recognition to the stock split for all periods
presented by reclassifying from additional paid in capital to common stock the
par value of the additional shares arising from the split. In addition, for all
periods presented, all references in the consolidated financial statements and
footnotes thereto to number of shares, earnings per share amounts, weighted
average shares outstanding, as well as, stock option, stock warrant and related
price information have been restated to give retroactive effect to the
two-for-one stock split effected on November 20, 1995.
(6) CONTINGENCIES
The Company is a defendant in various legal actions. The principal actions
allege or involve claims under contractual arrangements, employment matters and
medical malpractice with an estimated possible range of loss between
approximately $100,000 and $1.7 million in excess of insurance coverage. The
Company has recorded reserves of $100,000 related to these actions at October
31, 1995. In the opinion of
F-30
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) CONTINGENCIES (CONTINUED)
management, after consultation with legal counsel, the possible additional
losses related to these actions, if any, will not result in any material adverse
effect on the Company's consolidated financial position, results of operations,
or cash flows. The Company maintains medical malpractice insurance coverage
which provides for reimbursement of any claim amounts in excess of $250,000 per
incident.
(7) AGREEMENT TO SELL MINORITY INTEREST IN VIRGINIA CHARTERED HEALTH PLAN
The Company has agreed to sell 30% of its interest in a wholly-owned
subisidiary, Virginia Chartered Health Plan, Inc. to University Health Services,
Inc. ("UHS"). UHS is a non-stock corporation created by Virginia Commonwealth
University to promote the entry of the Medical College of Virginia Hospitals
into managed care. The proposed transaction is subject to regulatory approval
and other conditions and is expected to be completed prior to January 31, 1996.
F-31
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS OFFERING
MEMORANDUM AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY INITIAL PURCHASER.
THIS OFFERING MEMORANDUM 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 OFFERING MEMORANDUM 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>
Offering Memorandum Summary.................... 5
Risk Factors................................... 8
The Company.................................... 15
Use of Proceeds................................ 15
Capitalization................................. 16
Selected Historical Consolidated Financial
Information................................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 26
Management..................................... 36
Description of Debentures...................... 40
Description of Capital Stock................... 49
Certain United States Federal Income Tax
Consequences.................................. 52
Plan of Distribution........................... 55
Notice to Investors............................ 56
Legal Matters.................................. 60
Independent Auditors........................... 60
Available Information.......................... 60
Incorporation of Certain Documents by
Reference..................................... 61
Index to Consolidated Financial Statements..... F-1
</TABLE>
$60,000,000
[LOGO]
6 1/2% CONVERTIBLE
SUBORDINATED DEBENTURES
DUE 2002
------
CONFIDENTIAL
OFFERING MEMORANDUM
DECEMBER 13, 1995
---------
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
