<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
APRIA HEALTHCARE GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0488566
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
3560 HYLAND AVENUE
COSTA MESA, CA 92626
(714) 427-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT S. HOLCOMBE, ESQ.
APRIA HEALTHCARE GROUP INC.
3560 HYLAND AVENUE
COSTA MESA, CA 92626
(714) 427-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH A COPY TO:
<TABLE>
<S> <C>
ANDREW E. BOGEN, ESQ. ALISON S. RESSLER, ESQ.
GIBSON, DUNN & CRUTCHER LLP SULLIVAN & CROMWELL
333 SOUTH GRAND AVENUE 1888 CENTURY PARK EAST
LOS ANGELES, CA 90071 LOS ANGELES, CA 90067
(213) 229-7000 (213) 712-6600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT OF REGISTRATION
REGISTERED PROPOSED MAXIMUM AGGREGATE OFFERING PRICE(2) FEE
- -----------------------------------------------------------------------------------------------------------------------
Subscription Rights(1) $0 $0
- -----------------------------------------------------------------------------------------------------------------------
10% Convertible Subordinated Debentures due
2004 $51,779,000 $14,395
- -----------------------------------------------------------------------------------------------------------------------
Common Stock (3) (3)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Evidencing the rights to subscribe for the Convertible Subordinated
Debentures described below. Pursuant to Rule 457(g), no separate
registration fee is required for the rights since they are being registered
in the same registration statement as the Convertible Subordinated
Debentures underlying the rights.
(2) Calculated in accordance with Rule 457(o) based on the estimated maximum
aggregate offering price of the Convertible Subordinated Debentures.
(3) Such indeterminate number of shares of Common Stock as shall be issuable
upon the conversion of Convertible Subordinated Debentures being registered
hereunder. No separate consideration will be received by the Company upon
conversion of the Convertible Subordinated Debentures and, accordingly, no
additional registration fee is payable pursuant to Rule 457(i).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
SUBJECT TO COMPLETION DATED NOVEMBER 25, 1998
APRIA HEALTHCARE GROUP INC.
$51,779,000
10% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
Apria Healthcare Group Inc. is distributing to its stockholders subscription
rights (the "Rights") to subscribe for $51,779,000 principal amount of 10%
Convertible Subordinated Debentures due 2004 (the "Debentures") at a price equal
to 100% of the face amount of the Debentures. Holders of the Common Stock will
receive one Right for each share of the Common Stock held as of
, 1998. Debentures may only be purchased in increments of $1,000, and
one thousand (1,000) Rights will entitle the holder to purchase $1,000 principal
amount of the Debentures. The Rights will be freely transferable and will expire
at 5:00 p.m. on , 1999. The Company may extend the expiration date to
no later than , 1999.
THE DEBENTURES
Maturity , 2004
Interest Rate 10% per annum, payable semi-annually on 1
and 1 of each year commencing
1, 1999. Prior to , 2002,
interest will accrue and compound but will not be
required to be paid by the Company in cash.
Conversion The Debentures are convertible into shares of Common
Stock after June 1, 1999 at an initial conversion
price of $ per share.
Redemption The Debentures are not redeemable prior to
, 2002. Thereafter, the Debentures are
redeemable at the option of the Company, in whole or
in part, at the following redemption prices
(expressed as percentages of the principal amount) if
redeemed during the twelve-month period commencing on
of the year set forth below,
plus, in each case, accrued and unpaid interest:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................ 104%
2003........................ 102%
2004........................ 100%
</TABLE>
Upon a Change of Control, the Company will be
required, subject to certain conditions, to offer to
repurchase Debentures at the principal amount thereof
plus accrued and unpaid interest.
Ranking The Debentures are subordinated in right of payment
to all senior debt of the Company and rank equally in
right of payment with the Company's existing 9 1/2%
Senior Subordinated Notes due 2002 (the "Notes"). As
of November 20, 1998, the Company had $288.0 million
of senior debt.
Persons who exercise their Rights will have the opportunity to purchase, on a
pro rata basis, any Debentures not purchased by other holders of Rights. A
holder of Rights may not revoke a subscription once it has been exercised.
An existing shareholder of the Company, on behalf of certain of its affiliates,
has agreed, subject to certain conditions, that such affiliates will fully
exercise their Basic Subscription Privileges (as defined herein) and will
exercise their Oversubscription Privileges (as defined herein) as to a combined
total of $50,000,000 principal amount of the Debentures offered. The purchase of
Debentures by such entities is a condition to the consummation of the Rights
Offering.
The last reported sales price of the Common Stock on the New York Stock Exchange
(the "NYSE") on November 24, 1998 was $6 1/2 per share. The Company anticipates
that Rights will be traded on the NYSE under the symbol "AHG Rt" and that
application will be made to list the Debentures on the NYSE under the symbol
" ."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE DEBENTURES.
THE DEBENTURES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSION COMPANY(1)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Per Debenture $ 1,000 None $ 1,000
- -------------------------------------------------------------------------------------------------------------------
Total $51,779,000 None $51,779,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $2,219,395,
including a fee of $1,000,000 to be paid to Relational Investors, LLC for
the standby commitment.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE AMENDED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE RELATED REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY APPLICABLE STATE SECURITIES
COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING ANY OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 9
USE OF PROCEEDS............................................. 15
PRICE RANGE OF COMMON STOCK................................. 15
DIVIDEND POLICY............................................. 16
CAPITALIZATION.............................................. 17
THE RIGHTS OFFERING......................................... 17
SELECTED CONSOLIDATED FINANCIAL DATA........................ 26
BUSINESS.................................................... 28
MANAGEMENT.................................................. 38
DESCRIPTION OF THE DEBENTURES............................... 41
OTHER FINANCING ARRANGEMENTS................................ 61
DESCRIPTION OF CAPITAL STOCK................................ 67
PRINCIPAL SHAREHOLDERS...................................... 68
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................... 72
PLAN OF DISTRIBUTION........................................ 80
THE STANDBY PURCHASE AGREEMENT.............................. 80
LEGAL MATTERS............................................... 84
EXPERTS..................................................... 84
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 84
AVAILABLE INFORMATION....................................... 86
ANNEX 1..................................................... FORM 10-Q
</TABLE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995: The Company's business is subject to a
number of risks, some of which are beyond the Company's control. The Company has
described certain of those risks in this prospectus (see "Risk Factors") as well
as in previous documents filed with the Securities and Exchange Commission
(including the documents listed in "Incorporation of Documents by Reference").
Such documents may be used for purposes of the Private Securities Litigation
Reform Act of 1995 as readily available documents containing meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in any forward-looking
statements the Company may make from time to time. These risks include ongoing
issues pertaining to management stability and recruiting, the collectibility of
accounts receivable, the cost of and the Company's ability to implement its
reorganization plan, healthcare reform and the effect of federal and state
healthcare regulations, the ongoing U.S. Attorney investigation regarding the
Company's billing practices, pricing pressures (including changes in
governmental reimbursement levels), the effectiveness of its information systems
and controls, the highly competitive market, recent losses, the concentration
and market power of large payors, the Company's high leverage and restrictions
on its borrowing capacity, dependence on relationships with third parties and
the availability and adequacy of insurance.
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and does not contain all the information a prospective
investor should consider. Prospective investors should read the entire
prospectus carefully.
THE COMPANY
Apria Healthcare Group Inc. provides comprehensive home healthcare services
through approximately 320 branch locations which serve patients in all 50
states. The Company is located at 3560 Hyland Avenue, Costa Mesa, California
92626; telephone: (714) 427-2000.
The Company has three major service lines: home respiratory therapy; home
infusion therapy; and home medical equipment. The following table provides
examples of the products and services in each:
<TABLE>
<CAPTION>
SERVICE LINE EXAMPLES OF SERVICES AND PRODUCTS
------------ ---------------------------------
<S> <C>
Home respiratory Provision of oxygen systems, nebulizers (which
therapy are devices to disperse medication as an
aerosol) and home ventilators
Home infusion therapy Administration of 24-hour access to
intravenous or enteral nutrition,
anti-infectives, chemotherapy and other
medications
Home medical equipment Provision of patient room equipment,
principally hospital beds, wheelchairs and
ambulatory aids, to patients receiving care at
home
</TABLE>
The services above include educating patients and their caregivers about the
illness and instructing them on self-care and the proper use of products in
their home; monitoring patient compliance with individualized treatment plans;
reporting to the doctor or managed care organization; maintaining the equipment;
and processing claims for payment to the persons responsible for payment. The
Company directly provides services, such as the ones described above, to its
patients, and purchases or rents the products needed to complement the service.
The Company was formed by the merger, on June 28, 1995, of Homedco Group, Inc.
("Homedco") with Abbey Healthcare Group Incorporated ("Abbey"). The merger has
been accounted for under the pooling-of-interests method of accounting.
Accordingly, the historical financial statements for periods prior to the
consummation of the merger have been restated as though the companies had been
combined.
PURPOSE OF THE OFFERING
As the result of the $210.3 million net loss incurred by the Company during the
nine month period ended September 30, 1998, the Company was unable to comply
with covenants in its credit agreement. To avoid a default under the credit
agreement and to obtain increased flexibility in operating its business, the
Company entered into an amended and restated credit agreement which requires
completion of this offering (the "Rights Offering") by February 28, 1999.
Pursuant to the amended and restated credit agreement, the Company made a
repayment of $50 million to reduce its indebtedness at the time the credit
agreement was signed and the Company is required to use all of the net proceeds
of the Rights Offering to further reduce indebtedness under the credit
agreement. As a result of the $50 million repayment, the Company's indebtedness
under the credit agreement was reduced to $288.0 million on November 13, 1998
and will be reduced to approximately
1
<PAGE> 5
$238.4 million upon application of the net proceeds of the Rights Offering.
Certain covenants in the credit agreement will be liberalized to increase the
Company's ability to make acquisitions and to provide greater operating
flexibility. See "Other Financing Arrangements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
(the "Form 10-Q"), a copy of which is attached to this prospectus as Annex 1.
BUSINESS STRATEGY
In 1998 there have occurred substantial changes in the management and Board of
Directors of the Company. Philip L. Carter became Chief Executive Officer in May
1998. Under Mr. Carter's leadership, the Company is implementing a strategy
aimed at achieving profitable operating results, through the following principal
elements:
- No change in the fundamental scope of Company operations. The Company
intends to remain in its core businesses of home respiratory therapy,
home infusion therapy and home medical equipment. However, the Company
expects to increase the percentage of net revenues generated by
respiratory therapy with a corresponding reduction in the percentage of
net revenues generated by infusion therapy.
- Divestiture or closure, on a selective basis, of unprofitable business
operations in particular geographic areas. The Company intends to exit
the infusion therapy business in Texas, California, Louisiana and western
Pennsylvania by the end of 1998. During the third quarter of 1998, the
Company sold its entire California infusion operations.
- Cost reductions in corporate and field operations. The Company intends to
reduce costs both at its corporate headquarters and in the field. The
Company has undertaken a detailed analysis of its business and has
identified specific operating systems and procedures in the areas of
purchasing, distribution and inventory management that can be improved in
order to increase efficiency and lower costs. In addition, the Company
has consolidated and closed branch locations throughout the United States
and reduced its corporate and regional headcount during 1998 by
approximately 1,200 employees. The Company has also substantially reduced
its headquarters office space. Going forward, the Company intends to
focus resources on identifying more cost-effective and efficient methods
of delivering products and services.
- Improvement of the Company's capital structure, principally through the
offering made hereby. Following the Rights Offering and the amendment of
the Company's credit agreement, the Company expects to have additional
funds available to pursue acquisition opportunities.
- Expansion through internal growth and acquisitions. The Company intends
to expand through internal growth and strategic acquisitions in its
target markets. The Company plans to increase its acquisition activity in
1999 and intends to focus growth primarily in its home respiratory
therapy business.
Achievement of the Company's objectives will be dependent upon the success of
the Rights Offering made hereby and effective implementation of each of the
elements identified above, and is subject to competitive and other factors
outside of the Company's control. See "Risk Factors." This strategy is designed
to enable the Company to achieve positive earnings per share by the second
quarter of 1999; however there is no assurance of such success.
2
<PAGE> 6
THE RIGHTS OFFERING
THE RIGHTS
Distribution of Rights....... The Company will distribute to each person who
owns Common Stock of the Company one Right for
each share of Common Stock owned as of the close
of business on , 1998. The
Company will distribute with this prospectus
subscription warrants which will serve as
evidence of the Rights. Each Right includes a
Basic Subscription Privilege and an
Oversubscription Privilege.
Subscription Price........... $1,000 per $1,000 principal amount of the
Debentures.
Basic Subscription
Privilege.................... Debentures can only be purchased in increments
of $1,000. One thousand (1,000) Rights entitle
the holder to purchase from the Company $1,000
principal amount of the Debentures.
Oversubscription Privilege... If all of the Basic Subscription Privileges are
not exercised, each holder of Rights who elects
to fully exercise the Basic Subscription
Privilege may also subscribe at the subscription
price for any Debentures not purchased by other
holders of Rights. Debentures available for
purchase pursuant to the Oversubscription
Privilege will be subject to proration if the
number of Oversubscription Privileges exercised
exceeds the principal amount of the Debentures
available. Proration will be in proportion to
the principal amount of the Debentures a holder
has subscribed for pursuant to the Basic
Subscription Privilege.
Expiration Date.............. The Rights will expire on , 1999 at
5:00 p.m., New York City time. The Company may
extend the expiration date but not beyond
, 1999. No one may exercise Rights
after the expiration date.
Transferability Of Rights.... The Rights are transferable. The Company
anticipates that they will trade on the NYSE
until the close of business on the day prior to
the expiration date. The Company cannot assure,
however, that any market for the Rights will
develop or be maintained. will
act as subscription agent and will endeavor to
sell Rights for holders who have delivered
proper selling instructions to the subscription
agent before 11:00 A.M., New York City time, on
, 1999. The Company cannot assure that
the subscription agent will be able to sell any
Rights or that it will be able to sell the
Rights at any particular price.
Standby Agreement............ Pursuant to the terms and conditions of a
Standby Purchase Agreement, negotiated and
approved by a Special Finance Company consisting
of non-employee directors who are not affiliated
with Relational Investors,
3
<PAGE> 7
LLC, Relational Investors, LLC, an existing shareholder of the Company, on
behalf of certain of its affiliates ("the Relational Affiliates"), has agreed,
subject to certain conditions, that the Relational Affiliates will fully
exercise their Basic Subscription Privileges and will exercise their
Oversubscription Privileges as to a combined total of $50,000,000 principal
amount of the Debentures offered hereby. See "The Standby Purchase Agreement."
The Company will pay a fee of $1,000,000 to Relational Investors, LLC, in
consideration of the standby purchase commitment.
Conditions To The Rights
Offering................... The consummation of the Rights Offering is
subject to certain conditions. See "The Rights
Offering -- Conditions to the Rights Offering."
Certain Federal Income Tax
Consequences............... For United States federal income tax purposes,
holders who receive Rights from the Company
generally will not recognize taxable income in
connection with the distribution to them or
exercise by them of Rights. Rights holders may
recognize gain or loss upon the sale of Rights
or Debentures acquired through exercise of the
Rights. See "Certain Federal Income Tax
Consequences."
THE DEBENTURES
Principal Amount............. $51,779,000
Interest..................... 10% per annum, payable semi-annually on 1
and 1 of each year commencing 1, 1999, to
holders of record at the close of business on
the 15 or 15 preceding each such interest
payment date. Prior to , 2002, interest
will accrue on each interest payment date but
will not be paid by the Company, unless the
Company elects to pay such interest in its sole
discretion.
Maturity..................... , 2004.
Conversion Rights............ The Debentures are convertible into shares of
Common Stock at any time after June 1, 1999 and
prior to maturity or redemption at a conversion
price of $ per share, subject to adjustment
under certain conditions.
Optional Redemption by the
Company.................... The Debentures are not redeemable prior to
, 2002. Thereafter, the Debentures are
redeemable at any time and from time to time at
the option of the Company, in whole or in part,
at the following redemption prices (expressed as
percentages of the principal
4
<PAGE> 8
amount) if redeemed during the twelve-month period commencing on of the
year set forth below, plus, in each case, accrued and unpaid interest thereon,
to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002............................. 104%
2003............................. 102%
2004............................. 100%
</TABLE>
Change of Control............ Upon a Change of Control (as defined in the
indenture governing the Debentures), the Company
is required to offer to repurchase the
Debentures at a price equal to 101% of the
aggregate principal amount thereof, together
with accrued and unpaid interest, if any, to the
date of repurchase. Certain affiliated
transactions may not be considered a Change of
Control.
Subordination................ The Debentures are subordinated to all existing
and future Senior Debt (as defined in the
indenture governing the Debentures) of the
Company. As of November 20, 1998, the Company
had $288.0 million of indebtedness outstanding
(excluding accrued interest thereon) that would
have constituted Senior Debt. The Debentures
will rank equally in right of payment with the
Company's outstanding Notes.
Original Issue Discount...... Each Debenture will be issued with Original
Issue Discount for federal income tax purposes
because the Company is not required to make
actual payments of interest during the first
three years of the Debentures. If the Company
does not elect to make any payments during that
three-year period, the Original Issue Discount
amounts per Debenture will be $102.50 for the
first year, $113.01 for the second year and
$124.59 for the third year. Such amounts will be
includable in a Debenture holder's gross income
notwithstanding the fact that the Company does
not make a payment of interest during that
period. See "Certain Federal Income Tax
Consequences -- Original Issue Discount."
Guarantees................... The Debentures will be guaranteed (the
"Guarantees") by all of the Company's
wholly-owned domestic subsidiaries.
MECHANICS OF THE OFFERING
Procedure For Exercising
Rights....................... A holder of Rights may exercise his or her
subscription privileges by properly completing
the subscription warrant and forwarding it, with
payment of the subscription price for the
Debenture subscribed for, to the subscription
agent. The subscription agent must receive the
subscription warrant and payment prior to the
time the Rights expire. If holders send
subscription warrants
5
<PAGE> 9
by mail, the Company urges them to use insured, registered mail. A holder of
Rights may also exercise his or her subscription privileges by using the
"Guaranteed Delivery Procedures" described in "Rights Offering -- Exercise of
Rights."
A HOLDER OF RIGHTS MAY NOT REVOKE A SUBSCRIPTION
ONCE IT HAS BEEN EXERCISED. NO ONE MAY EXERCISE
RIGHTS AFTER THE EXPIRATION TIME.
Shares Held in Nominee
Accounts................... Persons holding shares of Common Stock through a
broker, dealer, commercial bank, trust company
or other nominee should contact the appropriate
institution or nominee and request it to effect
the transactions for them.
Issuance Of Debentures....... The Company will deliver certificates
representing Debentures purchased pursuant to
the Rights as soon as practicable after the date
on which the Rights expire. No interest will be
paid to holders on funds paid to the
subscription agent.
LISTING The Common Stock is listed on the NYSE under the
symbol "AHG." The Company anticipates that the
Rights will be traded on the NYSE under the
symbol "AHG Rt" and that application will be
made to list the Debentures for trading on the
NYSE under the symbol " ."
USE OF PROCEEDS The aggregate proceeds to the Company from the
Rights Offering will be approximately
$51,779,000, before deducting estimated offering
expenses payable by the Company, including the
standby commitment fee. The Company plans to use
all of the net proceeds to permanently reduce
the term loan under the Company's credit
agreement. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources"
contained in the Form 10-Q and "Other Financial
Arrangements -- Bank Credit Facility."
SUBSCRIPTION AGENT
-------------------------
RISK FACTORS
See "Risk Factors" commencing on page 9 for a description of certain risks which
prospective investors should consider before making an investment in the
Debentures.
6
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ---------------------------
1995(1,2,3) 1996(1) 1997(4) 1997(5) 1998(6)
----------- ---------- ---------- --------- ---------------
(IN THOUSANDS EXCEPT NET INCOME (LOSS) PER COMMON SHARE)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................... $1,133,600 $1,181,143 $1,180,694 $ 913,954 $ 710,532
Gross profit................................... 772,601 780,468 729,512 576,162 446,881
(Loss) income before extraordinary items....... (71,478) 33,300 (272,608) (34,450) (210,264)
Net (loss) income.............................. $ (74,476) $ 33,300 $ (272,608) $ (34,450) (210,264)
---------- ---------- ----------
Per share amounts:
(Loss) income before extraordinary items....... $ (1.52) $ 0.66 $ (5.30) $ (0.67) $ (4.07)
Net (loss) income per common share............. $ (1.58) $ 0.66 $ (5.30) $ (0.67) $ (4.07)
Per share amounts -- assuming dilution:
(Loss) income before extraordinary items....... $ (1.52) $ 0.64 $ (5.30) $ (0.67) $ (4.07)
Net (loss) income per common share............. $ (1.58) $ 0.64 $ (5.30) $ (0.67) $ (4.07)
CASH FLOW DATA:
Net Cash Provided By (Used In):
Operating Activities......................... $ (9,898) $ (59,295) $ 104,110 $ 65,773 $ 100,145
Investing Activities......................... $ (94,156) $ (68,705) $ (24,118) $ (14,588) $ (14,153)
Financial Activities......................... $ 97,998 $ 136,101 $ (90,605) $ (51,542) $ (6,623)
OTHER DATA:
EBITDA(7)...................................... $ 53,403 $ 211,320 $ (51,778) $ 114,949 $ (80,075)
Ratio of earnings to fixed charges(8)
Historical(9)................................ -- 1.9x -- 0.5x --
Pro forma(10)................................ N/A N/A -- N/A --
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30, 1998
-------------------------------------- ---------------------------
1995 1996 1997 ACTUAL AS ADJUSTED(11)
------------ ---------- -------- --------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $198,630 $ 311,991 $169,090 $ 12,166 $ 62,166
Total assets.................................... 979,985 1,149,110 757,170 552,695 502,695
Long-term obligations, including current
maturities.................................... 500,307 634,864 548,905 542,132 492,132
Stockholders' equity............................ 284,238 342,935 74,467 (134,054) (134,054)
</TABLE>
- -------------------------
(1) The per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share. For further discussion, see Note 9 to the Consolidated Financial
Statements contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, as amended (the "1997 Form 10-K").
(2) In 1995, the Company incurred charges related to merger, restructuring and
integration activities as discussed in Note 7 to the Consolidated Financial
Statements contained in the 1997 Form 10-K.
(3) The Statement of Operations and Balance Sheet Data reflect the June 28,
1995 merger of Abbey and Homedco using the pooling-of-interests method of
accounting. Accordingly, the financial data for all periods prior to June
28, 1995 have been restated as though the two companies had been combined.
(4) As described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" contained in
the 1997 Form 10-K and in Notes 3, 4, 8 and 13 to the Consolidated
Financial Statements contained in the 1997 Form 10-K, the operations data
for 1997 includes significant adjustments and charges to write down the
carrying values of goodwill and information systems hardware and internally
developed software, $133,542,000 and $26,781,000, respectively, increase
the valuation allowance on deferred tax assets, $29,963,000, and provide
for estimated losses related to patient service assets and inventory and
related to accounts receivable, $33,100,000 and $101,423,000, respectively.
7
<PAGE> 11
(5) As described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" contained in
the Form 10-Q and Note B to the Consolidated Financial Statements contained
in the Form 10-Q, the operations data for the nine months ended September
30, 1997 includes significant adjustments and charges to provide for
estimated losses related to patient service assets and inventory and
related to accounts receivable -- $23,000,000 and $75,000,000,
respectively.
(6) As described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" contained in
the Form 10-Q and Notes D, G, H and I to the Consolidated Financial
Statements contained in the Form 10-Q, the operations data for the nine
months ended September 30, 1998 includes significant adjustments and
charges to write down the carrying values of intangible assets and
information systems hardware and internally developed software, $76,223,000
and $22,187,000, respectively, provisions for estimated losses related to
accounts receivable of $28,236,000 and other significant charges of
$3,939,000 related to severance and other employee costs and $5,400,000 to
settle procurement contracts.
(7) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization. While many in the financial community consider EBITDA to be
an important measure of comparative operating performance, it should not be
construed as an alternative to operating income or cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles). EBITDA does not reflect cash available to fund cash
requirements, and the items excluded from EBITDA, such as depreciation and
amortization, are significant components in assessing the Company's
performance. Other significant uses of cash flow are required before cash
will be available to the Company, including debt service, taxes and cash
expenditures for various long-term assets. The Company's use of EBITDA may
be different from the calculation used by other companies and, therefore,
comparability may be limited.
(8) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income from operations before income taxes plus fixed
charges (net of capitalized interest). Fixed charges include interest
expense plus capitalized interest and a portion of operating lease rental
expense deemed to be representative of interest. The pro forma ratio of
earnings to fixed charges reflects the reduction of outstanding
indebtedness under the credit agreement to $238.4 million out of the
proceeds from the exercise of the Rights, and a corresponding decrease in
interest expense.
(9) The Company's earnings in 1995, 1997 and the nine months ended September
30, 1998 were inadequate to cover fixed charges by $90,419, $236,058 and
$207,764, respectively.
(10) The Company's earnings on a pro forma basis in 1997 and the nine months
ended September 30, 1998 were inadequate to cover fixed charges by $234,088
and $206,287, respectively.
(11) As adjusted to give effect to the Rights Offering, the purchase of the
Debentures on exercise of the Rights and the use of proceeds from the sale
of the Debentures as described under "Use of Proceeds."
8
<PAGE> 12
RISK FACTORS
Prospective investors should consider the following factors carefully before
deciding to purchase Debentures. This prospectus contains forward-looking
statements. These statements include words such as "may," "will," "expect,"
"believe," "intend," "anticipate," "estimate" or similar words. These statements
are based on the Company's current beliefs and are subject to a number of risks
and uncertainties. Actual results and events may vary materially from those
discussed in the forward-looking statements. The Company discusses risks and
uncertainties that might cause such a difference below and elsewhere in this
prospectus.
RISKS RELATED TO THE COMPANY'S BUSINESS STRATEGY
During 1998 the Company has had significant changes in management and its board
of directors. Business plans, management structure and operating procedures and
strategies have been revised, and significant further changes are planned for
the future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the Form 10-Q. These changes involve
substantial costs and inevitable disruption of business operations. Changes in
operating procedures and strategies, while designed to improve efficiency, may
not produce the cost reductions and efficiencies anticipated. In pursuing its
acquisition strategy, the Company may have difficulty identifying appropriate
acquisition candidates and consummating transactions, and the process of
integrating newly acquired businesses may be costly and disruptive. Results of
operations in future periods will be dependent upon the success of the Company's
business strategy. If the Company is not successful in achieving anticipated
cost reductions and revenue increases, results will be adversely affected.
SIGNIFICANT RECENT LOSSES
The Company has suffered significant net losses in two of the last three fiscal
years, and during the nine months ended September 30, 1998. As a result, the
Company would have been in default under its bank credit agreement if not for
the amendment and restatement of the credit agreement described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" contained in the Form 10-Q and
"Other Financing Arrangements." In addition, the Company is prohibited from
incurring additional indebtedness (other than refinancing indebtedness such as
the Debentures) pursuant to the terms of the Notes. See "Other Financing
Arrangements" and "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" contained in the Form 10-Q.
U.S. ATTORNEY INVESTIGATION
On July 8, 1998, the Company issued a press release reporting that it had
received six subpoenas from the U.S. Attorney's office in Sacramento,
California, requesting documents related to the Company's billing practices. The
documents requested include those located at the Company's corporate
headquarters and offices in San Diego and Sacramento, California, and
Canonsburg, Pennsylvania. On July 29, 1998, the Company received another
subpoena requesting additional billing-related documents from its Sacramento
office. The Company is in the process of complying with the subpoenas.
The Company has experienced problems as the result of errors and deficiencies in
supporting documentation affecting a portion of its billings, including billings
under the Medicare and Medicaid programs. If the U.S. Attorney were to conclude
that such errors
9
<PAGE> 13
and deficiencies constituted criminal violations, or were to make claims for the
maximum amount potentially recoverable as a result, the Company could face
criminal charges and/or civil claims for amounts that would be highly material
to its business and financial condition. Such amounts could include claims for
treble damages. It is the Company's position that the assertion of criminal
charges or the assertion of any such claims would be unwarranted. If such
charges or claims were asserted, the Company believes that it would be in a
position to assert numerous defenses. However, no assurance can be provided as
to the outcome of any such possible proceedings.
Presently, the Company is unaware of what claims or proceedings, if any, the
government may be contemplating with respect to these subpoenas.
COLLECTIBILITY OF ACCOUNTS RECEIVABLE
Results of operations have been adversely affected by high levels of accounts
receivable write-offs. To provide for this, the Company recorded additional
reserves for bad debts and unidentified revenue adjustments of $41.3 million in
1996, $101.4 million in 1997 and $28.2 million in the nine month period ended
September 30, 1998. The high level of accounts receivable write-offs has been
caused by ongoing operational problems, including errors in the billing and
collection process, late billing, improper and/or untimely preparation of, and
deficiencies in, reimbursement documentation and problems with the Company's
billing systems. Accounts receivable write-offs have also been impacted by
disruptions, delays and errors in billing and collection activity associated
with the Company's 1995 and 1996 conversions of its field locations to
standardized information systems. During 1998, the Company has continued to
experience high levels of write-offs, due in part to difficulties with major
managed care organizations with which the Company does business, and slower than
expected progress in improving its revenue management process. The Company
records receivables upon confirmation of the delivery of medical services or
products which is typically prior to billing and the preparation and submission
of reimbursement documentation, which can create increased collection risks if
invoices and documentation are not prepared correctly and on a timely basis. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" contained in the Form 10-Q.
OPERATING SYSTEMS AND CONTROLS
Following the 1995 merger of the Company's two predecessor corporations, the
Company has been adversely affected by difficulties in the establishment of a
common field information system for accurate order entry, pricing, billing,
collections and monitoring, as well as by ongoing operational shortcomings.
During 1997, the Company commenced a two-year project to implement a
large-scale, new, information system, intended to address these issues among
others. Following a reevaluation of the project, work on the new system was
canceled in 1998. As a part of the decision to cancel the new system, management
evaluated its current systems and determined that the Company was at some risk
in continuing to run its infusion billing system on its current platform, which
is no longer supported by the computer industry. To mitigate this risk, the
Company is currently converting the infusion system to the operating platform on
which the respiratory/home medical equipment system currently operates and is
implementing a number of enhancements to its systems. The implementation of
these system changes could have a disruptive effect on billing and collection
activity. Failure to successfully resolve the systems and operational problems
experienced in prior periods would have a significant negative impact on results
of operations.
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<PAGE> 14
HIGH LEVERAGE AND RESTRICTIVE COVENANTS
As of September 30, 1998, on a pro forma basis after giving effect to the
receipt of proceeds from the exercise of the Rights and the application of all
the net proceeds to reduce the term loan under the bank credit agreement, the
Company would have had negative stockholders' equity of $134.1 million and
indebtedness of $492.1 million. Accordingly, the Company's balance sheet is
highly leveraged, its ability to obtain financing is severely limited and its
borrowing costs are very high. Continuing losses from operations, or any
material adverse change in the Company's business, could lead to insolvency.
Covenants contained in the Company's bank credit agreement and the indenture
governing the Notes contain material restrictions on the Company's operations,
including its ability to incur debt, make certain investments and encumber or
dispose of assets. Pursuant to the indenture governing the Notes, the Company is
not currently permitted to incur any indebtedness (other than refinancing
indebtedness such as the Debentures) and does not anticipate that it will be
entitled to incur additional indebtedness through at least the third quarter of
1999. In addition, financial covenants contained in the Company's bank credit
agreement could lead to a default in the event results of operations do not meet
the Company's plans. In the event of any default under covenants in the
Company's financing agreements, the Company could be prohibited from making
payments of interest or principal on the Debentures. See "Other Financing
Arrangements" and "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" contained in the Form 10-Q.
SUBORDINATION OF THE DEBENTURES
The Debentures will be subordinate to all Senior Debt of the Company, including
borrowings under the Company's bank credit agreement. In the event of a default
under provisions of the Senior Debt, the Company could be prohibited from making
any payment of principal or interest on the Debentures until the default has
been cured and waived, or the Senior Debt has been paid in full.
Senior Debt of the Company as of September 30, 1998, and after giving effect, on
a pro forma basis, to a $50 million repayment under the Company's bank credit
agreement on November 13, 1998 and the Rights Offering and the application of
the proceeds therefrom to reduce a portion of the Company's term loan under the
credit agreement would have been $238.4 million.
In the event of a Change of Control of the Company, redemption of the Debentures
and the Notes would be subject to the prior payment in full of all Senior Debt.
In such event, the assets of the Company could be insufficient for redemption of
the Debentures and the Notes. See "Description of the Debentures" and "Other
Financing Arrangements."
RELATIVE POSITION OF THE DEBENTURES AND NOTES
The Debentures will be pari passu in right of payment with the Notes, and the
Debentures include a cross-default provision whereby any default under the
indenture governing the Notes will constitute a default under the indenture
governing the Debentures. Nonetheless, the rights of the holders of Debentures
will vary from the rights of the holders of the Notes in certain respects,
including the following:
- Although holders of Debentures will be entitled to participate in any
consent fee that is paid to holders of Notes in connection with any
solicitation of waivers, they
11
<PAGE> 15
will have no right to approve or disapprove any amendment of or waiver of
and default under the indenture governing the Notes. As a consequence,
holders of Debentures will be subject to determinations made by the
holders of the Notes on fundamental matters such as events of default and
acceleration events.
- The Notes mature months prior to the maturity date of the
Debentures. In addition, the indenture governing the Notes permits the
Notes to be redeemed at the option of the Company prior to maturity and
may require the Notes to be redeemed in whole or in part out of the
proceeds of any Asset Sale (as defined in the indenture governing the
Notes). As a result, the times at which the Debentures and Notes will be
repaid or redeemed may not be identical, and there may be circumstances
under which holders of the Notes are entitled to be repaid or redeemed
when holders of Debentures are not.
- Once the Notes have been repaid in full or defeased (which may occur at
maturity or upon an earlier redemption or defeasance), the covenants
contained in the indenture governing the Notes will terminate, and the
holders of the Debentures will no longer enjoy the protections afforded
by those covenants.
As a result of their pari passu ranking with the Notes, the Debentures will be
required to share with the Notes any redemption proceeds upon any Change of
Control of the Company and any proceeds in connection with an acceleration of
the Debentures and the Notes, in each case, after the payment of any Senior
Debt. In such events, the assets of the Company could be insufficient for the
redemption or repayment in full of the Debentures and the Notes. See
"Description of the Debentures" and "Other Financing Arrangements."
MANAGEMENT STABILITY AND RECRUITING
The Company has had difficulty attracting and retaining key personnel, including
sales representatives, because of uncertainty about the Company's future and
significant changes in senior management. If continued, this situation will
likely have a material adverse effect on the Company's business.
GOVERNMENT REGULATION
The Company is subject to stringent regulation at both the federal and state
level, requiring compliance with burdensome and complex billing, substantiation
and record-keeping requirements. Financial relationships between the Company and
physicians and other referral sources are subject to strict limitations. In
addition, the provision of services, pharmaceuticals and equipment are subject
to strict licensing and safety requirements. Violations of regulations could
subject the Company to severe fines, facility shutdowns and possible exclusion
from government sponsored programs such as Medicare and Medicaid.
Prospective investors should take particular note of the fact that a recent
change in the Medicare reimbursement rate for home oxygen has resulted in a
significant decrease in the Company's revenues. A further decrease in the
Medicare reimbursement rate is scheduled to take effect on January 1, 1999. See
"Business -- Government Regulation" for a more comprehensive discussion of this
matter.
PRICING PRESSURES
The current market is exerting pressure on healthcare companies to reduce
healthcare costs, which has resulted in industry-wide consolidation. Larger
buyer and supplier groups exert additional pricing pressure on home healthcare
providers, reducing margins. The
12
<PAGE> 16
Company believes that continued pressure to reduce costs could have a material
adverse effect on the Company's business, results of operations or financial
condition.
COMPETITION
The segment of the healthcare market in which the Company operates is highly
competitive. Certain competitors of the Company have or may obtain significantly
greater financial and marketing resources than the Company. In addition,
relatively few barriers to entry exist in local home healthcare markets. As a
result, the Company could encounter increased competition in the future that may
limit its ability to maintain or increase its market share.
DEPENDENCE ON RELATIONSHIPS WITH THIRD PARTIES
The profitability and growth of the Company's business depends on its ability to
establish and maintain close working relationships with managed care
organizations, private and governmental third-party payors, hospitals,
physicians, physician groups, home health agencies, long-term care facilities
and other institutional healthcare providers, and large self-insured employers.
The loss of such existing relationships or the failure to continue to develop
such relationships in the future could have a material adverse effect on the
Company's business, results of operations or financial condition.
CONCENTRATION OF LARGE PAYORS
Managed care organizations control an increasing portion of the healthcare
economy. The Company has a number of contractual arrangements with managed care
organizations and other parties. While no individual arrangement accounted for
more than 5% of the Company's net revenues in fiscal 1997, managed care
organizations or other large third-party payors may use their power to exert
pressure on healthcare services or costs in a manner that could have a material
adverse effect on the Company's business, results of operations or financial
condition.
HEALTHCARE REFORM
Government officials and the public will continue to debate healthcare reform.
Changes in healthcare law, new interpretations of existing laws, or changes in
payment methodology may have a dramatic effect on the Company's operations.
LIABILITY CLAIMS
From time to time the Company is subject to lawsuits alleging professional
negligence, product liability or related claims. Claims against the Company,
regardless of their merit or eventual outcome, also may have a material adverse
effect upon the Company's business, results of operations or financial
condition.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Company has substantial net operating losses ("NOLs") which can be carried
forward to offset taxable income recognized by the Company in the future. The
Company's ability to utilize those NOLs, however, is subject to Section 382 of
the Internal Revenue Code which provides that upon the occurrence of an
ownership change the benefits of NOLs can be reduced or eliminated. Generally,
an ownership change occurs if one or more stockholders, each of whom owns 5% or
more in value of a corporation's capital stock, increase their aggregate
percentage ownership by more than 50 percentage points
13
<PAGE> 17
over the lowest percentage of stock owned by such stockholders over the
preceding three-year period. See "Certain Federal Income Tax
Consequences -- Application of Section 382."
Although based on current information about the Company's stockholdings neither
the issuance of the Rights nor an immediate conversion of the Debentures into
Common Stock would cause an ownership change, it is possible that in the future
the exercise of the conversion privilege of the Debentures could cause such a
change. See "Certain Federal Income Tax Consequences -- Application of Section
382." For example, if the existing 5% shareholders increase their stock
ownership in the Company or new 5% shareholders acquire stock in the Company
such that the aggregate percentage ownership approaches 50%, then a conversion
of some or all of the Debentures could trigger an ownership change. Although the
extent to which such an occurrence would affect the Company's ability to use its
NOLs cannot be predicted, it is possible that the Company would face
substantially higher tax costs as a result of a conversion of the Debentures.
CERTAIN OFFERING CONSIDERATIONS
No Revocation; Cancellation of Rights Offering. Once a holder has exercised its
Rights, such exercise may not be revoked. If the conditions precedent to the
Rights Offering are not satisfied or if the Company elects to withdraw the
Rights Offering, the Rights Offering will be canceled, and neither the Company
nor the subscription agent will have any obligation with respect to the Rights
except to return, without interest, any payment received by the subscription
agent in respect of the subscription price. See "The Rights Offering."
Absence of Public Market for Rights; Determination of Subscription Price. The
Company cannot ensure that a market in the Rights or the Debentures will develop
or continue. The market price for the Rights or the Debentures may be subject to
significant fluctuations. The market price for the Debentures acquired upon
exercise of the Rights may not be equal to the subscription price paid for such
securities by a recipient of Rights. See "The Rights Offering."
Dilution of Ownership Interest of Existing Shareholders. The Debentures will
entitle the holders to acquire approximately shares of
Common Stock, representing approximately % of the total outstanding shares
of Common Stock of the Company after giving effect to the conversion of the
Debentures. One consequence of the offering is that holders of Common Stock that
elect not to exercise their Rights could experience dilution with respect to
their ownership interest, and voting rights, in the Company upon conversion of
the Debentures into Common Stock.
Potential Concentration of Ownership by Participating Shareholders. Relational
Investors, LLC and the Relational Affiliates, as of November 20, 1998, hold in
aggregate shares representing approximately 13.21% of the Company's outstanding
Common Stock. Relational Investors, LLC, on behalf of the Relational Affiliates,
has agreed, subject to certain conditions, that the Relational Affiliates will
exercise their Basic Subscription Privileges and Oversubscription Privileges as
to a combined total of $50 million principal amount of the Debentures offered
hereby, less amounts subscribed for by other holders of Rights. As a result, to
the extent that other shareholders do not exercise their Rights, Relational
Investors, LLC and the Relational Affiliates will increase their aggregate
ownership percentage in the Company assuming they convert their Debentures into
Common Stock. If no other shareholders were to exercise their Rights, the
aggregate percentage ownership of Relational Investors, LLC and the Relational
Affiliates could
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<PAGE> 18
increase to %, assuming they were to convert the entire principal amount of
the Debentures they receive in the transaction. However, the Company has in
place a "Rights Plan," unrelated to the Rights, which could have the effect of
discouraging an attempt by a person to acquire 15% or more of the Common Stock.
See "Description of Capital Stock -- Preferred Stock Purchase Rights." By virtue
of their increased ownership percentage, Relational Investors, LLC and the
Relational Affiliates could be able to exercise greater influence over the
affairs of the Company than they currently exercise. In addition, their
increased ownership interest could have the effect of discouraging an attempt by
another person or entity to take over or otherwise gain control of the Company.
USE OF PROCEEDS
The aggregate net proceeds to the Company from the sale of the Debentures are
estimated to be approximately $49.6 million, after deducting offering expenses
payable by the Company, including the fee paid to Relational Investors, LLC for
the standby commitment. It is currently anticipated that all of the net proceeds
will be used to reduce the term loan under the Company's bank credit agreement.
As of November 20, 1998, $288.0 million was outstanding under the bank credit
agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" contained in the Form
10-Q and "Other Financing Arrangements" for a description of the bank credit
agreement.
PRICE RANGE OF COMMON STOCK
The Common Stock has been listed on the NYSE since May 16, 1996 (stock symbol
AHG). The following table sets forth for the quarters indicated the high and low
composite per share closing sales prices as reported by the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1996
First Quarter (NASDAQ trading).............................. $32 $24 1/4
Second Quarter (NASDAQ trading until May 16, 1996).......... 35 1/4 29 1/4
Third Quarter............................................... 32 3/4 17 3/8
Fourth Quarter.............................................. 21 1/2 17 1/8
1997
First Quarter............................................... 20 1/4 17 1/4
Second Quarter.............................................. 19 15 1/8
Third Quarter............................................... 18 5/16 13 1/4
Fourth Quarter.............................................. 16 3/4 13 1/4
1998
First Quarter............................................... 14 1/8 8 7/16
Second Quarter.............................................. 9 9/16 6 1/4
Third Quarter............................................... 7 4 1/4
</TABLE>
The last reported sales price of the Common Stock on the NYSE on October 20,
1998, the day prior to public announcement of the Rights Offering, was $3.75 per
share. The last such reported sales price on November 24, 1998 was $6 1/2 per
share.
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<PAGE> 19
DIVIDEND POLICY
The Company has never paid dividends. As the Company currently intends to retain
any earnings to provide funds for the operation and expansion of its business
and for the servicing and repayment of indebtedness, the Company does not intend
to pay cash dividends for the foreseeable future. In addition, the Company's
bank credit agreement and the indenture governing the Notes contain certain
covenants which, among other things, restrict (and currently prohibit) the
payment of dividends by the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" contained in the Form 10-Q and "Other Financing Arrangements."
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<PAGE> 20
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company as
of September 30, 1998, (i) on a historical basis, and (ii) as adjusted to give
effect to the Rights Offering and the sale of all the Debentures, as if the
foregoing had occurred as of September 30, 1998, and the application of all of
the estimated net proceeds therefrom as described under "Use of Proceeds." This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," contained in the Form 10-Q,
"Other Financing Arrangements" and the Consolidated Financial Statements and
notes thereto included in the Form 10-Q and the 1997 Form 10-K.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
DEBT (INCLUDING CURRENT MATURITIES):
Credit Facility
Term Loans........................................ $ -- $ 238,440
Revolving Credit Facility......................... 338,000 --
9 1/2% Senior Subordinated Notes due 2002............ 200,000 200,000
10% Convertible Subordinated Debentures due 2004..... -- 51,779
Other Borrowings..................................... 4,132 1,913
--------- ---------
Total debt................................... 542,132 492,132
--------- ---------
STOCKHOLDERS' EQUITY:
Common Stock, $0.001 par value per share, 150,000,000
shares authorized; 51,771,259 shares issued and
outstanding(1);................................... 52 52
Additional paid-in capital........................... 325,832 325,832
Deficit.............................................. (459,938) (459,938)
--------- ---------
Total stockholders' equity................... (134,054) (134,054)
--------- ---------
Total capitalization......................... $ 408,078 $ 358,078
========= =========
</TABLE>
- -------------------------
(1) Does not give effect to the conversion of any of the Debentures subscribed
for pursuant to the Rights Offering.
THE RIGHTS OFFERING
THE RIGHTS
The Company is issuing Rights to each record holder of the Common Stock ("Record
Date Holder") as of the close of business on , 1998 (the "Record
Date"). Holders will receive one Right for each share of the Common Stock held
on the Record Date. The Rights will be evidenced by transferable certificates
evidencing the Rights ("Subscription Warrants"), which are being distributed to
each Record Date Holder contemporaneously with the delivery of this prospectus.
Upon execution of a Subscription Warrant, each holder of Rights (a "holder" or
"Rights Holder") will agree that the exercise of Rights will be made on the
terms and subject to the conditions specified in this prospectus.
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<PAGE> 21
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege. One thousand (1,000) whole Rights will entitle the
Rights Holder to purchase one $1,000 principal amount of the Debentures at
$1,000 (the "Subscription Price") (the "Basic Subscription Privilege").
Debentures may only be purchased in increments of $1,000. In the aggregate, a
maximum of $51,779,000 principal amount of the Debentures may be purchased
pursuant to the Basic Subscription Privilege.
Oversubscription Privilege. Each holder who exercises the Basic Subscription
Privilege in full will also be eligible to subscribe, at the Subscription Price,
for additional Debentures (subject to proration, as described below) to the
extent that any Debentures ("Excess Debentures") are not subscribed for pursuant
to exercises under the Basic Subscription Privilege (the "Oversubscription
Privilege"). If the principal amount of Excess Debentures is not sufficient to
satisfy all subscriptions pursuant to exercises of the Oversubscription
Privilege, the Excess Debentures will be allocated pro rata (subject to the
elimination of Debentures not equal in principal amount to $1,000 or an integral
multiple of $1,000) among those holders who have exercised the Oversubscription
Privilege in proportion to the principal amount of Debentures a holder has
subscribed for pursuant to the Basic Subscription Privilege. Only holders who
exercise the Basic Subscription Privilege in full with respect to all Rights
received by such holders will be entitled to exercise the Oversubscription
Privilege. For purposes of determining if a holder has fully exercised the Basic
Subscription Privilege, only Basic Subscription Privileges held by the holder in
the same capacity will be considered. For example, a holder holding shares of
the Common Stock as an individual need not fully exercise all Basic Subscription
Privileges received in respect of shares of the Common Stock held jointly with
the holder's spouse or in respect of shares of the Common Stock held in an
individual retirement account. By completing the portion of the Subscription
Warrant exercising the Oversubscription Privilege, a holder will be deemed to
have certified that it has fully exercised all Basic Subscription Privileges
received in respect of shares of the Common Stock held in the same capacity
(other than the Basic Subscription Privileges under any Rights so received which
have been transferred by such holder). A holder's election to exercise the
Oversubscription Privilege must be made at the time such holder exercises the
Basic Subscription Privilege in full.
In order to exercise the Oversubscription Privilege, banks, brokers and other
nominee holders who exercise the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify (a "Nominee Holder
Certification") to the Subscription Agent and the Company the number of shares
held on the Record Date on behalf of each such beneficial owner of Rights, the
number of Rights as to which the Basic Subscription Privilege has been exercised
on behalf of each such beneficial owner, that each such beneficial owner's Basic
Subscription Privilege held in the same capacity has been exercised in full and
the number of Debentures subscribed for pursuant to the Oversubscription
Privilege by each such beneficial owner, and to record certain other information
received from each such beneficial owner.
SUBSCRIPTION PRICE
Debentures may only be purchased in increments of $1,000. The Subscription Price
is $1,000 per $1,000 principal amount of the Debentures subscribed for (whether
pursuant to the Basic Subscription Privilege or the Oversubscription Privilege),
payable in cash.
18
<PAGE> 22
EXPIRATION TIME AND DATE
The ability of holders to exercise the Basic Subscription Privilege and the
Oversubscription Privilege will expire at 5:00 p.m., New York City time, on
, 1999, unless extended by the Company, in its sole discretion, but
in any event no later than , 1999. Rights not exercised prior to the
Expiration Time will expire and such Rights will no longer be exercisable by any
holder. The Company will not be obligated to honor any purported exercise of
Rights by holders received by the Subscription Agent after the Expiration Time,
regardless of when the documents relating to that exercise were sent, except
pursuant to the Guaranteed Delivery Procedures described below.
STANDBY PURCHASE AGREEMENT
Relational Investors, LLC, an existing shareholder of the Company, on behalf of
the Relational Affiliates, has agreed, subject to certain conditions, that the
Relational Affiliates will fully exercise their Basic Subscription Privileges
and will exercise their Oversubscription Privileges as to a combined total of
$50,000,000 principal amount of the Debentures offered hereby. See "The Standby
Purchase Agreement."
EXERCISE OF RIGHTS
Holders may exercise their Rights by delivering to the Subscription Agent, at
the address specified below, at or prior to the Expiration Time, the properly
completed and executed Subscription Warrant(s) evidencing those Rights, with any
signatures guaranteed as required, together with payment in full of the
Subscription Price for the Debentures subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege. Payment in full must
be made by (i) check or bank draft drawn upon a United States bank, or postal,
telegraphic or express money order, payable to as Subscription
Agent, or (ii) by wire transfer of funds to the account maintained by the
Subscription Agent for the purpose of accepting subscriptions at
, Attention: Account: (Apria Healthcare Group Inc.).
The Subscription Price will be deemed to have been received by the Subscription
Agent only upon (i) clearance of an uncertified check, (ii) receipt by the
Subscription Agent of a certified or cashier's check or bank draft drawn upon a
United States bank or of a postal, telegraphic or express money order or (iii)
receipt of collected funds in the Subscription Agent's account designated above.
Funds paid by uncertified personal check may take at least five business days to
clear. Accordingly, holders who wish to pay the Subscription Price by means of
uncertified personal check are urged to make payment sufficiently in advance of
the Expiration Time to ensure that the payment is received and clears by that
time, and are urged to consider in the alternative payment by means of certified
or cashier's check, money order or wire transfer of funds.
If a holder wishes to exercise Rights, but time will not permit the holder to
cause the Subscription Warrant(s) evidencing those Rights to reach the
Subscription Agent prior to the Expiration Time, the Rights may nevertheless be
exercised if all of the following conditions (the "Guaranteed Delivery
Procedures") are met:
(i) the holder has caused payment in full of the Subscription Price for
Debentures being subscribed for pursuant to the Basic Subscription
Privilege and, if applicable, the Oversubscription Privilege to be received
(in the manner set forth above) by the Subscription Agent at or prior to
the Expiration Time;
19
<PAGE> 23
(ii) the Subscription Agent receives, at or prior to the Expiration Time, a
guarantee notice (a "Notice of Guaranteed Delivery") substantially in the
form provided with the Instructions as to Use of Subscription Warrants (the
"Instructions") distributed with the Subscription Warrants, from a member
firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. ("NASD"), or from a
commercial bank or trust company having an office or correspondent in the
United States (each, an "Eligible Institution"), stating the name of the
exercising holder, the number of Rights represented by the Subscription
Warrant(s) held by the exercising holder, the number of Debentures being
subscribed for pursuant to the Basic Subscription Privilege and, if any,
pursuant to the Oversubscription Privilege and guaranteeing the delivery to
the Subscription Agent of the Subscription Warrant(s) evidencing those
Rights (and, if applicable for a nominee holder, the related Nominee Holder
Certification) within three NYSE trading days following the date of the
Notice of Guaranteed Delivery; and
(iii) the properly completed Subscription Warrant(s) (and, if applicable
for a nominee holder, the related Nominee Holder Certification), with any
signatures guaranteed as required, is received by the Subscription Agent
within three NYSE trading days following the date of the Notice of
Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may
be delivered to the Subscription Agent in the same manner as Subscription
Warrants at the address set forth above, or may be delivered by telegram or
facsimile transmission (telecopier no. ; to confirm
facsimile deliveries, please call ). Additional copies of
the form of Notice of Guaranteed Delivery are available upon request from
whose address and telephone numbers are set forth below.
If an exercising holder does not indicate the number of Rights being exercised,
or does not forward full payment of the aggregate Subscription Price for the
number of Rights that the holder indicates are being exercised, then the holder
will be deemed to have exercised the Basic Subscription Privilege with respect
to the maximum number of Rights that may be exercised for the aggregate
Subscription Price payment delivered by the holder, and to the extent that the
aggregate Subscription Price payment delivered by the holder exceeds the product
of the Subscription Price multiplied by the number of Rights evidenced by the
Subscription Warrants delivered by the holder (such excess being the
"Subscription Excess"), the holder will be deemed to have exercised the
Oversubscription Privilege to purchase that principal amount of Debentures (in
whole increments of $1,000) equal to the quotient obtained by dividing the
Subscription Excess by the Subscription Price (subject to proration, as
described above). Any amount remaining after application of the foregoing
procedures shall be returned to the holder as soon as practicable by mail
without interest or deduction.
A holder who subscribes for fewer than all of the Debentures represented by its
Subscription Warrants may, under certain circumstances, (i) direct the
Subscription Agent to attempt to sell its remaining Rights, or (ii) receive from
the Subscription Agent a new Subscription Warrant representing the unused
Rights. See "-- Method of Transferring Rights" below. A holder's election to
exercise its Oversubscription Privilege must be made at the time such holder
exercises its Basic Subscription Privilege in full.
Unless a Subscription Warrant (i) provides that the Debentures to be issued
pursuant to the exercise of the Rights represented thereby are to be issued to
the registered holder of such Rights as indicated in the Subscription Warrant or
(ii) is submitted for the account of an Eligible Institution, signatures on each
Subscription Warrant must be guaranteed by
20
<PAGE> 24
a bank, broker, dealer, credit union, national securities exchange, registered
securities association, clearing agency or savings association.
Record Date Holders who hold shares of the Common Stock for the account of
others, such as brokers, trustees or depositories for securities (a "Nominee
Record Date Holder"), should contact the respective beneficial owners of such
shares as soon as possible to ascertain those beneficial owners' intentions and
to obtain instructions and certain beneficial owner certifications with respect
to their Rights, all as included in the Instructions distributed by Nominee
Record Date Holders to beneficial owners. If a beneficial owner so instructs,
the Nominee Record Date Holder should complete appropriate Subscription
Warrants, and, in the case of any exercise of the Oversubscription Privilege,
the related Nominee Holder Certification, and submit them to the Subscription
Agent with the proper payment. In addition, beneficial owners of the Common
Stock or Rights held through such a Nominee Record Date Holder should contact
the Nominee Record Date Holder and request the Nominee Record Date Holder to
effect transactions in accordance with the beneficial owner's instructions.
The Instructions accompanying the Subscription Warrants should be read carefully
and followed in detail. Subscription Warrants should be sent with payment to the
Subscription Agent. Do not send Subscription Warrants to the Company.
The method of delivery of Subscription Warrants and payment of the Subscription
Price to the Subscription Agent will be at the election and risk of the holder.
If Subscription Warrants and payments are sent by mail, holders are urged to
send these materials by registered mail, properly insured, with return receipt
requested, and are urged to allow a sufficient number of days to ensure delivery
to the Subscription Agent and clearance of payment prior to the Expiration Time.
Because uncertified personal checks may take at least five business days to
clear, holders are strongly urged to pay, or arrange for payment, by means of
certified or cashier's check, money order or wire transfer of funds.
All questions concerning the timeliness, validity, form and eligibility of any
exercise of Rights will be determined by the Company, whose determinations will
be final and binding. The Company, in its sole discretion, may waive any defect
or irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any right because
of any defect or irregularity. Subscription Warrants will not be deemed to have
been received or accepted until all irregularities have been waived or cured
within such time as the Company determines, in its sole discretion. Neither the
Company nor the Subscription Agent will be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Warrants or any other required document or incur any liability for failure to
give such notification. The Company reserves the right to reject any exercise if
such exercise is not in accordance with the terms of Rights Offering or not in
proper form or if the acceptance thereof or the issuance of shares of Common
Stock pursuant thereto could be deemed unlawful or materially burdensome. See
"-- Regulatory Limitation" below.
Any questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this prospectus, the Instructions or
the Notice of Guaranteed Delivery should be directed to , at
(telephone: ).
21
<PAGE> 25
NO REVOCATION
Once a Rights Holder has exercised the Basic Subscription Privilege or the
Oversubscription Privilege, the exercise may not be revoked.
METHOD OF TRANSFERRING RIGHTS
It is anticipated that the Rights will be listed on the NYSE and may be
purchased or sold through usual investment channels until the close of business
on the last trading day prior to the Expiration Date. There has, however, been
no prior trading in the Rights, and no assurance can be given that a trading
market will develop or, if a market develops, that the market will remain
available throughout the subscription period.
The Rights evidenced by a single Subscription Warrant may be transferred in
whole by endorsing the Subscription Warrant for transfer in accordance with the
accompanying Instructions. A portion of the Rights evidenced by a single
Subscription Warrant (but not fractional Rights) may be transferred by
delivering to the Subscription Agent a Subscription Warrant properly endorsed
for transfer, with instructions to register that portion of the Rights indicated
therein in the name of the transferee and to issue a new Subscription Warrant to
the transferee evidencing the transferred Rights. In that event, a new
Subscription Warrant evidencing the balance of the Rights will be issued to the
holder or, if the holder so instructs, to an additional transferee, or will be
sold by the Subscription Agent in the manner described below upon appropriate
instruction from the holder.
The Rights evidenced by a Subscription Warrant may also be sold, in whole or in
part, through the Subscription Agent by delivering to the Subscription Agent the
Subscription Warrant properly executed for sale by the Subscription Agent. If
only a portion of Rights evidenced by a single Subscription Warrant is to be
sold by the Subscription Agent, that Subscription Warrant must be accompanied by
instructions setting forth the action to be taken with respect to the Rights
that are not to be sold. Promptly following the Expiration Date, the
Subscription Agent will send the holder a check for the net proceeds from the
sale of any Rights sold. If such Rights can be sold, the sale shall be deemed to
have been effected at the weighted average sale price of all Rights sold by the
Subscription Agent, less the pro rata portion of any applicable brokerage
commissions, taxes and other expenses. No assurance, however, can be given that
a market will develop for the Rights or that the Subscription Agent will be able
to sell any Rights. Orders to sell Rights must be received by the Subscription
Agent at or prior to 11:00 a.m., New York City time, on , 1999.
The Subscription Agent's obligation to execute orders is subject to its ability
to find buyers. If the Rights cannot be sold by the Subscription Agent by 5:00
p.m. New York City time, on , 1999, they will be returned
promptly by mail to the holder.
Holders wishing to transfer all or a portion of their Rights (but not fractional
Rights) should allow a sufficient amount of time prior to the Expiration Time
for (i) the transfer instructions to be received and processed by the
Subscription Agent, (ii) new Subscription Warrants to be issued and transmitted
and (iii) the Rights evidenced by the new Subscription Warrants to be exercised
or sold by the recipients thereof. Such amount of time could range from two to
ten business days, depending upon the method by which delivery of the
Subscription Warrants and payment is made and the number of transactions which
the holder instructs the Subscription Agent to effect. Neither the Company nor
the Subscription Agent shall have any liability to a transferee or transferor of
Rights if Subscription Warrants or any other required documents are not received
in time for exercise or sale prior to the Expiration Time.
22
<PAGE> 26
A new Subscription Warrant will be issued to a submitting holder upon the
partial exercise or sale of Rights only if the Subscription Agent receives a
properly endorsed Subscription Warrant no later than 5:00 p.m., New York City
time, on the fifth day prior to the Expiration Date. No new Subscription
Warrants will be issued with respect to Subscription Warrants submitted after
such time and date. Accordingly, after such time and date a holder exercising or
selling less than all of its Rights will lose the power to sell or exercise its
remaining Rights. If the Rights have ceased trading on a when-issued basis, a
new Subscription Warrant will be sent by first class mail to the submitting
holder if the Subscription Agent receives the properly completed Subscription
Warrant by 5:00 p.m., New York City time, on the seventh business day before the
Expiration Date. In such case, unless the submitting holder makes other
arrangements with the Subscription Agent, a new Subscription Warrant issued
after 5:00 p.m., New York City time, on the fifth business day before the
Expiration Date will be held for pick-up by the submitting holder at the
Subscription Agent's hand delivery address provided herein. All deliveries of
newly issued Subscription Warrants will be at the risk of the submitting holder.
All commissions, fees and other expenses (including brokerage commissions and
transfer taxes) incurred in connection with the purchase, sale or exercise of
Rights will be for the account of the transferor of the Rights, and none of such
commissions, fees or expenses will be paid by the Company or the Subscription
Agent.
Those Rights not exercised by a holder prior to the expiration time will expire
and will no longer be exercisable.
SUBSCRIPTION AGENT
The Subscription Agent is .
The Subscription Agent's address, which is the address to which the Subscription
Warrants and payment of the Subscription Price must be delivered, as well as the
address to which Nominee Holder Certifications and Notices of Guaranteed
Delivery (each as described herein) must be delivered, is:
<TABLE>
<S> <C>
IF BY MAIL: IF BY HAND:
IF BY OVERNIGHT COURIER: IF BY FACSIMILE:
</TABLE>
The Company will pay the fees and expenses of the Subscription Agent (except for
fees, applicable brokerage commissions, taxes and other expenses relating to the
sale of Rights by the Subscription Agent, all of which will be for the account
of the transferor of the Rights) and has also agreed to indemnify the
Subscription Agent against certain liabilities that it may incur in connection
with the Rights Offering.
APPROVAL OF THE RIGHTS OFFERING
At a meeting on October 9, 1998, the Board of Directors appointed Leonard Green,
Richard H. Koppes, Philip R. Lochner, Jr., Beverly Benedict Thomas and H.J. Mark
Tompkins as a Special Finance Committee with full authority on behalf of the
Board of Directors to consider and act in respect of all matters arising in
connection with the proposed Rights Offering as to which such committee may deem
such action appropriate
23
<PAGE> 27
in light of differing interests between Relational Investors, LLC, on the one
hand, and the Company and its other stockholders, on the other.
The Special Finance Committee retained Morgan Stanley & Co. Incorporated as its
independent financial advisor and Wilson Sonsini Goodrich & Rosati, Professional
Corporation, as its independent legal counsel. The Special Finance Committee,
together with its financial advisors and legal counsel, held three meetings to
consider the proposed Rights Offering and the specific terms of the standby
purchase agreement. In addition to discussing possible financing alternatives
and an alternative approach to the proposed Rights Offering, during these
meetings, the Special Finance Committee discussed detailed quantitative analyses
prepared by its financial advisors and by the Company's financial advisors
related to the proposed Rights Offering, as well as qualitative factors.
In addition to formal committee meetings, representatives of the Special Finance
Committee, including its financial and legal advisors, conducted extensive
informal discussions with Relational Investors, LLC and others to clarify the
terms of the proposals being considered. During the course of the Special
Finance Committee's review, Relational Investors, LLC revised its initial
proposal to address several of the Special Finance Committee's concerns. On
November 2, 1998, the Special Finance Committee approved the specific terms of
the revised Relational Investors, LLC proposal, subject to its legal counsel's
confirmation that the final standby purchase agreement accurately reflect such
terms. The Special Finance Committee approved the revised Relational Investors,
LLC proposal as a result of several quantitative and qualitative factors,
including: the financial parameters with respect to the conversion price for the
Debentures, the amount of the commitment fee, the flexibility retained by the
Company to pursue alternative financing if appropriate, and the limited
circumstances that trigger the break-up fee.
NO RECOMMENDATION TO HOLDERS
An investment in the Debentures must be made pursuant to each investor's
evaluation of its, his or her best interests. Accordingly, none of the directors
of the Company, the members of the Special Finance Committee, Morgan Stanley &
Co. Incorporated or Wilson Sonsini Goodrich & Rosati, Professional Corporation,
makes any recommendation to holders regarding whether they should exercise their
Rights.
FOREIGN AND CERTAIN OTHER STOCKHOLDERS
Subscription Warrants will not be mailed to Record Date Holders whose addresses
are outside the United States or who have an APO or FPO address, but will be
held by the Subscription Agent for such holders' accounts. To exercise their
Rights, such holders must notify the Subscription Agent prior to 11:00 a.m., New
York City time, on , 1999, at which time (if no contrary
instructions have been received) the Rights represented thereby will be sold,
subject to the Subscription Agent's ability to find a purchaser. Any such sales
will be deemed to be effected at the weighted average sale price of all Rights
sold by the Subscription Agent. See "-- Method of Transferring Rights." If the
Rights can be sold, a check for the proceeds from the sale of any Rights, less a
pro rata portion of any applicable brokerage commissions, taxes and other
expenses, will be remitted to such holders by mail. The proceeds, if any,
resulting from sales of Rights pursuant to the Basic Subscription Privilege of
holders whose addresses are not known by the Subscription Agent or to whom
delivery cannot be made will be held in a non-interest bearing account. Any
amount remaining unclaimed on the second anniversary of the Expiration Date will
be turned over to the Company.
24
<PAGE> 28
REGULATORY LIMITATION
The Company will not be required to issue Debentures pursuant to the Rights
Offering to any holders who in the opinion of the Company would be required to
obtain prior clearance or approval from any state or federal regulatory
authorities to own or control such Debentures if, at the Expiration Time, this
clearance or approval has not been obtained.
WITHDRAWAL
The Company reserves the right to withdraw the Rights Offering at any time prior
to the Effective Time and for any reason, in which event all funds received from
holders will be returned without interest.
ISSUANCE OF DEBENTURES
Certificates representing Debentures purchased pursuant to the Rights Offering
will be issued to subscribers as soon as practicable after the Expiration Date.
Funds delivered to the Subscription Agent in payment of the Subscription Price
shall be retained by the Subscription Agent, and will not be delivered to the
Company, until the consummation of the Rights Offering and the issuance of such
certificates. If a holder exercising the Oversubscription Privilege is allocated
less than all of the Debentures which such holder subscribed for pursuant to the
Oversubscription Privilege, the excess funds paid by such holder will be
returned to such holder as soon as practicable after the Expiration Date. No
interest will be paid to holders on funds paid to the Subscription Agent,
regardless of whether such funds are applied to the Subscription Price or
returned to the holders. Holders will have no rights as Debenture holders of the
Company with respect to Debentures subscribed for until certificates
representing the Debentures are issued to them. Unless otherwise instructed in
the Subscription Warrant, certificates for Debentures issued pursuant to the
exercise of Rights will be registered in the name of the holder exercising such
Rights.
CONDITIONS TO THE RIGHTS OFFERING
The Standby Purchase Agreement provides that the obligation of the Relational
Affiliates to purchase Debentures is subject to certain conditions, as described
more fully in "The Standby Purchase Agreement."
If the Rights Offering is not completed for any reason, the Subscription Agent
will promptly return, without interest, all funds received by it in payment of
the Subscription Price.
25
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected financial data of the Company for the five
years ended December 31, 1997, as derived from the audited Consolidated
Financial Statements and the nine months ended September 30, 1998 and 1997, as
derived from the unaudited Consolidated Financial Statements contained in the
Form 10-Q, and gives effect, in periods prior to June 28, 1995, to the merger
between Homedco and Abbey using the pooling-of-interests method of accounting.
The selected consolidated financial data as of and for the nine month periods
ended September 30, 1997 and 1998 include all adjustments (which, except as
disclosed in Notes 7 and 8 below, consist of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
Company's financial position at such dates and results of operations for such
periods. The results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results for the year.
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the related notes thereto for the Company incorporated by
reference herein. As discussed in the notes to the Consolidated Financial
Statements contained in the 1997 Form 10-K, certain adjustments have been made
to conform the accounting practices of Homedco and Abbey prior to their merger
on June 28, 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------------- ----------------------
1993(1,2,3) 1994(1,2,4) 1995(1,2,5) 1996(1) 1997(6) 1997(7) 1998(8)
----------- ----------- ----------- ---------- ---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues......................... $748,901 $962,812 $1,133,600 $1,181,143 $1,180,694 $ 913,954 $ 710,532
Gross profit......................... 522,777 675,122 772,601 780,468 729,512 576,162 446,881
(Loss) income before extraordinary
items.............................. 35,845 35,616 (71,478) 33,300 (272,608) (34,450) (210,264)
Net (loss) income.................... $ 37,311 $ 39,031 $ (74,476) $ 33,300 $ (272,608) $ (34,450) $(210,264)
-------- -------- ---------- ---------- ---------- ---------- ---------
Per share amounts:
(Loss) income before extraordinary
items............................ $ 0.99 $ 0.84 $ (1.52) $ 0.66 $ (5.30) $ (0.67) $ (4.07)
Net (loss) income per common
share............................ $ 1.03 $ 0.92 $ (1.58) $ 0.66 $ (5.30) $ (0.67) $ (4.07)
Per share amounts -- assuming
dilution:
(Loss) income before extraordinary
items............................ $ 0.90 $ 0.78 $ (1.52) $ 0.64 $ (5.30) $ (0.67) $ (4.07)
Net (loss) income per common
share............................ $ 0.93 $ 0.85 $ (1.58) $ 0.64 $ (5.30) $ (0.67) $ (4.07)
OTHER DATA:
Ratio of earnings to fixed charges(9)
Historical(10)..................... 3.2x 2.4x -- 1.9x -- 0.5x --
Pro Forma(11)...................... N/A N/A N/A N/A -- N/A --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $187,370 $157,608 $ 198,630 $ 311,991 $ 169,090 $ 281,805 $ 12,166
Total assets......................... 710,122 856,167 979,985 1,149,110 757,170 1,041,705 552,695
Long-term obligations, including
current maturities................. 391,822 438,304 500,307 634,864 548,905 583,354 542,132
Stockholders' equity................. 176,632 261,910 284,238 342,935 74,467 312,160 (134,054)
</TABLE>
- -------------------------
(1) The per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share. For further discussion, see Note 9 to the Consolidated Financial
Statements contained in the 1997 Form 10-K.
(2) The Statement of Operations and Balance Sheet Data reflect the June 28,
1995 merger of Abbey and Homedco using the pooling-of-interests method of
accounting. Accordingly, the financial data for all periods prior to June
28, 1995 have been restated as though the two companies had been combined.
26
<PAGE> 30
(3) The Statement of Operations and Balance Sheet Data reflect the acquisition
on November 10, 1993 of the outstanding stock of Total Pharmaceutical Care,
Inc.
(4) In 1994, the Company disposed of its 51% interest in Abbey Pharmaceutical
Services, Inc.
(5) In 1995, the Company incurred charges related to merger, restructuring and
integration activities as discussed in Note 7 to the Consolidated Financial
Statements contained in the 1997 Form 10-K.
(6) As described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" contained in
the 1997 Form 10-K and in Notes 3, 4, 8 and 13 to the Consolidated
Financial Statements contained in the 1997 Form 10-K, the operations data
for 1997 includes significant adjustments and charges to write down the
carrying values of goodwill and information systems hardware and internally
developed software, $133,542,000 and $26,781,000, respectively, increase
the valuation allowance on deferred tax assets, $29,963,000, and provide
for estimated losses related to patient service assets and inventory and
related to accounts receivable, $33,100,000 and $101,423,000, respectively.
(7) As described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" contained in
the Form 10-Q and Note B to the Consolidated Financial Statements contained
in the Form 10-Q, the operations data for the nine months ended September
30, 1997 includes significant adjustments and charges to provide for
estimated losses related to patient service assets and inventory and
related to accounts receivable -- $23,000,000 and $75,000,000,
respectively.
(8) As described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" contained in
the Form 10-Q and Notes D, G, H, and I to the Consolidated Financial
Statements contained in the Form 10-Q, the operations data for the nine
months ended September 30, 1998 includes significant adjustments and
charges to write down the carrying values of intangible assets and
information systems hardware and internally developed software, $76,223,000
and $22,187,000, respectively, provisions for estimated losses related to
accounts receivable of $28,236,000 and other significant charges of
$3,939,000 related to severance and other employee costs and $5,400,000 to
settle procurement contracts.
(9) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income from operations before income taxes plus fixed
charges (net of capitalized interest). Fixed charges include interest
expense plus capitalized interest and a portion of operating lease rental
expense deemed to be representative of interest. The pro forma ratio of
earnings to fixed charges reflects the reduction of outstanding
indebtedness under the credit agreement to $238.4 million out of the
proceeds from the exercise of the Rights and a $50 million repayment under
the Company's bank credit agreement on November 13, 1998, and a
corresponding decrease in interest expense.
(10) The Company's earnings in 1995, 1997 and the nine months ended September
30, 1998 were inadequate to cover fixed charges by $90,419, $236,058 and
$207,764, respectively.
(11) The Company's earnings on a pro forma basis in 1997 and the nine months
ended September 30, 1998 were inadequate to cover fixed charges by $234,088
and $206,287, respectively.
27
<PAGE> 31
BUSINESS
LINES OF BUSINESS
The Company derives substantially all of its revenue from the home healthcare
segment of the healthcare market in principally three service lines: home
respiratory therapy (including home-delivered respiratory medications), home
infusion therapy and home medical equipment. In all three lines, the Company
provides patients with a variety of clinical services, related products and
supplies, most of which are prescribed by a physician as part of a care plan.
These services include: high-tech infusion nursing, respiratory care and
pharmacy services, educating patients and their caregivers about the illness and
instructing them on self-care and the proper use of products in the home,
monitoring patient compliance with individualized treatment plans, reporting to
the physician and/or managed care organization, maintaining equipment and
processing claims to third-party payors. In the first three quarters of 1998,
approximately 35% of the Company's business was derived from managed care
organizations, with the remainder derived from more traditional referral/payor
sources. The Company directly provides numerous services to its patients, and
purchases or rents the products needed to complement the service.
The following table sets forth a summary of net revenues by line of business,
expressed as percentages of total net revenues:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -----------------
1995 1996 1997 1998
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
Respiratory therapy.................... 53% 50% 51% 58%
Infusion therapy....................... 24% 25% 24% 23%
Home medical equipment/other........... 23% 25% 25% 19%
--- --- --- ---
Total net revenues........... 100% 100% 100% 100%
=== === === ===
</TABLE>
Respiratory Therapy. The Company provides home respiratory therapy services to
patients with a variety of conditions, including chronic obstructive pulmonary
disease ("COPD," e.g., emphysema, chronic bronchitis and asthma), cystic
fibrosis and neurologically-related respiratory conditions. The Company employs
a clinical staff of respiratory care professionals to provide support to its
home respiratory therapy patients, according to physician-directed treatment
plans and a proprietary acuity program.
Approximately 66% of the Company's respiratory therapy revenues are derived from
the provision of oxygen systems, nebulizers (devices to aerosolize medication)
and home ventilators. The remaining respiratory revenues are generated from the
provision of apnea monitors used to monitor the vital signs of newborns,
continuous positive airway pressure ("CPAP/BiPAP") devices used to control adult
sleep apnea, noninvasive positive pressure ventilation ("NPPV"), and other
respiratory therapy products.
The Company has developed a home respiratory medication service, which is
fulfilled through the Apria Pharmacy Network ("APN"). Through APN, the Company
offers its patients physician-prescribed medications to accompany the nebulizer
through which they are administered. This comprehensive program offers patients
and payors a broad base of services from one source, including the delivery of
medications in premixed unit dose form, pharmacy services, patient education and
claims processing.
Infusion Therapy. Home infusion therapy involves the administration of 24-hour
access to intravenous or enteral nutrition, anti-infectives, chemotherapy and
other intravenous and
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<PAGE> 32
injectable medications. Depending on the therapy, a broad range of venous access
devices and pump technology may be used to facilitate homecare and patient
independence. The Company employs licensed pharmacists and registered high-tech
infusion nurses who have specialized skills in the delivery of home infusion
therapy. The Company currently operates 32 pharmacy locations to serve its home
infusion patients. The following is a brief description of the major therapies:
Anti-Infective Therapy. Anti-infective therapy typically is a short-duration
therapy involving the infusion of antibiotic, antiviral or antifungal drugs into
the patient's bloodstream in order to treat a variety of infections and
diseases, including osteomyelitis, endocarditis, post-surgical wound infections,
AIDS-related infections and urinary tract infections. Generally, anti-infectives
are administered intravenously from one to six times per day for a period of
several days to several weeks.
Total Parenteral Nutrition Therapy. Total parenteral nutrition ("TPN") is the
intravenous provision of life-sustaining nutrients, acting as a replacement for
normal food intake, to patients with a gastrointestinal illness or dysfunction.
TPN therapy is usually administered over a period of months with some patients
continuing therapy for longer periods due to chronic conditions.
Enteral Nutrition Therapy. Enteral nutrition is the delivery of nutrients
directly through a feeding tube to a patient's partially functioning
gastrointestinal tract to accommodate an inability to intake food normally.
Enteral nutrition therapy is often administered over a long period, generally
for more than six months.
Pain Management. Pain management is the intravenous or intraspinal
administration of analgesic drugs to patients suffering chronic pain from
terminal or chronic conditions.
Chemotherapy. Chemotherapy is the intermittent or continuous intravenous
administration of drugs to patients with various types of cancer. Although most
chemotherapy is administered in physicians' offices, the development of new
continuous delivery pumps and antiemetic drugs has allowed for the
administration of chemotherapy in the home and other ambulatory settings.
Chronic Condition Therapy. Chronic condition therapy is the intravenous or
injectable administration of drugs to treat congenital or acquired chronic
conditions, such as Prolastin(R) therapy for patients with congenital emphysema,
human growth hormone therapy for pediatric patients with growth hormone
deficiencies, and intravenous immunoglobulin ("IVIG") therapy for
immune-deficient or immunosuppressed patients.
Other Therapies. New infusion delivery devices and medications that address a
broad range of patient conditions, such as multiple sclerosis, cancer and
complications or side effects associated with transplantation, continue to
emerge for use in the home setting. The Company provides a number of other
therapies through its infusion network.
Home Medical Equipment/Other. The Company's primary emphasis in the home medical
equipment line of business is on the provision of patient room equipment,
principally hospital beds and wheelchairs, to its patients receiving respiratory
or infusion therapy. The Company's integrated service approach allows patients
and managed care systems accessing either respiratory or infusion therapy
services to also access needed home medical equipment through a single source.
As the Company's managed care organization customer base has grown, the Company
has recognized the need to expand its ability to provide value-added services to
managed care organizations. Rather than directly provide certain non-core
services itself, the Company
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<PAGE> 33
aligns itself with other segment leaders (i.e. medical supply distributors) in
formal relationships or ancillary networks. Such networks must be credentialed
and qualified by the Company's Clinical Services department.
ORGANIZATION AND OPERATIONS
Organization. As a result of restructurings accomplished in 1998, the Company's
approximately 320 branch locations are organized into four geographic divisions,
which are further divided into 16 geographic regions. Each region is operated as
a separate business unit and consists of a number of branches that are typically
clustered within 100 miles of the regional office. The regional office provides
each of its branches with key support services such as billing, purchasing and
equipment repair. Each branch delivers home healthcare products and services to
patients in their homes and other care sites through the branch's fleet and
qualified personnel. This structure is designed to create operating efficiencies
associated with centralized services while promoting responsiveness to local
market needs.
In conjunction with the geographic reorganization, the Company restructured its
field management into two distinct functional areas: sales and operations.
Previously, each regional manager was responsible for all aspects of sales and
operations, including generating new business, operating branches and
reimbursement. Under the new structure, the sales organization is responsible
for generating new business from both traditional and managed care markets,
while the operations organization is responsible for customer service,
reimbursement and asset management.
Corporate Compliance. As a leader in the home healthcare industry, the Company
has made a commitment to providing quality home healthcare services and products
while maintaining high standards of ethical and legal conduct. The Company
believes that operating its business with honesty and integrity is not only
proper but makes good business sense. The Company's Corporate Compliance Program
is designed to accomplish these goals through employee education, a confidential
disclosure program, written policy guidelines, periodic reviews, compliance
audits and other programs.
Operating Systems and Controls. The Company's business is dependent, to a
substantial degree, upon the quality of its operating and field information
systems for the establishment of accurate and profitable contract terms,
accurate order entry and pricing, billing and collections, and effective
monitoring and supervision. Difficulties encountered in the conversion to a
common system of the previously separate operations of Abbey and Homedco,
following their 1995 merger, and ongoing operational shortcomings have had a
significant negative impact on the Company's results of operations. During 1997,
the Company committed to a two-year plan to implement a large-scale fully
integrated enterprise resource planning system, which was intended to
significantly enhance the Company's field information systems, address year 2000
issues and facilitate correction of the operational shortcomings referred to
above. Following a reevaluation of the costs, benefits and risks of the
development project, the plan was canceled in 1998 except for completion of the
work required to resolve year 2000 issues, which the Company anticipates will be
completed by December 31, 1998. As a part of the decision to cancel the new
system, management evaluated its current systems and determined that the Company
was at some risk in continuing to run its infusion billing system on its current
platform, which is no longer supported by the computer industry. To mitigate
this risk, the Company is currently converting the infusion system to the
operating platform on which the respiratory/home medical equipment system
currently operates and is implementing a
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<PAGE> 34
number of enhancements to its systems. The implementation of these system
changes could have a disruptive effect on billing and collection activity.
Failure to successfully resolve the systems and operational problems experienced
in prior periods would have a significant negative impact on results of
operations.
Management is currently giving a high priority to the implementation of standard
"best practices" throughout the Company's operations. The Company has
established performance indicators which measure operating results against
expected thresholds, for the purpose of allowing all levels of management to
identify, monitor and adjust areas requiring improvement. Operating models with
strategic targets have been developed to move the Company toward more
effectively managing labor expenses and the customer service, accounts
receivable, clinical, and distribution areas of its business. The Company's
management team is compensated using performance-based incentives focused on
quality revenue growth, gross profit, timely cash collections and improvement in
operating income.
Through experience, the Company has developed the means of maintaining
appropriate amounts of inventory sufficient to meet customer requirements.
Accounts Receivable Management. The Company derives substantially all its
revenues from third-party payors, including private insurers, managed care
organizations, Medicare and Medicaid. For 1997, approximately 30% of the
Company's net revenues was derived from Medicare and 9% from Medicaid.
Generally, each third-party payor has specific claims requirements. The Company
has policies and procedures in place to manage the claims submission process,
including verification procedures to facilitate complete and accurate
documentation.
MARKETING
The Company markets its services to managed care organizations, physicians,
hospitals, medical groups, home health agencies and case managers through its
field sales force. The following marketing initiatives address the requirements
of its referring customers:
Automated Call Routing through a Single Toll-Free Number. This allows managed
care organizations and other customers to reach any of the Company's 320
locations and to access the full range of the Company services through a single
central telephone number (1-800-APRIA-88).
JCAHO Accreditation. The Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO") is a nationally recognized organization which develops
standards for various healthcare industry segments and monitors compliance with
those standards through voluntary surveys of participating providers. As the
home healthcare industry has grown, the need for objective quality measurements
has increased. JCAHO accreditation entails a lengthy review process which is
conducted every three years. Accreditation is increasingly being considered a
prerequisite for entering into contracts with managed care organizations at
every level. Because accreditation is expensive and time consuming, not all
providers choose to undergo the process. Due to its leadership role in
establishing quality standards for home healthcare and its active and early
participation in this process, the Company is viewed favorably by referring
healthcare professionals. The Company's branch locations are all accredited by
or in the process of receiving accreditation from JCAHO.
Clinical Management Services. As more alternate site healthcare is managed and
directed by various managed care organizations, new methods and systems are
sought to simultaneously control costs and improve outcomes. The Company has
developed a series of diagnosis-specific programs designed to proactively manage
patients in conjunction with
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<PAGE> 35
a managed care partner and the patient's physician in an alternate site setting.
These services include patient and environmental assessments,
screening/diagnostics, patient education, clinical monitoring, pharmacological
management, utilization reporting and outcome reporting. Mutually established
goals for inpatient hospital day reductions may be a portion of the basis for
provider compensation.
Physician Relations. In 1997, the Company developed a physician relations group
to place phone calls to physician offices in an effort to increase and enhance
awareness of the Company's services and stimulate interest in the Company.
Physician relations representatives work closely with sales professionals
throughout the country to identify, develop and maintain quality relationships.
SALES
The Company employs approximately 322 sales professionals whose primary
responsibility is to target key customers for all lines of business. Key
customers include but are not limited to hospital-based healthcare
professionals, physicians and their staffs, and managed care organizations.
Sales professionals are afforded the necessary clinical and technical training
to represent the Company's major service offerings of home respiratory therapy,
home infusion therapy and home medical equipment. As larger segments of the
marketplace become involved with managed care, specific portions of the sales
force's working knowledge of pricing, contracting and negotiating and
specialty-care management programs are being enhanced as well.
An integral component of the Company's overall sales strategy is to increase
volume through a variety of contractual relationships with both managed care
organizations and other healthcare providers. Managed care organizations have
grown substantially in terms of both the percentage of the U.S. population that
is covered by such plans and their influence over an increasing portion of the
healthcare economy. Managed care plans are consolidating and increasing their
influence over the delivery and cost of healthcare services. The Company
believes this trend will continue. As a result, the Company focuses a
significant portion of its marketing efforts and specialized sales resources on
managed care organizations to develop mutually beneficial risk sharing programs,
including capitation arrangements. Managed care organizations already represent
a significant portion of the Company's business in several of its primary
metropolitan markets. No single account, however, represented more than 5% of
the Company's net revenues for 1997. Among its more significant managed care
agreements, the Company has contracts with United HealthCare Corporation, Kaiser
Permanente, Aetna/U.S. Healthcare Health Plans, Health Insurance Plan of New
York, PacifiCare Health Systems, Inc., MedPartners and Humana Health Plans. The
Company also offers discount agreements and various fee-for-service arrangements
to hospitals or hospital systems whose patients have home healthcare needs.
COMPETITION
The segment of the healthcare market in which the Company operates is highly
competitive. In each of its lines of business there are a limited number of
national providers and numerous regional and local providers.
The competitive factors most important in the Company's lines of business are
its wide geographic coverage, ability to develop and maintain contractual
relationships with managed care organizations, price of services, access to
capital, ease of doing business, range of homecare services, quality of care and
service and reputation with referral sources,
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<PAGE> 36
including local physicians and hospital-based professionals. It is increasingly
important to be able to integrate a broad range of homecare services through a
single source. The Company believes that it competes effectively in each of its
business lines with respect to all of the above factors and that it has an
established record as a quality provider of home respiratory therapy and home
infusion therapy as reflected by the JCAHO accreditation of its branches.
Other types of healthcare providers, including hospitals, home health agencies
and health maintenance organizations, have entered and may continue to enter,
the Company's various lines of business. Depending on their individual situation
it is possible that the competitors of the Company may have or may obtain
significantly greater financial and marketing resources than the Company.
GOVERNMENT REGULATION
Medicare Reimbursement. A substantial portion of the Company's revenue is
attributable to payments received from third-party payors, including the
Medicare and Medicaid programs and private insurers. For 1997, approximately 30%
of the Company's net revenue was derived from Medicare and 9% from Medicaid. The
Medicare reimbursement rate for home oxygen was reduced by 25%, effective
January 1, 1998, pursuant to the provisions of the Balanced Budget Act of 1997.
Medicare-reimbursed home oxygen services represented approximately 19.5% of the
Company's net revenues in 1997. The estimated decrease in 1998 revenues and
operating income resulting from this reimbursement reduction is $55 million to
$60 million. A further reimbursement reduction of 5% will be effective on
January 1, 1999. The levels of revenues and profitability of the Company,
similar to those of other healthcare companies, have been and will continue to
be subject to the effect of changes in coverage or payment rates by third-party
payors. Such changes could have a material adverse effect on the business,
results of operations or financial condition of the Company.
Medicare and Medicaid carriers also periodically conduct post-payment reviews
and other audits of claims submitted. These Medicare and Medicaid contractors
are under increasing pressure to scrutinize healthcare claims more closely. In
addition, the home healthcare industry is generally characterized by long
collection cycles for accounts receivable due to the complex and time-consuming
requirements, including collection of medical necessity documentation, for
obtaining reimbursement from private and governmental third-party payors. There
can be no assurance that such long collection cycles or reviews and/or similar
audits of the Company's claims and related documentation will not result in
significant recoupments or denials which could have a material adverse effect on
the Company's business, results of operations or financial condition.
In addition, Medicare has proposed the implementation of a competitive bidding
system, which could result in lower reimbursement rates, or limits on increases
in reimbursement rates, for healthcare services. There can be no assurance that
such a competitive bidding system will not have a material adverse effect on the
Company's business, results of operations or financial condition.
Operation Restore Trust. In May 1995, the federal government announced an
initiative which would increase significantly the financial and human resources
allocated to enforcing the fraud and abuse laws. Private insurers and various
state enforcement agencies also have increased their scrutiny of healthcare
claims in an effort to identify and prosecute fraudulent and abusive practices.
Under Operation Restore Trust ("ORT"), the Office of the Inspector General (the
"OIG"), in cooperation with other federal and state agencies,
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<PAGE> 37
initially focused on the activities of home health agencies, hospices, durable
medical equipment suppliers and nursing homes in New York, Florida, Illinois,
Texas, and California, states in which the Company has significant operations.
More recently, the ORT program has been expanded to include 12 other states in
which the Company also has significant operations.
The Anti-Kickback Statute. As a provider of services under the Medicare and
Medicaid programs, the Company is subject to the Medicare and Medicaid fraud and
abuse laws including the "anti-kickback statute." At the federal level, the
anti-kickback statute prohibits any bribe, kickback or rebate in return for the
referral of patients covered by federal healthcare programs. Federal healthcare
programs have been defined to include plans and programs that provide health
benefits funded by the United States Government including Medicare, Medicaid,
and CHAMPUS, among others. Violations of the anti-kickback statute may result in
civil and criminal penalties and exclusion from participation in the federal
healthcare programs. In addition, an increasing number of states in which the
Company operates have laws that prohibit certain direct or indirect payments
(similar to the anti-kickback statute) or fee-splitting arrangements between
healthcare providers, if such arrangements are designed to induce or encourage
the referral of patients to a particular provider. Possible sanctions for
violation of these restrictions include exclusion from state funded healthcare
programs, loss of licensure and civil and criminal penalties. Such statutes vary
from state to state, are often vague and have seldom been interpreted by the
courts or regulatory agencies. A failure to comply with the provisions of the
federal or state anti-kickback statutes could have a material adverse effect on
the Company.
Physician Self-Referrals. Subject to certain exceptions, the Omnibus Budget
Reconciliation Act of 1993 (commonly known as "Stark II") prohibits a physician
or a member of such physician's immediate family from referring Medicare and
Medicaid patients for "designated health services" to an entity with which the
physician has a financial relationship. The term "designated health services"
includes several services commonly performed or supplied by the Company,
including durable medical equipment, home health services and parenteral and
enteral nutrition. In addition, "financial relationship" is broadly defined to
include any ownership or investment interest or compensation arrangement
pursuant to which a physician receives remuneration from the provider at issue.
Violations of Stark II may result in loss of Medicare and Medicaid
reimbursement, civil penalties and exclusion from participation in the Medicare
and Medicaid programs. Stark II is broadly written and at this point, only
proposed regulations have been issued to clarify its meaning and application.
Regulations for a predecessor law, Stark I, were published in August 1995 and
remain in effect, but provide little guidance on the application of Stark II to
the Company's business. While the proposed Stark II regulations do not have the
force and effect of law, they provide some guidance as to what may be included
in the final version. Issued on January 9, 1998, the proposed regulations
purport to define previously undefined key terms, clarify prior definitions and
create new exceptions for certain "fair market value" transactions, de minimis
compensation arrangements and discounts, among others. It is unclear when these
regulations will be finalized and until such time, they cannot be relied upon in
structuring transactions. In addition, a number of the states in which the
Company operates have similar prohibitions on physician self-referrals. A
failure to comply with the provisions of Stark II (including the Stark I
regulations), or the state law equivalents, could have a material adverse effect
on the Company.
Other Fraud and Abuse Laws. The False Claims Act imposes civil and criminal
liability on individuals or entities that submit false or fraudulent claims for
payment to the government. Violations of the False Claims Act may result in
civil monetary penalties and
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<PAGE> 38
exclusion from the Medicare and Medicaid programs. The Health Insurance
Portability and Accountability Act of 1996 created two new federal crimes:
"Health Care Fraud" and "False Statements Relating to Health Care Matters." The
Health Care Fraud statute prohibits knowingly and willfully executing a scheme
or artifice to defraud any healthcare benefit program. A violation of this
statute is a felony and may result in fines and/or imprisonment. The False
Statements statute prohibits knowingly and willfully falsifying, concealing or
covering up a material fact by any trick, scheme or device or making any
materially false, fictitious or fraudulent statement in connection with the
delivery of or payment for healthcare benefits, items or services. A violation
of this statute is a felony and may result in fines and/or imprisonment. Civil
monetary penalties under the False Claims Act and certain other, similar,
statutes may include treble damages. Recently, the federal government has made a
policy decision to significantly increase the financial resources allocated to
enforcing the general fraud and abuse laws. In addition, private insurers and
various state enforcement agencies have increased their level of scrutiny of
healthcare claims in an effort to identify and prosecute fraudulent and abusive
practices in the healthcare area.
A failure to comply with any of the fraud and abuse laws could have a material
adverse impact on the Company.
Internal Controls. The Company maintains several programs designed to minimize
the likelihood that the Company would engage in conduct or enter into contracts
violative of the fraud and abuse laws. Contracts of the types subject to these
laws are reviewed and approved at the corporate level. The Company maintains a
contract compliance review program established and monitored by its Legal
Department. The Company also maintains various educational programs designed to
keep its managers updated and informed on developments with respect to the fraud
and abuse laws and to remind all employees of the Company's policy of strict
compliance in this area. While the Company believes its discount agreements,
billing contracts, and various fee-for-service arrangements with other
healthcare providers comply with applicable laws and regulations, there can be
no assurance that further judicial interpretations of existing laws or
legislative enactment of new laws will not have a material adverse effect on the
Company's business (see "Risk Factors").
Healthcare Reform Legislation. Economic, political and regulatory influences are
subjecting the healthcare industry in the United States to fundamental change.
Healthcare reform proposals have been formulated by members of Congress and by
the current administration. In addition, some of the states in which the Company
operates periodically consider various healthcare reform proposals. The Company
anticipates that Congress and state legislatures will continue to review and
assess alternative healthcare delivery systems and payment methodologies and
public debate of these issues will continue in the future. Due to uncertainties
regarding the ultimate features of reform initiatives and their enactment and
implementation, the Company cannot predict which, if any, of such reform
proposals will be adopted, when they may be adopted or that any such reforms
will not have a material adverse effect on the Company's business and results of
operations.
Healthcare is an area of extensive and dynamic regulatory change. Changes in the
law or new interpretations of existing laws can have a dramatic effect on
permissible activities, the relative costs associated with doing business and
the amount of reimbursement by government and other third-party payors.
The Company does not presently anticipate major legislative changes to the
Medicare program during the remainder of 1998, particularly to reimbursement for
home respiratory
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<PAGE> 39
equipment and services. However, recommendations for changes may result from an
ongoing study of patient access by the General Accounting Office ("GAO") and to
the potential findings of the National Bipartisan Commission of the Future of
Medicare.
The Balanced Budget Act of 1997 contained a number of significant provisions
affecting Medicare reimbursement rates for services and equipment provided by
the Company. A 25% statutory reduction in the reimbursement for home oxygen was
effective January 1, 1998 with an additional 5% reduction scheduled to take
effect January 1, 1999. The GAO was directed by the Balanced Budget Act of 1997
to report in 18 months on the effect of the reductions in oxygen reimbursement
on accessibility by patients to home oxygen services.
The Balanced Budget Act of 1997 contained additional items that affect
reimbursement for home medical equipment and services under Medicare Part B,
including a provision to eliminate Consumer Price Index adjustments to home
medical equipment reimbursement rates for the years 1998 through 2002.
Other provisions that are likely to affect levels of reimbursement to the
Company for home medical equipment under the Medicare program include new
authority of the Secretary of Health and Human Services to reduce the
reimbursement for home medical equipment by 15% each year under an abbreviated
inherent reasonableness rulemaking procedure; authority for the Secretary to
conduct a demonstration project to determine the feasibility of using
competitive bidding for selected items of home medical equipment; and a
reduction of the Medicare reimbursement for drugs and biologicals from the
current level of the lower of the estimated acquisition cost or the national
average wholesale price ("AWP"), to 95% of the AWP with a dispensing fee paid to
the Company's pharmacy.
Finally, the Balanced Budget Act of 1997 proposed that suppliers of home medical
equipment be required to post surety bonds equal to 15% of their previous year's
Medicare revenues (in a minimum amount of $50,000 and up to a maximum of $3
million) as a condition of participation in the Medicare program. The bonds
would be used to secure suppliers' performance and compliance with Medicare
program rules and requirements. The deadline for securing such bonds has been
extended indefinitely, as the Health Care Financing Administration ("HCFA") is
reviewing the bonding requirements.
EMPLOYEES
As of September 30, 1998, the Company had 8,818 employees, of which 7,275 were
full-time and 1,543 were part-time. The Company's employees are not currently
represented by a labor union or other labor organization, except for
approximately 20 employees in the State of New York. The Company believes that
its employee relations are good.
PROPERTIES
The Company's headquarters are located in Costa Mesa, California and currently
consist of approximately 108,000 square feet of office space. The lease expires
in 2001. The Company has approximately 320 branch facilities serving patients in
all 50 states. These branch facilities are typically located in light industrial
areas and average approximately 10,000 square feet. Each facility is a
combination warehouse and office, with approximately 50% of the square footage
consisting of warehouse space. Lease terms on branch facilities are generally
five years or less.
Except for the facilities in Sherman, Texas and Beckley, West Virginia, which
the Company owns, the Company leases all of its facilities.
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LEGAL PROCEEDINGS
The Company and certain of its present and former officers and/or directors are
defendants in a class action lawsuit, In Re Apria Healthcare Group Securities
Litigation, filed in the U.S. District Court for the Central District of
California, Southern Division (Case No. SACV98-217 GLT). This case is a
consolidation of three similar class actions filed in March and April, 1998.
Pursuant to a Court Order dated May 27, 1998, the plaintiffs in the original
three class actions filed a Consolidated Amended Class Action Complaint on
August 6, 1998. The Amended Complaint purports to establish a class of plaintiff
shareholders who purchased the Company's common stock between May 22, 1995 and
January 20, 1998. No class has been certified at this time. The Amended
Complaint alleges, among other things, that the defendants made false and/or
misleading public statements regarding the Company and its financial condition
in violation of federal securities laws. The Amended Complaint seeks
compensatory and punitive damages as well as other relief.
Two similar class actions were filed during July, 1998 in the Superior Court of
California for the County of Orange: Schall v. Apria Healthcare Group Inc., et
al. (Case No. 797060) and Thompson v. Apria Healthcare Group Inc., et al. (Case
No. 797580). These two actions were consolidated by a Court Order dated October
22, 1998. Pursuant to that Order, a consolidated and amended complaint must be
filed by December 7, 1998. The Company anticipates that allegations similar to
those asserted in the Amended Complaint in the federal action will be asserted
in the consolidated state action, although the claims will be founded on state
law, as opposed to federal law.
The Company believes that it has meritorious defenses to the plaintiffs' claims,
and it intends to vigorously defend itself in both the federal and state cases.
In the opinion of the Company's management, the ultimate disposition of these
class actions will not have a material adverse effect on the Company's financial
condition or results of operations.
The Company has received seven subpoenas from the U.S. Attorney's office in
Sacramento, California, requesting documents related to the Company's billing
practices. See "Risk Factors -- U.S. Attorney Investigation."
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MANAGEMENT
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of the Company as of September 30, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Ralph V. Whitworth.................. 43 Chairman of the Board and Director
Philip L. Carter.................... 50 Chief Executive Officer and Director
David H. Batchelder................. 49 Director
David L. Goldsmith.................. 50 Director
Leonard Green....................... 72 Director
Richard H. Koppes................... 52 Director
Philip R. Lochner, Jr............... 55 Director
Beverly Benedict Thomas............. 55 Director
H. J. Mark Tompkins................. 57 Director
Lawrence M. Higby................... 53 President and Chief Operating
Officer
Dennis E. Walsh..................... 48 Executive Vice President, Sales
Lisa M. Getson...................... 36 Senior Vice President, Business
Development and Clinical Services
Robert S. Holcombe.................. 56 Senior Vice President, General
Counsel and Secretary
James E. Baker...................... 46 Vice President, Controller
Frank Bianchi....................... 54 Senior Vice President, Human
Resources
Michael R. Dobbs.................... 49 Senior Vice President, Logistics
George J. Suda...................... 40 Senior Vice President, Information
Services
Lawrence H. Mastrovich.............. 36 Executive Vice President, Business
Operations
</TABLE>
RALPH V. WHITWORTH Mr. Whitworth is a principal and Managing Member of
Relational Investors, LLC, a private investment
company. He is also a partner in Batchelder &
Partners, Inc., a financial advisory and
investment-banking firm based in La Jolla,
California. From 1988 until 1996, Mr. Whitworth was
president of Whitworth and Associates, a corporate
advisory firm. Mr. Whitworth was appointed by a
Committee of the Board of Directors in January 1998
to fill a newly created seat.
PHILIP L. CARTER Mr. Carter has been Chief Executive Officer and a
Director of the Company since May 1998. Prior to
joining the Company, Mr. Carter was President and
Chief Executive Officer of MacFrugal's
Bargains-Close-Outs, Inc., a chain of retail
discount stores since 1995 and had held the
positions of Executive Vice President and Chief
Financial Officer of MacFrugal's from 1991 through
1995.
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<PAGE> 42
DAVID H. BATCHELDER Mr. Batchelder has been a principal and Managing
Member of Relational Investors, LLC since March
1996. He also serves as the Chairman and Chief
Executive Officer of Batchelder & Partners, Inc., a
financial advisory and investment banking firm
based in La Jolla, California. Mr. Batchelder was
appointed by the Board of Directors in July 1998 to
fill a vacancy.
DAVID L. GOLDSMITH Mr. Goldsmith has been a Managing Director of
Robertson, Stephens Investment Management, an
investment banking firm, since 1998. Mr. Goldsmith
was previously affiliated with BancAmerica
Robertson, Stephens & Company (formerly Robertson,
Stephens & Company LLC) from 1981 through 1998. Mr.
Goldsmith is also a director of Balanced Care
Corporation.
LEONARD GREEN Mr. Green has served as President and Chief
Executive Officer of Green Management and
Investment Co., a private investment management
company, since 1985. Mr. Green also serves as a
director of Lincoln Services Corp.
RICHARD H. KOPPES Mr. Koppes is Of Counsel to Jones, Day, Reavis &
Pogue, a law firm, and serves as a Consulting
Professor of Law and Co-Director of Education
Programs at Stanford University School of Law. He
is also a principal of American Partners Capital
Group, a venture capital and consulting firm, since
August 1996. From May 1986 through July 1996, Mr.
Koppes held several positions with the California
Public Employees' Retirement System, including
General Counsel, Interim Chief Executive Officer
and Deputy Executive Officer. Mr. Koppes is also a
director of Mercy Healthcare, a non-profit hospital
system. Mr. Koppes was appointed by the Board of
Directors in May 1998 to fill a newly created seat
on the Board.
PHILIP R. LOCHNER, JR. Mr. Lochner served as Senior Vice President of Time
Warner Inc. from July 1991 to July 1998. From March
1990 to June 1991, Mr. Lochner was a Commissioner
of the Securities and Exchange Commission. He is on
the Board of Governors of the National Association
of Securities Dealers and a member of the Advisory
Council of Republic New York Corporation. He is
also a Trustee of The Canterbury School. Mr.
Lochner was initially appointed by the Board of
Directors in June 1998 to fill a newly created seat
on the Board and was elected by the shareholders to
a full term in July 1998.
BEVERLY BENEDICT THOMAS Ms. Thomas is the principal of BBT Strategies, a
consulting firm specializing in public affairs and
strategic planning. Previously, Ms. Thomas was a
principal of UT Strategies, Inc., a public affairs
firm, from 1995 to 1998 and Assistant Treasurer of
the State of California from 1991 to 1995. In
addition to serving as a director of Catellus Real
Estate Development Corporation, a diversified real
estate operating company, Ms. Thomas also serves as
a Commissioner of the
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<PAGE> 43
Los Angeles City Employees' Retirement System. From 1993 to 1995, Ms. Thomas
served on the Boards of the California Public Employees' Retirement System and
the California State Teachers Retirement System. Ms. Thomas was initially
appointed by the Board of Directors in June 1998 to fill a newly created seat on
the Board and was elected by the shareholders to a full term in July 1998.
H. J. MARK TOMPKINS Mr. Tompkins served as independent investment and
corporate advisor, President and Chief Executive Officer of Exfinco, S.a.r.l., a
Belgian company engaged in investment advisory
activities, from 1994 until 1997. Mr. Tompkins was
appointed by a committee of the Board of Directors
in March 1997 to fill a vacancy and was thereafter
elected to a full term by the shareholders. Mr.
Tompkins was a member of the Abbey Board of
Directors from September 1992 until the time of the
merger and is currently a director of Kemgas
Limited and of Shoplink, Inc. From 1987 through
June 1994, Mr. Tompkins served as a Chief Executive
Officer of a French investment advisory concern,
Cofinex, E.u.r.l. Mr. Tompkins was a senior partner
in international real estate development firms with
operations in the United States from 1981 through
1993.
LAWRENCE M. HIGBY Mr. Higby joined Apria in November 1997 as
President and Chief Operating Officer. Prior to
joining Apria, Mr. Higby served as President and
Chief Operating Officer of Unocal's 76 Products
Company and Group Vice President of Unocal
Corporation from 1994 to 1997. From 1986 to 1994,
Mr. Higby held various position with The Times
Mirror Company, including serving as Executive Vice
President Marketing of the Los Angeles Times and
Chairman of the Orange County Edition
(1992 - 1994).
DENNIS E. WALSH Mr. Walsh was promoted to Executive Vice President,
Sales in January 1998. Mr. Walsh served as Senior
Vice President, Western Zone from March 1997 to
January 1998. From June 1995 to March 1997, he
served as Senior Vice President, Sales and
Marketing. He served as Vice President, Sales of
Homedco from November 1987 to June 1995.
LISA M. GETSON Ms. Getson was promoted to Senior Vice President,
Business Development and Clinical Services in
August 1998. Ms. Getson served as Senior Vice
President, Marketing, from January 1998 to August
1998 and Vice President, Marketing from November
1995 to August 1997. She served as Director of
Marketing, Infusion from June 1995 to November
1995. From May 1994 to June 1995, she served as
Director of Business Development of Abbey Home
Healthcare. From 1989 to 1994, Ms. Getson held
various positions with Critical Care America,
including Director of Marketing and Business
Development from January 1993 to May 1994.
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<PAGE> 44
ROBERT S. HOLCOMBE Mr. Holcombe was promoted to Senior Vice President,
General Counsel and Secretary in August 1997. He
served as Vice President, General Counsel and
Secretary from May 1996 to August 1997. Prior to
joining Apria, Mr. Holcombe served as Senior Vice
President and General Counsel for The Cooper
Companies, Inc., a diversified specialty healthcare
company, from December 1989 to April 1996.
JAMES E. BAKER Mr. Baker has served as Vice President, Controller
of Homedco and, subsequently, the Company, since
August 1991. He served as Corporate Controller of
Homedco from November 1987 to August 1991.
FRANK BIANCHI Mr. Bianchi joined the Company in May 1998 as its
Senior Vice President, Human Resources. Prior to
joining Apria, Mr. Bianchi served as Senior Vice
President, Human Resources for MacFrugal's Bargain
Close-Outs, Inc. from 1989 until January 1998.
MICHAEL R. DOBBS Mr. Dobbs joined the Company in June 1998 as its
Senior Vice President, Logistics. Prior to joining
Apria, Mr. Dobbs served as Vice President and
Senior Vice President of Distribution for
MacFrugal's Bargains Close-Outs, Inc., from 1991 to
January of 1998.
GEORGE J. SUDA Mr. Suda was promoted to Senior Vice President,
Information Systems in July 1998. He served as Vice President, Information
Services Technology from June 1997 to July 1998 and
as Director, Technology from January 1997 to June
1997. From July 1994 to January 1997, Mr. Suda was
a self-employed information services consultant,
providing services to Abbey and the Company. Mr.
Suda served as Director, Information Services, for
Taormina Industries, Inc., a waste and recycling
company, from January 1989 to July 1994.
LAWRENCE H. MASTROVICH Mr. Mastrovich was promoted to Executive Vice
President, Business Operations and began working at
the Company's corporate headquarters in October
1998. He served as Division Vice President,
Operations of the Northeast Division from December
1997 to October 1998. Prior to that time he had
served as a Regional Vice President for the Company
and Homedco since 1994 and in various other
capacities from 1984 to 1994.
DESCRIPTION OF THE DEBENTURES
The Debentures will be issued pursuant to an indenture to be dated as of
, 1998 (the "indenture governing the Debentures") between
the Company, as issuer, and , as trustee (the "Trustee"). A copy of
the indenture governing the Debentures is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The terms of the
Debentures will include those stated in the indenture governing the Debentures
and those provisions required by, or made a part of the indenture governing the
Debentures by reference to, the Trust Indenture Act of 1939, as in
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<PAGE> 45
effect on the date of the indenture governing the Debentures (the "Trust
Indenture Act"). The Debentures will be subject to all such terms, and
prospective investors are referred to the indenture governing the Debentures for
a statement thereof.
The following summary of the Debentures is qualified in its entirety by express
reference to the Debentures and the indenture governing the Debentures, which
are incorporated by reference as a part of such summary. Capitalized terms
defined in the indenture governing the Debentures shall have the same meanings
herein.
GENERAL
The Debentures will be senior subordinated unsecured obligations of the Company,
will be limited to an aggregate principal amount of $51,779,000, and will mature
on , 2004.
The Debentures will bear interest from the date of issuance at the rate of 10%
per annum. Interest will be payable semi-annually on 1 and 1
of each year (each, an "Interest Payment Date"), commencing 1,
1999, to holders of record at the close of business on the 15 or
15 preceding each such Interest Payment Date. Prior to ,
2002, interest will accrue on each Interest Payment Date but will not be paid by
the Company, unless the Company elects to pay such interest in its sole
discretion. Interest that is accrued and not paid on any Interest Payment Date
occurring prior to , 2002 will bear interest at a rate of 10% per
annum from and after the applicable Interest Payment Date and will become due
and payable on , 2002. The Company shall pay interest on overdue
principal and on overdue installments of interest, to the extent lawful, at a
rate of 10% per annum. Principal of and interest on the Debentures will be
payable at the office of the Paying Agent. Interest on the Debentures will be
mailed to each holder's registered address. The Trustee will initially act as
the Paying Agent.
The Debentures will be issued only in registered form, without coupons, and only
in denominations of $1,000 and integral multiples thereof. Debentures may be
presented for conversion at the office of the Conversion Agent and for exchange
or registration of transfer at the office of the Registrar. The Trustee will
initially act as the Conversion Agent and Registrar. Any exchange or transfer
will be without charge, except that the Company or the Registrar may, subject to
certain exceptions, require payment of a sum sufficient to cover any tax,
assessment, or other governmental charge that may be imposed in connection with
the exchange or transfer.
CONVERSION RIGHTS
A holder may, at any time prior to maturity, convert the principal amount of a
Debenture (or any portion thereof equal to $1,000 or an integral multiple of
$1,000) into newly issued, fully paid and nonassessable shares of Common Stock
at an initial conversion rate equal to shares of Common Stock per
$1,000 principal amount of Debentures, subject to adjustment as described below
(the "Conversion Rate"). The right to convert a Debenture called for redemption
will terminate at the close of business on the Redemption Date for such
Debenture or such earlier date as the holder presents the Debenture for
redemption (unless the Company shall default in making the redemption payment
when due, in which case the conversion right shall terminate at the close of
business on the date such default is cured and such Debenture is redeemed). A
Debenture for which a holder has delivered a form entitled "Option of Holder to
Elect Purchase," exercising the holder's option to accept the Company's offer to
purchase the Debenture,
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<PAGE> 46
may be converted only if such form is withdrawn by a written notice of
withdrawal delivered by the holder to the Paying Agent prior to the close of
business on the Change of Control Payment Date in accordance with the indenture
governing the Debentures.
No payment or adjustment will be made for dividends or distributions with
respect to shares of Common Stock issued upon conversion of a Debenture. Except
as otherwise provided in the indenture governing the Debentures, accrued
interest shall not be paid on converted Debentures. If any holder surrenders a
Debenture for conversion between the record date for the payment of an
installment of interest and the related interest payment date, then,
notwithstanding such conversion, the interest payable on such interest payment
date will be paid to the holder on such record date. However, in such event,
such Debenture, when surrendered for conversion, must be accompanied by delivery
by the converting holder of a check or draft payable in an amount equal to the
interest payable on such interest payment date on the portion so converted. No
fractional shares will be issued upon conversion, but a cash payment will be
made for any fractional interest based upon the current market price of the
Common Stock.
Notwithstanding the foregoing, (i) if the Company elects not to pay interest on
any Interest Payment Date occurring prior to , 2002 and any holder
surrenders a Debenture for conversion prior to , 2002, unpaid
interest accrued to such Interest Payment Date, together with interest at a rate
of 10% per annum thereon from such Interest Payment Date to the conversion date
(collectively, the "Accrued Interest Payment"), shall be paid by either of the
following methods selected by the Company: (a) in cash on the conversion date or
(b) in cash on , 2002, together with interest accrued on such
Accrued Interest Payment at a rate of 10% per annum from the conversion date
through , 2002, and (ii) if any Debenture is called for redemption
on or prior to , 2002 [the first date upon which Debentures can
be redeemed or, if such first redemption date is not an Interest Payment Date,
the Interest Payment Date immediately succeeding such date] and such Debenture
is surrendered for conversion at any time during the ten (10) business days
immediately preceding the date fixed for redemption, interest shall accrue on
such Debenture through, but not including, the earlier of (x) ,
2002 and (y) the date fixed for redemption and shall be payable on the date
fixed for redemption.
The Conversion Rate is subject to adjustment upon the occurrence of certain
events, including (i) the issuance of shares of Common Stock as a dividend or
distribution on any class of Capital Stock of the Company, (ii) the subdivision,
reclassification or combination of the outstanding shares of Common Stock, (iii)
the issuance to all or substantially all holders of Common Stock of rights,
options or warrants to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at a price per share less than the
then current market price per share, as defined in the indenture governing the
Debentures, (iv) the distribution, by dividend or otherwise, to all or
substantially all holders of Common Stock evidences of its indebtedness, shares
of capital stock or assets (including securities, but excluding any rights,
warrants or options referred to in paragraph (iii) above, any dividend or
distribution paid exclusively in cash, any dividend or distribution referred to
in paragraph (i) above and any merger or consolidation), (v) the distribution to
all or substantially all holders of Common Stock of cash (excluding any cash
that is distributed upon a merger or consolidation or a sale or transfer of all
or substantially all of the assets of the Company to which the indenture
governing the Debentures applies or as part of a distribution referred to in
paragraph (iv) above) in an aggregate amount that, combined together with (a)
the aggregate amount of any other distributions to all or substantially all
holders of its Common Stock made exclusively in
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<PAGE> 47
cash within the 12 months preceding the date of payment of such distribution and
which does not trigger a Conversion Rate adjustment and (b) 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 filed with
the Trustee) of consideration payable in respect of any tender offer by the
Company or any of its Subsidiaries for all or any portion of the Common Stock
concluded within the 12 months preceding the date of payment of such
distribution and which does not trigger a Conversion Rate adjustment, exceeds an
amount equal to 12.5% of the Company's market capitalization on the Business Day
immediately preceding the day on which the Company declares such distribution,
and (vi) in the event that a tender or exchange offer made by the Company or any
Subsidiary for all or any portion of the Common Stock shall expire and such
tender or exchange offer (as amended upon its expiration) shall require the
payment to shareholders (based on the acceptance of Purchased Shares (as defined
below) of 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 filed with the Trustee) that combined together with (a)
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 of such tender or exchange offer, of
consideration payable in respect of any other tender or exchange offer by the
Company or any Subsidiary for all or any portion of the Common Stock expiring
within the 12 months preceding the expiration of such tender or exchange offer
and which does not trigger a Conversion Rate adjustment and (b) the aggregate
amount of any distributions to all or substantially all holders of the Company's
Common Stock within 12 months preceding the expiration of such tender or
exchange offer and which does not trigger a Conversion Rate adjustment, exceeds
12.5% of the market capitalization on the expiration of such tender or exchange
offer. No adjustment in the Conversion Rate is required unless such adjustment
(plus any adjustments not previously made) would require an increase or decrease
of at least 1% in such rate; provided, however, that any adjustments which by
reason of this sentence are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
If the Company reclassifies or changes its outstanding Common Stock, or
consolidates with or merges into or sells or conveys all or substantially all of
the assets of the Company as an entirety to any person, or is a party to a
merger that reclassifies or changes its outstanding Common Stock, the Debentures
will become convertible into the kind and amount of shares of stock and other
securities and property (including cash) that the holders would have owned
immediately after the transaction if the holders had converted the Debentures
immediately before the effective date of the transaction.
The term "all or substantially all" as used in the previous two paragraphs has
not been interpreted under New York law (which is the governing law of the
indenture governing the Debentures) to represent a specific quantitative test.
As a consequence, in the event the holders of the Debentures elected to exercise
their rights under the indenture governing the Debentures and the Company
elected to contest such election, there could be no assurance as to how a court
would interpret the phrase under New York law, which may have the effect of
preventing the Trustee or the holders of the Debentures from asserting that the
Conversion Rate is subject to adjustment or that the Debentures are convertible
into other shares of stock and other securities and property that the holders
would have owned immediately after the transaction if the holders had converted
the Debentures immediately before the effective date of the transaction.
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<PAGE> 48
Certain adjustments to the Conversion Rate to reflect the Company's issuance of
certain rights, warrants, evidences of indebtedness, securities, or other
property (including cash) to holders of the Common Stock may result in
constructive distributions taxable as dividends to holders of the Debentures.
OPTIONAL REDEMPTION BY THE COMPANY
The Debentures will be redeemable at the Company's option, in whole at any time
or in part from time to time, on and after , 2002 upon not less
than 30 not more than 60 days' notice. The Company will redeem the Debentures at
the following redemption prices (expressed as percentages of the principal
amount) if redeemed during the twelve-month period commencing on
of the year set forth below, plus, in each case, accrued and unpaid interest,
including interest on such accrued and unpaid interest, to the date of
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002................................................ 104%
2003................................................ 102%
2004................................................ 100%
</TABLE>
REPURCHASE OF DEBENTURES AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined below), the Company will
be required to make an offer (the "Change of Control Offer") to repurchase all
or any part (equal to $1,000 principal amount or an integral multiple thereof)
of a holder's Debentures at a purchase price equal to 101% of the aggregate
principal amount of the Debenture plus accrued and unpaid interest, if any, to
the date of purchase (the "Change of Control Payment"). Within 30 days following
any Change of Control, the Company shall mail a notice to each holder (which
notice shall govern the terms of the Change of Control Offer) stating (i) that
the Change of Control Offer is being made pursuant to the covenant in the
entitled "Limitation on Change of Control" and that all Debentures tendered will
be accepted for payment, (ii) the purchase price and the purchase date, which
shall be no earlier than 30 days nor later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"), (iii) that any
Debenture not tendered will continue to accrue interest, (iv) that, unless the
Company defaults in the payment of the Change of Control Payment, all Debentures
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Payment Date, (v) that holders
electing to have any Debentures purchased pursuant to a Change of Control Offer
will be required to surrender the Debentures, with the form entitled "Option of
Holder to Elect Purchase" on the reverse side of the Debentures completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment Date,
(vi) that holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of Debentures delivered for purchase, and a statement that such holder is
withdrawing his or her election to have such Debentures purchased, and (vii)
that holders whose Debentures are being purchased only in part will be issued
new Debentures equal in principal amount to the unpurchased portion of the
Debentures surrendered, which unpurchased portion must be equal to $1,000
principal amount or an integral multiple thereof.
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<PAGE> 49
On the Change of Control Payment Date, the Company will (i) accept for payment
Debentures or portions thereof tendered pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Debentures or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee the Debentures the Company
accepted together with an officers' certificate stating the Debentures or
portions thereof tendered to the Company. The Paying Agent shall promptly mail
to each holder of Debentures accepted for payment an amount equal to the
purchase price for such Debentures, and the Trustee shall promptly authenticate
and mail to each holder a new Debenture equal in principal amount to the
unpurchased portion of the Debentures surrendered, if any; provided that each
new Debenture shall be in a principal amount of $1,000 or an integral multiple
thereof.
The Company will comply with the provisions of Rule 13e-4 and Rule 14e-1 under
the Exchange Act, will file Schedule 13E-4 or any successor or similar schedule
required thereunder, and will otherwise comply with all federal and state
securities laws in connection with a Change of Control Offer.
The Change of Control purchase feature of the Debentures may in certain
circumstances make more difficult or discourage a takeover of the Company and
the removal of incumbent management. The Company is not aware of any specific
effort to accumulate shares of Common Stock or to obtain control of the Company
by means of a merger, tender offer, solicitation, or otherwise, nor is the
Change of Control purchase feature part of a plan by management to adopt a
series of anti-takeover provisions.
Depending upon the terms of the transaction, a future highly leveraged
transaction, reorganization, restructuring, merger, or similar transaction
involving the Company's present management or directors could constitute a
Change of Control. Neither the Company nor its current management has any
current intention to engage in a transaction involving a Change of Control,
although it is possible that the Company or its management may decide to do so
in the future.
Subject to the limitation on mergers and consolidations discussed below and the
covenants contained in the indenture governing the Notes, the Company could, in
the future, enter into certain transactions, including certain
recapitalizations, the sale of all or substantially all of its assets, or the
liquidation of the Company, that would not constitute a Change of Control under
the indenture governing the Debentures, but that would increase the amount of
Senior Debt (or any other Indebtedness) outstanding at such time, substantially
reduce or eliminate the Company's assets, or otherwise adversely affect the
holders of the Debentures. Although the holders of the Debentures will have the
benefit of covenants contained in the indenture governing the Notes for so long
as such Notes are outstanding, there are no restrictions in the indenture
governing the Debentures on the creation of additional Senior Debt (or any other
Indebtedness), and, under certain circumstances, the incurrence of significant
amounts of additional Indebtedness could have an adverse effect on the Company's
ability to service its Indebtedness, including the Debentures.
The Company's ability to purchase Debentures upon the occurrence of a Change of
Control may be limited by the terms of then existing contractual obligations. In
addition, the Company may not have sufficient financial resources to repurchase
Debentures pursuant to a Change of Control Offer. The inability of the Company
to repurchase Debentures tendered pursuant to a Change of Control Offer would
constitute an Event of Default under the indenture governing the Debentures.
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<PAGE> 50
If a Change of Control were to occur, there can be no assurance that the Company
would have sufficient funds to pay the Change of Control Purchase Price for all
Debentures tendered by the holders of the Debentures. Because the Notes contain
provisions substantially identical to the Change of Control purchase feature of
the Debentures, upon the occurrence of a Change of Control, holders of the Notes
will also have the right to require the Company to repurchase the Notes. In
addition, the Company's bank credit facility, which constitutes Senior Debt,
provides that a change in control (as defined therein) will constitute an event
of default thereunder, the occurrence of which would cause any repurchase of the
Debentures, absent a waiver, to be blocked by the subordination provisions of
the Debentures. Even if such event of default did not occur or was waived, the
exercise by any holder of Debentures of the right to require the Company to
repurchase Debentures as a result of the occurrence of a Change of Control could
create an event of default under Senior Debt 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 of Debentures" and "Other
Financing Arrangements." Further, the terms of future Senior Debt or other
future Indebtedness ranking pari passu in right of payment with the Debentures
could require that such Indebtedness be repaid upon the occurrence of a Change
of Control. 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 Debentures' subordination provisions.
SUBORDINATION OF DEBENTURES
The payment of principal of, premium, if any, and interest on the Debentures by
the Company and any and all other obligations in respect of the Debentures or on
account of any Claim (collectively, the "Subordinated Obligations") will be (1)
pari passu with the Notes and (2) subordinated in right of payment, as set forth
in the indenture governing the Debentures, to the prior payment in full of all
Senior Debt, whether outstanding on the date of the indenture governing the
Debentures or thereafter incurred. Upon any distribution to creditors of the
Company in any insolvency or liquidation proceeding relating to the Company or
its property, an assignment for the benefit of creditors or any marshaling of
the Company's assets and liabilities, the holders of Senior Debt will be
entitled to receive payment in full of all obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding at
the rate specified in the applicable Senior Debt) before payment is made on
account of the Subordinated Obligations by or on behalf of the Company, and
until all obligations with respect to Senior Debt are paid in full, any
distribution to which the holders of Debentures would be entitled shall be made
to the holders of Senior Debt.
The Company also may not make any payment on account of the Subordinated
Obligations if (a) a default in the payment of the principal of, premium, if
any, or interest on Senior Debt occurs and is continuing beyond any applicable
period of grace or (b) any other default occurs and is continuing with respect
to Designated Senior Debt that permits holders of the Designated Senior Debt as
to which the default relates to accelerate its maturity (a "Non-Payment
Default") and the Trustee receives a notice of such default (a "Payment Blockage
Notice") from the Senior Credit Representative or the Representative of the
holders of any Designated Senior Debt. Payments on the Debentures may and shall
be resumed (i) in the case of a payment default with respect to Senior Debt,
upon the date on which such default is cured or waived in writing in accordance
with the instruments governing such Senior Debt or such default shall have
ceased to exist and
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<PAGE> 51
(ii) in case of a Non-Payment Default, the earlier of (A) the date on which such
nonpayment default is cured or waived in writing in accordance with the
instruments governing such Designated Senior Debt, (B) 179 days after the date
on which the applicable Payment Blockage Notice is received, or (C) the date on
which the Trustee receives written notice from the Senior Credit Representative
or the Representative of other holders of Designated Senior Debt, as the case
may be, terminating the payment blockage period or otherwise consenting to any
proposed distribution or payment. During any consecutive 360-day period, the
aggregate of all periods of payment blockage shall not exceed 179 days and there
shall be a period of at least 181 consecutive days in each consecutive 360-day
period when no payment blockage is in effect. No Non-Payment Default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been cured or waived in writing in
accordance with the instruments governing such Senior Debt for a period of not
less than 90 days.
For purposes of the indenture governing the Debentures, a distribution may
consist of cash, securities or other property, by set-off or otherwise.
The indenture governing the Debentures will further require that the Company
promptly notify holders of Senior Debt if payment of the Debentures is
accelerated because of an Event of Default.
Although the holders of the Debentures will have the benefit of covenants
contained in the indenture governing the Notes for so long as such Notes are
outstanding and are not waived by the holders of the Notes, the indenture
governing the Debentures does not limit the amount of future or additional
Indebtedness, including Senior Debt, that the Company can create, incur, assume,
or guarantee, nor does the indenture governing the Debentures limit the amount
of Indebtedness that any subsidiary can incur. All Indebtedness of the Company
incurred from time to time under the Company's revolving credit facility and
master lease facilities will constitute Senior Debt. See "Capitalization." As of
November 20, 1998, the Company had approximately $288.0 million of Indebtedness
outstanding (excluding accrued interest thereon) that would have constituted
Senior Debt. The Debentures will rank pari passu in right of payment with the
Notes, which Indebtedness aggregated approximately $200 million as of November
20, 1998.
The Debentures will be pari passu in right of payment with the Notes, and the
Debentures include a cross-default provision whereby any default under the
indenture governing the Notes will constitute a default under the indenture
governing the Debentures. Nonetheless, the rights of the holders of Debentures
will vary from the rights of the holders of the Notes in certain respects. The
Notes mature months prior to the maturity date of the Debentures.
In addition, the indenture governing the Notes permits the Notes to be redeemed
at the option of the Company prior to maturity and may require the Notes to be
redeemed in whole or in part out of the proceeds of any Asset Sale (as defined
in the indenture governing the Notes). As a result, the times at which the
Debentures and Notes will be repaid or redeemed will likely not be identical,
and there may be circumstances under which holders of the Notes are entitled to
be repaid or redeemed when holders of Debentures are not.
Once the Notes have been repaid in full or defeased (which may occur at maturity
or upon an earlier redemption or defeasance), the covenants contained in the
indenture governing the Notes will terminate, and the holders of the Debentures
will no longer enjoy the protections afforded by those covenants.
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Holders of Debentures will have no right to approve or disapprove of any waiver
of any default under the indenture governing the Notes; and, as a result,
holders of Debentures will be subject to determinations made by the holders of
Notes. The indenture governing the Debentures, however, includes a provision
that requires the Company to pay to each holder of Debentures an amount
(calculated per $1,000 principal amount of Debentures) equal to any amount (per
$1,000 principal amount of Notes) paid to any holder of Notes in exchange for or
in consideration for the granting of any waiver of any default under the
indenture governing the Notes or the granting of any consent to any amendment to
the indenture governing the Notes that would have the effect of eliminating or
avoiding any default under the indenture governing the Notes.
SENIOR SUBORDINATED GUARANTEES OF DEBENTURES
Each Subsidiary Guarantor will unconditionally guarantee, jointly and severally,
to each holder and the Trustee, the full and prompt performance of the Company's
obligations under the indenture governing the Debentures and the Debentures,
including the payment of principal of and interest on the Debentures. The
Company will cause each person (other than an Unrestricted Subsidiary) that
shall become a Subsidiary after the Issue Date to execute and deliver a
supplement to the indenture governing the Debentures pursuant to which such
person will guarantee the payment of the Debentures on the same terms and
conditions as the Guarantees by the Subsidiary Guarantors. Notwithstanding the
foregoing, (i) no Foreign Subsidiary shall be required to become a Subsidiary
Guarantor unless such Foreign Subsidiary guarantees any Indebtedness of the
Company or any other Subsidiary that is not a Foreign Subsidiary and (ii) no
Permitted Joint Venture shall be required to become a Subsidiary Guarantor
unless such Permitted Joint Venture guarantees all other Indebtedness of the
Company or any Subsidiary.
Upon the sale or disposition of all of the Capital Stock of any Subsidiary
Guarantor or the sale or disposition of all or substantially all of the assets
of any Subsidiary Guarantor to an entity which is not a Subsidiary of the
Company, in each case, and which is otherwise in compliance with the indenture
governing the Debentures, such Subsidiary Guarantor shall be released from its
Guarantee and related obligations set forth in the indenture governing the
Debentures; provided however, that any such termination shall occur only to the
extent that all obligations of such Subsidiary Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure, other Indebtedness of the Company under the Notes, the
Senior Credit Facility, related documents and future refinancings thereof shall
also terminate upon such sale, release or transfer.
Each Subsidiary Guarantor's obligations are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities
(including, but not limited to, Guarantor Senior Debt of such Subsidiary
Guarantor) of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Guarantee or pursuant to its contribution obligations under the indenture
governing the Debentures, result in the obligations of such Subsidiary Guarantor
under the Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Subsidiary Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Subsidiary Guarantor in a pro rata amount based on the Adjusted
Net Assets of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell its assets
to the Company or another Subsidiary Guarantor without limitation. Each
Subsidiary Guarantor
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may consolidate with or merge into or sell its assets to a corporation other
than the Company or another Subsidiary Guarantor (whether or not affiliated with
the Subsidiary Guarantor), provided that, subject to the provisions governing
the sale or disposition of a Subsidiary Guarantor discussed above, (a) if the
surviving corporation is not the Subsidiary Guarantor, the surviving corporation
agrees to assume such Subsidiary Guarantor's Guarantee and any of its
obligations pursuant to the indenture governing the Debentures and (b) such
transaction does not (i) violate any covenants set forth under the heading
"Covenants" in the or (ii) result in a Default or Event of Default immediately
thereafter that is continuing.
Payments by any Subsidiary Guarantor in respect of any Guarantee or on account
of any Claim are subordinated to the prior payment in full of all Guarantor
Senior Debt of such Subsidiary Guarantor to the same extent as the Debentures
are subordinated to Senior Debt. On a pro forma basis, as of September 30, 1998,
after giving effect to a $50 million repayment under the Company's bank credit
agreement on November 13, 1998 and the issuance of the Debentures and the
application of the proceeds therefrom, the Company and its subsidiaries would
have had $238.4 million of Senior Debt, Guarantor Senior Debt and Indebtedness
of non-guarantor subsidiaries which would effectively rank senior to the
Debentures and the Guarantees.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The following events constitute "Events of Default" under the indenture
governing the Debentures: (i) the Company's failure to make any interest payment
on the Debentures when due and payable, and the continuance of such default for
a period of 30 days; (ii) the Company's failure to pay principal of the
Debentures when due and payable, whether at maturity, upon acceleration,
redemption or otherwise; (iii) the Company's or a Subsidiary Guarantor's failure
to comply with any other agreement or covenant contained in the Debentures or
the indenture governing the Debentures, if such failure continues unremedied for
30 days after notice given by the Trustee or the holders of at least 25% in
principal amount of the outstanding Debentures; (iv) a default under any bond,
debenture, or other evidence of Indebtedness of the Company or any Subsidiary or
under any mortgage, indenture or other instrument under which there may be
issued or by which there may be secured or evidenced any such Indebtedness,
whether such Indebtedness now exists or shall hereafter be created, if both (a)
such default results in the acceleration of such Indebtedness prior to its
stated maturity or results from the failure to pay any of such Indebtedness at
maturity and (b) the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness the maturity of which has been
so accelerated or which has not been paid at maturity, aggregates $5 million or
more at any one time; (v) any Subsidiary Guarantor defaults on, or repudiates
its obligations under, its Guarantee of the Debentures if a final judicial
determination is made that such Guarantee is not enforceable against any
Subsidiary Guarantor in accordance with its terms; (vi) the Company or any
Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) admits
in writing its inability to pay its debts generally as they become due; (b)
commences a voluntary case or proceeding; (c) consents to the entry of a
judgment, decree or order for relief against it in an involuntary case or
proceeding; (d) consents to the appointment of a Custodian of it or for all or
substantially all of its property; (e) consents to or acquiesces in the
institution of a bankruptcy or an insolvency proceeding against it; or (f) makes
a general assignment for the benefit of its creditors; (vii) a court of
competent jurisdiction enters a judgment, decree or order under any Bankruptcy
Law that is for relief against the Company or any Subsidiary, in an involuntary
case or
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proceeding which shall (A) approve a petition seeking reorganization,
arrangement, adjustment or composition in respect of the Company or any
Subsidiary, (B) appoint a Custodian of the Company or any Subsidiary, or for
substantially all or its property, or (C) order the winding-up or liquidation of
its affairs, and in each case the judgment, order or decree remains unstayed and
in effect for 60 days; or (viii) any warrant of attachment is issued against any
property of the Company or any Subsidiary having a value of at least $5 million,
which warrant is not released, stayed or bonded against within 60 days after
service of process with respect thereto, or final judgments not covered by
insurance for the payment of money which in the aggregate at any one time
exceeds $5 million shall be rendered against the Company or any Subsidiary by a
court of competent jurisdiction and shall remain undischarged for 60 days after
judgment becomes final and nonappealable.
An "Event of Default" includes any default by the Company on any of the
covenants contained in the indenture governing the Notes. Holders of Debentures,
however, will have no right to approve or disapprove of any waiver of any
default under the indenture governing the Notes by holders of the Notes. As a
consequence, although the holders of Debentures will have the benefit of some of
the protections afforded by the covenants contained in the Notes, holders of
Debentures will be subject to determinations made by the holders of Notes on
fundamental matters such as "Events of Default" and acceleration events under
the Notes. The indenture governing the Debentures provides that holders of
Debentures will be entitled to participate in any consent or waiver fee that is
paid to holders of Notes in exchange for their waiver of any default or
acceleration event under the Notes.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency, receivership or reorganization with respect to the
Company or any Subsidiary) occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the Debentures then outstanding may
declare the principal amount of the Debentures due and payable. If an Event of
Default resulting from certain events of bankruptcy, insolvency, receivership or
reorganization shall occur with respect to the Company or any Subsidiary, the
unpaid outstanding principal of and accrued interest on the Debentures shall
ipso facto become immediately due and payable without any declaration or other
act on the part of the Trustee or any of the holders of the Debentures. Subject
to certain limitations, the holders of a majority in principal amount of the
Debentures then outstanding, by notice to the Trustee, may rescind an
acceleration if all existing Events of Default other than nonpayment of
accelerated principal are cured or waived. In certain cases the holders of a
majority in principal amount of outstanding Debentures may waive any default and
its consequences, except a default in the payment of principal of or interest on
any of the Debentures.
Holders of the Debentures may not enforce the indenture governing the Debentures
or the Debentures except as provided in the indenture governing the Debentures.
Subject to certain limitations, holders of a majority in principal amount of the
then outstanding Debentures may direct the trustee in its exercise of any trust
or power. Subject to the indenture governing the Debentures, the Trustee may
refuse to follow any direction that conflicts with any law or the indenture
governing the Debentures, that the Trustee reasonably determines, in its sole
discretion and in the absence of negligence or willful misconduct, may be
prejudicial to the rights of another holder, or that may involve the Trustee in
personal liability; provided that the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direction.
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In the case of any Event of Default occurring by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Debentures pursuant to the
optional redemption provisions of the indenture governing the Debentures, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law. If an Event of Default occurs prior to ,
2002 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Debentures prior to , 2002, then the premium
specified in the indenture governing the Debentures shall also become
immediately due and payable to the extent permitted by law.
Under the indenture governing the Debentures, two officers of the Company are
required to certify to the Trustee within 120 days after the end of each fiscal
year of the Company whether or not they know of any Default or Event of Default
that occurred during such fiscal year and, if applicable, describe such Default
and the status thereof.
AMENDMENT
Except as provided in the next succeeding paragraphs, the indenture governing
the Debentures or the Debentures may be amended or supplemented by the Company
and each Subsidiary Guarantor and the Trustee with the consent of the holders of
at least a majority in principal amount of the Debentures then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for Debentures) without notice to the other holders of the Debentures, and any
existing default or compliance with any provision of the indenture governing the
Debentures or the Debentures may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Debentures (including
consents obtained in connection with a tender offer or exchange offer for
Debentures) without notice to the other holders of Debentures.
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Debentures held by a non-consenting holder of Debentures)
(i) reduce the principal amount of Debentures whose holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Debenture or alter the provisions with respect to any
redemption or the purchase price in connection with repurchases of the
Debentures upon a Change of Control, or otherwise, (iii) reduce the rate of or
change the time for payment of interest on any Debenture, (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the Debentures or that resulted from a failure to comply with the
covenants described under "Redemption or Repurchase at Option of
Holders -- Change of Control" (except a rescission of acceleration of the
Debentures by the holders of at least a majority in aggregate principal amount
of the Debentures and a waiver of the payment default that resulted from such
acceleration), (v) make any Debenture payable in any manner other than that
stated in the Debentures, (vi) make any change in the provisions of the
indenture governing the Debentures relating to waivers of past Defaults or the
rights of holders of Debentures to receive payments of principal of or interest
on the Debentures, (vii) waive a redemption payment with respect to any
Debenture, (xiii) make any change to the conversion provisions of the indenture
governing the Debentures that adversely affects the holders of Debentures, (ix)
make any change to the subordination provisions of the indenture governing the
Debentures that adversely affects the holders of Debentures, or (x) make any
change in the foregoing amendment and waiver provisions.
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Notwithstanding the foregoing, without notice to or the consent of any holder of
Debentures, the Company and the Subsidiary Guarantors and the Trustee may amend
or supplement the indenture governing the Debentures or the Debentures to cure
any ambiguity, defect or inconsistency, to provide for uncertificated Debentures
in addition to or in place of certificated Debentures, to provide for the
assumption of the Company's obligations to holders of the Debentures in the case
of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of the Debentures or that does not
adversely affect the legal rights under the indenture governing the Debentures
of any such holder, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the indenture governing the Debentures
under the Trust Indenture Act.
LEGAL AND COVENANT DEFEASANCE
Upon compliance with certain conditions, the Company may be discharged from any
and all of its obligations with respect to the Debentures. Notwithstanding the
preceding sentence, certain obligations of the Company as provided for in the
indenture governing the Debentures shall survive until otherwise terminated or
discharged. Upon compliance with certain conditions, the Company may also omit
to adhere to certain restrictive covenants contained in the indenture governing
the Debentures and any omission to comply with such obligations shall not
constitute a Default or Event of Default with respect to any Debentures.
The conditions include, among other things, (i) the deposit with the Trustee of
money and or U.S. government obligations in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
Debentures' maturity or on the applicable redemption date or repurchase date, as
the case may be, of such principal or installment of principal of, premium, if
any, or interest on the Debenture; and (ii) the delivery to the Trustee of an
opinion of counsel to the effect that the holder of the Debentures will not
recognize income, gain or loss for United States federal income tax purposes as
a result of such legal or covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such legal or covenant defeasance had not occurred.
MERGERS AND CONSOLIDATIONS
Subject to the right of the holders to require the Company to purchase the
Debentures in the event of a Change of Control, the Company may consolidate or
merge with or into any other Person, and the Company may directly or indirectly
transfer, sell or lease or otherwise dispose of all or substantially all of its
properties and assets to any Person, provided (i) such Person is (a) a
corporation, limited liability company, partnership or trust, (b) organized and
validly existing under the laws of the United States of America, any State
thereof or the District of Columbia (c) expressly assumes, by a supplemental
indenture, executed and delivered to the Trustee, payment of the principal of
and interest on the Debentures and the performance and observance of every
covenant of the indenture governing the Debentures; (ii) immediately after
giving effect to such transaction, no Default or Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of Default,
shall have occurred and be continuing; and (iii) the Company has delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, sale or lease and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture
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complies with this paragraph and that all conditions precedent provided for
relating to such transaction have been complied with in all material respects.
CONCERNING THE TRUSTEE
will be the Trustee under the indenture governing the Debentures.
The indenture governing the Debentures will contain certain limitations on the
rights of the Trustee, should it become a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; provided, however, if it acquires any
conflicting interest (as defined) and there exists a default with respect to the
Debentures, it must eliminate such conflict or resign.
The holders of a majority in principal amount of all outstanding Debentures will
have the right to direct the time, method, and place of conducting any
proceeding for exercising any remedy or power available to the Trustee, provided
that such direction does not conflict with any rule of law or with the indenture
governing the Debentures, is not unduly prejudicial to the rights of another
holder or the Trustee, and does not involve the Trustee in personal liability.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture governing the
Debentures. Reference is made to the indenture governing the Debentures for a
full disclosure of such terms, as well as any other capitalized terms used
herein for which no definition is provided.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
lesser of the amount by which (i) the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Guarantee, of such Subsidiary Guarantor at such date and
(ii) the present fair salable value of the assets of such Subsidiary Guarantor
at such date exceeds the amount that will be required to pay the probable
liability of such Subsidiary Guarantor on its debts (after giving effect to all
other fixed and contingent liabilities incurred or assumed on such date and
after giving effect to any collection from any Subsidiary of such Subsidiary
Guarantor in respect of the obligations of such Subsidiary under the Guarantee),
excluding debt in respect of the Guarantee, as they become absolute and matured.
"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 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
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
"Board of Directors" means, with respect to any person, the Board of Directors
of such person or any committee of the Board of Directors of such person duly
authorized, with respect to any particular matter, to exercise the power of the
Board of Directors of such person.
"Board Resolution" means, with respect to any person, a duly adopted resolution
of the Board of Directors of such person.
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"Business Day" means, with respect to any particular place of payment, place of
conversion or any other place, as the case may be, each Monday, Tuesday,
Wednesday, Thursday and Friday, other than any such day on which banking
institutions in New York City, New York, or in such particular place are
authorized or obligated by law or executive order to close. If any day on which
any delivery, request, surrender, payment or other action is required or
permitted hereunder to be taken by or on behalf of a holder is not a Business
Day in any place where such action is permitted hereunder to be taken, then such
actions may be taken at such or any other permitted place on the next succeeding
Business Day at such place with the same force and effect as if taken at the
same time on such day that is not a business day at such place.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such person,
including Preferred Stock.
"Capitalized Lease Obligation" means obligations under a lease that is required
to be capitalized for financial reporting purposes in accordance with GAAP, and
the amount of Indebtedness represented by such obligations shall be the
capitalized amount of such obligations determined in accordance with GAAP.
"Change of Control" means either (i) the acquisition after the date of issuance
of the Debentures, in one or more transactions, of beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) by any person or entity or any
group of persons or entities who constitute a group (within the meaning of
Section 13(d)(3) of the Exchange Act) of any securities of the Company such
that, as a result of such acquisition, such person, entity or group beneficially
owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, more than 50% of the Company's then outstanding Voting Securities or
(b) otherwise has the ability to elect, directly or indirectly, a majority of
the members of the Company's Board of Directors, or (ii) a change in the
composition of the Board of Directors of the Company such that a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
"Claim" means any and all rights to payment under or in respect of any
Debenture, any Guarantee or the indenture governing the Debentures, all rights,
remedies, demands, causes of action and claims of every type and description at
any time held or asserted by, or arising in favor of, any holder of a Debenture
against the Company or any Subsidiary Guarantor, or any of them or any of their
assets, in each case on account of any breach of any promise, obligation,
agreement, indemnity or covenant in a Debenture or the indenture governing the
Debentures or in any manner arising out of, or directly relating to, the offer,
sale or purchase of a Debenture or the performance or nonperformance or the
payment or nonpayment thereof or under any Guarantee.
"Continuing Director" means, as of any date of determination, any member of the
Board of Directors of the Company who (i) was a member of such Board of
Directors on the Issue Date or (ii) was nominated for election or elected to
such Board of Directors with the affirmative vote of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Agreement" means that certain Credit Agreement dated as of August 9,
1996 between Apria Healthcare Group Inc. and certain of its subsidiaries, Bank
of America National Trust and Savings Association, Nationsbank of Texas, N.A.,
and certain other financial institutions, as amended, or other analogous
documents entered into in connection with any refinancing thereof, as any of the
foregoing has been or may from time to time be
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amended, received, supplemented or otherwise modified at the option of the
parties thereto.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law.
"Designated Senior Debt" means (i) Indebtedness or Obligations under the Senior
Credit Facility and (ii) any other Senior Debt permitted under the indenture
governing the Debentures, the outstanding principal amount of which is $25
million or more and, if at least $25 million of Indebtedness (or commitments to
fund Indebtedness) is outstanding under the Senior Credit Facility, consented to
in writing by the Senior Credit Representative.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission thereunder.
"Existing Joint Ventures" means each non-wholly owned subsidiary of the Company
on the date of first issuance of the Debentures under the indenture governing
the Debentures.
"Foreign Exchange Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect against
fluctuations in currency values.
"Foreign Subsidiary" means any Subsidiary which is organized under the laws of a
jurisdiction outside of the United States and which does not own any material
assets or properties located within the United States.
"GAAP" means generally accepted accounting principles as in effect in the United
States of America as of the date of the indenture governing the Debentures.
"Guarantor Senior Debt" means all Indebtedness and other Obligations specified
below payable directly or indirectly by the applicable Subsidiary Guarantor,
whether outstanding on the date of the indenture governing the Debentures or
thereafter created, incurred or assumed by such Subsidiary Guarantor: (i) the
principal of and interest on and all other Obligations related to the Senior
Credit Facility (including, without limitation, all loans, letters of credit and
other extensions of credit under the Senior Credit Facility, and all expenses,
fees, reimbursements, indemnities and other amounts owing pursuant to the Senior
Credit Facility); (ii) any other Indebtedness permitted to be incurred by any
Subsidiary Guarantor under the terms of the indenture governing the Debentures,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to the
Guarantee of such Subsidiary Guarantor; and (iii) all permitted renewals,
extensions, refundings or refinancings thereof. All Post-Petition Interest on
Guarantor Senior Debt shall constitute Guarantor Senior Debt. Notwithstanding
anything to the contrary in the foregoing, Guarantor Senior Debt shall not
include (w) any liability for federal, state, local or other taxes owed or owing
by the Subsidiary Guarantor, (x) any Indebtedness of the Subsidiary Guarantor to
the Company or any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z) any Indebtedness that is incurred in violation of the indenture
governing the Debentures. To the extent any payment of Guarantor Senior Debt
(whether by or on behalf of the Company or any Subsidiary Guarantor, as proceeds
of security or enforcement of any right of setoff or otherwise) is declared to
be fraudulent or preferential, set aside or required to be paid to a trustee,
receiver or other similar party under any bankruptcy, insolvency, receivership
or similar law, then if such payment is recovered by, or paid over to, such
trustee, receiver or other similar party, the Guarantor Senior Debt or part
thereof originally
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intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred. All Guarantor Senior Debt shall be and remain
Guarantor Senior Debt for all purposes of the indenture governing the
Debentures, whether or not subordinated in an Insolvency or Liquidation
Proceeding.
"Indebtedness" means with respect to any person, without duplication: (i) all
liabilities, contingent or otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
person or only to a portion thereof), (b) evidenced by bonds, notes, debentures,
drafts accepted or similar instruments or letters of credit or representing the
balance deferred and unpaid of the purchase price of any property (other than
any such balance that represents an account payable or any other monetary
obligation to a trade creditor created, incurred, assumed or guaranteed by such
person in the ordinary course of business of such person in connection with
obtaining goods, materials or services, which account is not overdue by more
than 90 days, according to the original terms of sale, unless such account
payable is being contested or has been renegotiated in good faith), (c) for the
payment of money relating to a Capitalized Lease Obligation, or (d) pursuant to
any Stock Guarantee Obligations; (ii) reimbursement obligations of such person
with respect to letters of credit; (iii) obligations of such person with respect
to Interest Swap Obligations and Foreign Exchange Agreements; (iv) all
liabilities of others of the kind described in the preceding clause (i), (ii) or
(iii) that such person has guaranteed, that have been incurred by a partnership
in which it is a general partner (to the extent such person is liable,
contingently or otherwise, therefor) or that is otherwise its legal liability
(other than endorsements for collection in the ordinary course of business); and
(v) all obligations of others secured by a Lien to which any of the properties
or assets (including, without limitation, leasehold interests and any other
tangible or intangible property rights) of such person are subject, whether or
not the obligations secured thereby shall have been assumed by such person or
shall otherwise be such person's legal liability (provided that if the
obligations so secured have not been assumed by such person or are not otherwise
such person's legal liability, such obligations shall be deemed to be in an
amount equal to the lesser of the fair market value of such properties or assets
or the amount necessary to discharge such Lien, as determined in good faith by
the Board of Directors of such person, which determination shall be evidenced by
a Board Resolution).
"Insolvency or Liquidation Proceeding" means (i) any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding, relative to the Company or any Subsidiary Guarantor
or to the creditors of the Company or such Subsidiary Guarantor, as such, or to
the assets of the Company or such Subsidiary Guarantor, or (ii) any liquidation,
dissolution, reorganization or winding up of the Company or such Subsidiary
Guarantor, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors
or any other marshaling of assets and liabilities of the Company or such
Subsidiaries.
"Interest Payment Date" means the maturity of an installment of interest on the
Debentures.
"Interest Swap Obligation" means any obligation of any person pursuant to any
arrangement with any other person whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same
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notional amount; provided that the term "Interest Swap Obligation" shall also
include interest rate exchange, collar, cap, swap option or similar agreements
providing interest rate protection.
"Investment" by any person means any investment or acquisition by such person,
in any transaction or series of related transactions, whether by a purchase of
assets, share purchase, capital contribution, loan, advance (other than
reasonable loans and advances to employees for moving and travel expenses, as
salary advances, and other customary loans and advances to employees incurred,
in each case, in the ordinary course of business consistent with past practice)
or similar credit extension constituting Indebtedness of such other person, and
any guarantee of Indebtedness of any other person.
"Legal Holiday" means, when used with respect to a place of payment, a Saturday,
a Sunday or a day on which banking institutions in New York, New York, Los
Angeles, California or at such place of payment are not required to be open.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim
affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, (other than bona fide options and agreements
for the sale of assets) and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Non-Recourse Indebtedness" means Indebtedness that, under the terms thereof or
pursuant to applicable law (i) neither the Company nor any Subsidiary (other
than a Subsidiary being designated as an Unrestricted Subsidiary) is directly or
indirectly liable with respect thereto, as an obligor, guarantor or otherwise,
(ii) with respect to which there is no recourse against any of the assets or
properties of the Company or such Subsidiary and (iii) upon the occurrence of a
default or event of default with respect thereto, would not permit (upon notice,
lapse of time or both) any holder of other Indebtedness of the Company or any
Subsidiary (other than a Subsidiary being designated as an Unrestricted
Subsidiary) to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity.
"Obligations" means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Partnership Interest" means any general or limited partnership interest and any
interest as a member of a limited liability company.
"Paying Agent" means the office or agency maintained by the Company where
Debentures may be presented or surrendered for payment, except that, for the
purposes of Articles XIII and IV of the indenture governing the Debentures
relating to redemption of the Debentures and satisfaction and discharge of the
indenture governing the Debentures, respectively, and the provisions of the
indenture governing the Debentures summarized under the heading "Limitation on
Change of Control," the Paying Agent shall not be the Company or any Subsidiary.
"Permitted Joint Venture" means any subsidiary which owns, operates, contracts
with or services a health care business or facility or manufactures or provides
healthcare products or services and (i) is formed to offer a participation in
the assets, businesses or revenues
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(income) owned or to be acquired by such subsidiary to any other person, (ii) of
which the Company or any subsidiary is a general partner (or equivalent) or
controls the general partner (or equivalent); and (iii) does not receive any
Investment from the Company or any subsidiary.
"Post-Petition Interest" means all interest accrued or accruing after the
commencement of any Insolvency or Liquidation Proceeding in accordance with and
at the contract rate (including, without limitation, any rate applicable upon
default) specified in the agreement or instrument creating, evidencing or
governing any Senior Debt or Guarantor Senior Debt whether or not pursuant to
applicable law or otherwise, the claim or such interest is allowed as a claim in
such Insolvency or Liquidation Proceeding.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock, whether outstanding on the date hereof
or issued after the date of the indenture governing the Debentures, and
including, without limitation, all classes and series of preferred or preference
stock of such person.
"Record Date" means any Regular Record Date or Special Record Date.
"Redemption Price," when used with respect to any Debenture to be redeemed,
means the price fixed for such redemption pursuant to the indenture governing
the Debentures and the Debentures.
"Regular Record Date" for interest payable in respect of any Debenture on any
Interest Payment Date means the 15 or 15 (whether
or not a Business Day) next preceding the relevant Interest Payment Date.
"Senior Credit Facility" means the Credit Agreement and any other agreement
(including all related ancillary agreements) pursuant to which any of the
Indebtedness, obligations, commitments, costs, expenses, fees, reimbursements
and other indemnities payable or owing thereunder (or under any subsequent
Senior Credit Facility) may be refinanced, restructured, renewed, extended,
refunded, replaced or increased, as any such other agreement may from time to
time at the option of the parties thereto be amended, renewed, supplemented or
otherwise modified.
"Senior Credit Representative" means Bank of America National Trust and Savings
Association, in its capacity as the lead lender under the Senior Credit
Facility, or any successor thereto as an agent or administrative agent for the
lenders under the Senior Credit Facility, or as the lead lender thereunder.
"Senior Debt" means all Indebtedness and other obligations specified below
payable directly or indirectly by the Company, whether outstanding on the date
of the indenture governing the Debentures or thereafter created, incurred or
assumed by the Company: (1) the principal of and interest on and all other
obligations related to the Senior Credit Facility (including, without
limitation, all loans, letters of credit and other extensions of credit under
the Senior Credit Facility, and all expenses, fees, reimbursements, indemnities
and other amounts owing pursuant to the Senior Credit Facility); (2) any other
Indebtedness permitted to be incurred by the Company under the terms of the
indenture governing the Debentures, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Debentures; and (3) all permitted
renewals, extensions, refundings or refinancings thereof. All Post-Petition
Interest on Senior Debt shall constitute Senior Debt. Notwithstanding anything
to the contrary in the foregoing, Senior Debt shall not include
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<PAGE> 63
(u) the Debentures, (v) the Notes, (w) any liability for federal, state, local
or other taxes owed or owing by the Company, (x) any Indebtedness of the Company
to any of its subsidiaries or other Affiliates, (y) any trade payables or (z)
any Indebtedness that is incurred in violation of the indenture governing the
Debentures. To the extent any payment of Senior Debt (whether, by or on behalf
of the Company or, as proceeds of security or enforcement of any right of setoff
or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to a trustee, receiver or other similar party under any
bankruptcy, insolvency, receivership or similar law, then if such payment is
recovered by, or paid over to, such trustee, receiver or other similar party,
the Senior Debt or part thereof originally intended to be satisfied shall be
deemed to be reinstated and outstanding as if such payment had not occurred. All
Senior Debt shall be and remain Senior Debt for all purposes of the indenture
governing the Debentures, whether or not subordinated in an Insolvency or
Liquidation Proceeding.
"Special Record Date" for the payment of any defaulted interest means a date
fixed by the Trustee pursuant to the terms of the indenture governing the
Debentures.
"Stock Guarantee Obligations" means all Obligations of a specified person or any
subsidiary of such person to make payments (whether in cash, securities or other
property) to any holder of the Capital Stock of such person or any of its
Affiliates, or any option, warrant or other right to acquire such Capital Stock,
in order to guarantee the value of such Capital Stock (or any such option,
warrant or other right) at any time or to otherwise hold such holder harmless,
in full or in part, for any decline in the value of such Capital Stock (or any
such option, warrant or other right) or for the failure of such Capital Stock
(or any such option, warrant or other right) to appreciate in value.
"subsidiary" means, with respect to any person, (i) a corporation a majority of
whose Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general or limited partner of such partnership, but only if such person or its
subsidiary is entitled to receive more than 50% of the assets of such
partnership upon its dissolution, or (iii) any limited liability company or any
other person (other than a corporation or a partnership) in which such person, a
subsidiary of such person or such person and one or more subsidiaries of such
person, directly or indirectly, at the date of determination, has (a) at least a
majority ownership interest or (b) the power to elect or direct the election of
a majority of the directors or other governing body of such person.
"Subsidiary" means a corporation more than 50% of the outstanding Voting
Securities 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.
"Subsidiary Guarantor" means (i) Apria Healthcare, Inc., Apria Number Two, Inc.,
ApriaCare Management Systems, Inc. and Apria Healthcare of New York State, Inc.
and (ii) each of the Company's Subsidiaries that becomes a guarantor of the
Debentures in compliance with the provisions of this section and (iii) any other
Subsidiary executing a supplemental indenture in which such Subsidiary agrees to
be bound by the terms of the indenture governing the Debentures which are
applicable to a Subsidiary Guarantor thereunder.
"Unrestricted Subsidiary" means (i) any Existing Joint Venture, so long as the
Company is an Affiliate of such Existing Joint Venture, and (ii) any other
Subsidiary incorporated or
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otherwise formed after the Issue Date that is designated by the Board of
Directors as an Unrestricted Subsidiary pursuant to a Board Resolution and that,
at the time of designation, has total assets not exceeding $1,000; but only to
the extent that any person identified in the foregoing clauses (i) and (ii)
also, at the time of designation (a) has no Indebtedness other than Non-Recourse
Indebtedness; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Subsidiary unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such other Subsidiary than those that might be obtained at the time
from persons who are not Affiliates and (c) is a person with respect to which
neither the Company nor any Subsidiary has any obligation (1) to subscribe for
additional shares of Capital Stock or Partnership Interests or (2) to maintain
or preserve such person's financial condition or to cause such person to achieve
certain levels of operating results. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions. If, at any time, such Unrestricted Subsidiary would fail
to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture
governing the Debentures and any Indebtedness of such Subsidiary shall be deemed
to be incurred as of such date. The Board of Directors of the Company may
designate any Unrestricted Subsidiary to be a Subsidiary.
"Voting Securities" means, with respect to any person, the voting securities of
such person entitled to vote on a regular basis for a majority of the Board of
Directors of such person.
OTHER FINANCING ARRANGEMENTS
BANK CREDIT FACILITY
The following is a summary of the Company's bank credit facility and is
qualified in its entirety by reference to the definitive agreements and
instruments governing such indebtedness, copies of which have been filed as
exhibits to the registration statement.
In August 1996, the Company and certain of its subsidiaries entered into a
Credit Agreement with Bank of America National Trust and Savings Association, as
the administrative agent, NationsBank of Texas, N.A., as the syndication agent,
and a syndicate of other financial institutions (as amended to date, the "Credit
Agreement"). The Credit Agreement was amended in April and August of 1997 and
further amended in January, March and April of 1998, as a result of which total
borrowings allowed under the Credit Agreement were reduced from an original
maximum of $800 million to $400 million at April 15, 1997 (with further
reductions scheduled for December 31, 1998, 1999 and 2000, respectively). In
connection with these prior amendments to the Credit Agreement, amounts
available for acquisitions were reduced, tighter restrictions were imposed on
dividends and other distributions and interest rates and commitment fees were
increased. In addition, these prior amendments to the Credit Agreement had the
effect of waiving covenant deficiencies arising as the result of charges taken
in 1997 and the termination of the JLL/CIBC Investment (as defined in the Credit
Agreement).
In November 1998, the Credit Agreement was amended and restated in order to
avoid certain covenant defaults under the Credit Agreement and to provide the
Company with increased flexibility in operating its business and pursuing
acquisitions (the "November Amendment"). Pursuant to the November Amendment, the
Company repaid $50 million under the Credit Agreement concurrently with the
execution of the November Amend-
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ment, and the Company agreed to make an additional repayment with all the net
proceeds received by the Company upon exercise of the Rights. The November
Amendment provides that the Company will be in default if this Rights Offering
is not consummated, and the Company has not paid the lenders the proceeds from
the exercise of the Rights, by February 28, 1999. In consideration for the
repayments and other amendments, and the payment of an amendment fee to the
lenders totaling $598,734, the Credit Agreement was amended to eliminate any net
worth maintenance covenant and to amend certain other covenants, which had the
effect, among other things, of avoiding covenant defaults that would otherwise
have occurred following the Company's announcement of its results of operations
for the fiscal quarter ended September 30, 1998 and loosening somewhat the
Credit Agreement's restrictions on the Company's ability to pursue acquisitions.
As a part of the November Amendment, the Company's remaining outstanding
indebtedness under the Credit Agreement was restructured as a $288 million term
loan (which will be reduced to $238.4 million with the $49.6 million repayment
from the net proceeds of the exercise of the Rights) (the "Term Loan") and a $30
million revolving credit Agreement (the "Revolver"), both of which will mature
on August 9, 2001. Pending consummation of the Rights Offering and the payment
of the offering proceeds to the lenders, the Term Loan requires the Company to
make mandatory prepayments in an amount equal to 50% of the Company's "excess
cash flow" (as defined in the Credit Agreement). Following consummation of the
Rights Offering, the Company will be required to make quarterly repayments of
principal on the Term Loan in the amount of (i) $4 million, at the end of each
calendar quarter during 1999 (with a credit in the first quarter of 1999 for
prepayments made during the same quarter out of "excess cash flow"), (ii) $5
million, at the end of each calendar quarter during 2000, and (iii) $10 million,
at the end of each of the first two calendar quarters during 2001, with the full
amount of principal and interest on the Term Loan due and payable on August 9,
2001.
The Credit Agreement, as amended, permits the Company to elect one of two
variable rate interest options: (a) 2.50% plus the higher of (i) the rate of
interest in effect as publicly announced from time to time by Bank of America
National Trust and Savings Association as its "reference rate" and (ii) 0.50%
above the Federal Funds Rate or (b) a rate based on the London Interbank Offered
Rate ("LIBOR") plus an additional increment of 3.50% per annum. In addition, a
Revolver commitment fee will be payable in an amount equal to 0.75% per annum on
the unused borrowings under the Revolver (increased from 0.50% per annum). Prior
to the November Amendment, the Company was entitled to elect one of two variable
interest rate options: either (a) a rate expressed as 0.75% plus the higher as
between (i) the Federal Funds Rate plus 0.50% per annum and (ii) the Bank of
America "reference" rate or (b) a rate based on LIBOR plus an increment of 2.25%
per annum. The Company's effective interest rate at November 20, 1998 was 8.75%
for borrowings under the Credit Agreement of $288.0 million.
The Credit Agreement, as amended and restated, contains certain additional
covenants made by the Company, as summarized below.
- Liens. The Company will not incur, assume or suffer to exist any Liens
(as defined in the Credit Agreement) upon or with respect to any property
or assets of the Company or its subsidiaries, except for Permitted Liens
(as defined in the Credit Agreement).
- Consolidation, Merger, Purchase or Sale of Assets. The Company will not
(1) wind up, liquidate or dissolve its affairs, (2) merge or consolidate
with any person, (3) sell, lease or otherwise dispose of all or any part
of its property or
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assets, (4) enter into any partnership, joint venture or sale-leaseback
transaction, or (5) purchase or otherwise acquire any part of the property or
assets of any other person, subject to certain exceptions. Pursuant to the
November Amendment, after the issuance of the Debentures the Company will be
permitted to make acquisitions totaling up to $50 million in the aggregate
during the term of the Credit Agreement (the "Acquisition Cap") and $25 million
per acquisition; provided, however, that if the Company's Ratio of Consolidated
Funded Indebtedness to Consolidated EBITDA falls below, and remains below, 3.0x
for the four previous fiscal quarters, the Acquisition Cap will be increased by
an additional $15 million for each year during the term of the Credit Agreement
for which such ratio remains below 3.0x. During fiscal year 1999, the Company
may use up to $50 million of the Acquisition Cap to pay unusual, nonrecurring
cash expenses (which payments will reduce the Acquisition Cap on a
dollar-for-dollar basis) and up to $17.5 million of such payments shall be
excluded from the calculation of Consolidated EBITDA for purposes of calculating
compliance with the negative covenants referenced below.
- Dividends. The Company may not declare or pay dividends.
- Limitation on Creation of Subsidiaries. The Company may not create or
acquire any new subsidiaries except in connection with permitted
acquisitions or reorganizations of existing subsidiaries.
- Indebtedness. The Company may not incur any indebtedness, subject to
certain exceptions.
- Advances, Investments and Loans. The Company may not lend money to any
person or acquire any stock, obligations or securities of any other
person, subject to certain exceptions.
- Transactions with Affiliates. The Company may not enter into any
transactions with its affiliates, subject to certain exceptions.
- Capital Expenditures. The Company may not make capital expenditures over
a certain amount, expressed as a percentage of consolidated net revenues
and described in more detail in the Credit Agreement.
- Fixed Charge Coverage Ratio. The Company will not permit the Fixed Charge
Coverage Ratio (as defined in the Credit Agreement) to exceed 1.50x (for
the period from September 30, 1998 through December 31, 1998), 1.45x (for
the period from March 31, 1998 through December 31, 1999) and 1.55x (for
periods after December 31, 1999).
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- Consolidated Funded Indebtedness to Consolidated EBITDA. The Company will
not permit its Consolidated Funded Indebtedness to Consolidated EBITDA
Ratio (as defined in the Credit Agreement) to exceed the following limits
as of the following dates:
<TABLE>
<CAPTION>
<S> <C>
September 30, 1998...................................... 4.00x
December 31, 1998....................................... 4.15x
March 31, 1999 through September 30, 1999............... 4.60x
December 31, 1999....................................... 4.20x
March 31, 2000.......................................... 3.90x
June 30, 2000........................................... 3.70x
September 30, 2000...................................... 3.50x
December 31, 2000....................................... 3.40x
March 31, 2001.......................................... 3.25x
June 30, 2001........................................... 3.00x
</TABLE>
- Limitation on Voluntary Payments and Modifications of Indebtedness;
Modifications of Certificate of Incorporation, By-Laws and Certain Other
Agreements; etc. The Company will not (1) prepay, acquire or amend any
Existing Indebtedness (as defined in the Credit Agreement), (2) modify its
bylaws or certificate of incorporation, or (3) modify or enter into
certain contracts as described in the Credit Agreement.
- Limitations on Certain Restrictions on Subsidiaries. The Company will not
create or allow to exist any restriction on the ability of any subsidiary
of the Company to (1) pay to the Company dividends or other distributions
or any indebtedness owed to the Company, (2) make loans to the Company, or
(3) transfer any of its property or assets to the Company.
- Business. The Company will not engage in any other business other than in
the ordinary course of business.
9 1/2% SENIOR SUBORDINATED NOTES DUE 2002
GENERAL
The following is a summary of the Company's 9 1/2% Senior Subordinated Notes due
2002 and is qualified in its entirety by reference to the indenture governing
the Notes, a copy of which is on file with the Securities and Exchange
Commission.
The Company has outstanding $200 million principal amount of the Notes. The
Notes bear interest at a rate of 9 1/2%, and interest on the Notes is payable
semi-annually on November 1 and May 1. The Notes mature and are payable in full
on November 1, 2002.
RANKING; SUBORDINATION
The Notes are general unsecured obligations of the Company. The payment of
principal of, premium, if any, and interest on the Notes by the Company and any
and all other obligations in respect of the Notes is (1) pari passu with the
Debentures and (2) subordinated in right of payment, as set forth in the
indenture governing the Notes, to the prior payment of all Senior Debt (which is
defined in the same manner as such term is defined in the indenture governing
the Debentures). The terms and conditions under which the Notes and Guarantees
(as described below) are subordinated to Senior Debt are
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<PAGE> 68
substantially the same as the subordination provisions applicable to the
Debentures. As described more fully below, the indenture governing the Notes
places certain restrictions on the ability of the Company to incur additional
indebtedness.
GUARANTEES
The Notes are guaranteed (the "Guarantees") by all of the Company's wholly-owned
domestic subsidiaries (the "Subsidiary Guarantors").
OPTIONAL REDEMPTION
The Notes are redeemable at the option of the Company, in whole at any time or
in part from time to time, on and after November 1, 1998, at the following
redemption prices (expressed as percentages of the principal amount) if redeemed
during the twelve-month period commencing on November 1 of the year set forth
below, plus, in each case, accrued interest thereon to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1998................................................ 104.750%
1999................................................ 102.375%
2000 and thereafter................................. 100.000%
</TABLE>
MANDATORY REDEMPTION
Except as set forth below under "-- Redemption or Repurchase at Option of
Holders -- Change of Control" and "-- Asset Sales," the Company is not required
to make any mandatory redemption or sinking fund payments prior to the maturity
of the Notes.
REDEMPTION OR REPURCHASE AT OPTION OF HOLDERS
Change of Control. Upon the occurrence of a Change of Control (which is defined
in the same manner as such term is defined in the indenture governing the
Debentures), the Company will be required to make an offer (the "Change of
Control Offer") to repurchase all or any part (equal to $1,000 principal amount
or an integral multiple thereof) of a holder's Notes at a purchase price equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Payment").
Asset Sales. The indenture governing the Notes provides that, subject to certain
limitations and exceptions described in the indenture governing the Notes, the
Company will not, and will not permit any of its Subsidiaries to, consummate any
Asset Sale (which is defined in the indenture governing the Notes to include,
among other things, sales of assets outside of the ordinary course of business)
unless (i) the Company or the applicable subsidiary receives consideration at
the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the Board
of Directors of the Company or, with respect to assets having a fair market
value in excess of $20 million, an independent financial advisor) and at least
80% of the fair market value (as so determined) of the consideration so received
by the Company or such subsidiary is in the form of cash and unless (ii) the Net
Cash Proceeds (as defined in the indenture governing the Notes) received by the
Company or such subsidiary from the Asset Sale are applied, at the Company's
option, (a) to repay Senior Debt or Guarantor Senior Debt (which is defined in
the same manner as such term is defined in the indenture governing the
Debentures), (b) in a manner that would constitute a
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Permitted Business Investment (as defined in the indenture governing the Notes),
or (c) to the purchase of Notes pursuant to a Net Proceeds Offer. To the extent
any such Net Cash Proceeds are not actually applied in accordance with clauses
(ii)(a) or (ii)(b) above and equal at least $5 million, the Company must make an
offer (a "Net Proceeds Offer") to purchase Notes with the Net Cash Proceeds at a
price equal to 100% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase, which shall in the aggregate
equal the amount of Net Cash Proceeds required by this covenant to be made
available to purchase Notes in a Net Proceeds Offer.
CERTAIN COVENANTS
The indenture governing the Notes includes certain additional covenants, as
summarized below, that are not included in the indenture governing the
Debentures. Pursuant to the indenture governing the Debentures, an Event of
Default (which is defined in the same manner as such term is defined in the
indenture governing the Debentures) will occur with respect to the Debentures in
the event that the Company defaults on any of the covenants contained in the
indenture governing the Notes and the default is not cured within the applicable
cure period or waived by the holders of a majority in principal amount of the
Notes.
- Limitation on Restricted Payments. The Company shall not make any
Restricted Payment (as defined in the indenture governing the Notes) if
at the time of such Restricted Payment, or after giving effect thereto,
certain conditions or circumstances exist as described in the indenture
governing the Notes.
- Limitation on Incurrences of Additional Indebtedness. The Company shall
not incur any Indebtedness (as defined in the indenture governing the
Notes), except under certain circumstances and with respect to certain
forms of Indebtedness.
- Limitation on Liens. The Company shall not create, incur, assume or
suffer to exist any Liens (as defined in the indenture governing the
Notes) upon any of its assets unless the Notes are equally and ratably
secured by the Liens covering such assets, except in certain
circumstances.
- Restriction on Sale and Ownership of Subsidiaries. The Company will not
permit any of its subsidiaries to issue any capital stock or partnership
interests (other than to the Company or to a wholly-owned subsidiary) or
permit any person (other than the Company or a wholly-owned subsidiary)
to own any capital stock or partnership interests of any subsidiary of
the Company, except in certain circumstances.
- Limitation on Payment Restrictions Affecting Subsidiaries. The Company
shall not, directly or indirectly, create or suffer to exist, or allow to
become effective any consensual Payment Restriction with respect to any
of its subsidiaries, except in certain circumstances.
- Limitations on Transactions with Affiliates. None of the Company, any
subsidiary nor any Unrestricted Subsidiary (as defined in the indenture
governing the Notes) shall (i) sell, lease, transfer, issue or otherwise
dispose of any of its properties or assets or securities to, (ii)
purchase any property, assets or securities from, (iii) make any
Investment (as defined in the indenture governing the Notes) in, or (iv)
enter into any contract or agreement with or for the benefit of an
affiliate or significant stockholder (and any affiliate of such
significant stockholder) of the Company or any subsidiary, except in
certain circumstances and under certain conditions.
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<PAGE> 70
- Senior Subordinated Debt. The indenture governing the Notes provides that
the Company and the Subsidiary Guarantors (as defined in the indenture
governing the Notes) shall not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to any Senior Debt or Guarantor Senior Debt
and senior in any respect in right of payment to the Notes or the
Guarantees.
- Limitations on Mergers and Certain other Transactions. The Company shall
not (i) consolidate with or merge with or into any other person, or
transfer (by lease, assignment, sale or otherwise) all or substantially
all of its properties and assets as an entirety or substantially as an
entirety to another person or group of affiliated persons or (ii) adopt a
plan of liquidation, except under certain conditions.
EVENTS OF DEFAULT
The events which constitute a "Default" or "Event of Default" under the
indenture governing the Notes are substantially similar to the events which
constitute a "Default" or "Event of Default" under the indenture governing the
Debenture.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for certain obligations specified in the indenture governing
the Notes. In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company released with respect to certain covenants
that are described in the indenture governing the Notes ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company's authorized Common Stock consists of 150,000,000 shares of the
Common Stock. All authorized shares of the Common Stock have a par value of
$0.001 per share and are entitled to one vote per share on all matters submitted
to a vote of stockholders. In the event of a liquidation, dissolution or winding
up of the Company, the holders of the Common Stock are entitled to share ratably
in all assets remaining after all liabilities and the liquidation preference
attributable to any outstanding preferred stock have been paid. Subject to any
preferential rights held by holders of the Preferred Stock, holders of the
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. However, it
is not presently anticipated that dividends will be paid on Common Stock in the
foreseeable future, and certain of the debt instruments to which the Company is
a party prohibit or restrict the payment of dividends. See "Dividend Policy."
Holders of Common Stock have no preemptive rights and have no rights to convert
their Common Stock into any other securities, and there are no redemption
provisions with respect to such shares. The holders of the Common Stock are
entitled to one vote per share on all matters submitted to a vote of
stockholders.
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<PAGE> 71
As of November 1, 1998, there were outstanding 51,779,059 shares of the Common
Stock. As of November 1, 1998, there were reserved for issuance upon the
exercise of options 8,939,679 shares of the Common Stock, of which options for
6,104,309 shares of the Common Stock are outstanding.
PREFERRED STOCK
The Company's authorized Preferred Stock consists of 10,000,000 shares of the
Preferred Stock. All authorized shares of the Preferred Stock have a par value
of $0.001 per share. The Company's Board of Directors has the authority to issue
shares of Preferred Stock in one or more series and to fix the designation and
relative powers, preferences and rights and qualifications, limitations, or
restrictions of all shares of each such series, including without limitation
dividend rates, conversion rights, voting rights, redemption and sinking fund
provisions, liquidation preferences, and the number of shares constituting each
such series, without further vote or action by the stockholders. The issuance of
the Preferred Stock could decrease the amount of earnings and assets available
for distribution to holders of Common Stock or adversely affect the rights and
powers, including voting rights, of the holders of Common Stock. The issuance of
the Preferred Stock could have the effect of delaying, deferring, or preventing
a change in control of the Company without further action by the stockholders.
The Company has no present plans to issue any shares of Preferred Stock.
As of November 1, 1998, there were no outstanding shares of the Preferred Stock.
PREFERRED STOCK PURCHASE RIGHTS
The Company has in place a "Rights Plan," unrelated to the rights, pursuant to
which a right is attached to each share of Common Stock. Each right, when it
becomes exercisable and until February 7, 2005, entitles the holder thereof to
purchase from the Company one one-hundredth ( 1/100) of a share of Series A
Junior Participating Stock, par value $0.001 per share (the "Junior Preferred
Shares"), at a price of $130 per 1/100 of a Junior Preferred Share. The rights
will become exercisable in circumstances in which a person or group of persons
acquires, offers to acquire or announces an intent to acquire, beneficial
ownership of 15% or more of the Company's Common Stock. Each Junior Preferred
Share will be entitled to (1) preferential dividend payments, (2) a preferential
liquidation payment and (3) preferential consideration in the event of any
merger, consolidation or other transaction in which Common Stock is exchanged.
In addition, each Junior Preferred Share will have 100 votes, voting together
with the Common Stock. If a person acquires 15% or more of the Common Stock (an
"Acquiring Person"), each holder of Common Stock upon exercise of a right will
receive that number of shares of Common Stock having a market value of two times
the then current purchase price of the right. The Board of Directors of the
Company may, at any time prior to the close of business on the tenth business
day following the public announcement that a person has become an Acquiring
Person, elect to redeem the rights in whole, but not in part, at a price of
$0.01 per right. The Company has agreed to reserve, from and after the rights
become exercisable, 1,500,000 Junior Preferred Shares initially for issuance
upon exercise of the rights.
PRINCIPAL SHAREHOLDERS
The table below sets forth the beneficial ownership of the Common Stock as of
November 1, 1998 (except with respect to Relational Investors, LLC and its
affiliates, whose beneficial ownership is as of November 20, 1998) (i) each
director of the
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<PAGE> 72
Company, (ii) the chief executive officer and the other four most highly
compensated executive officers of the Company who were serving as executive
officers as of December 31, 1997 and certain other individuals who would have
been included among the four most highly compensated executive officers of the
Company, but for the fact that they were not serving as executive officers at
December 31, 1997 (the "Named Executive Officers"), (iii) the directors and
Named Executive Officers of the Company as a group and (iv) each person who at
such time, to the Company's knowledge, beneficially owned more than five percent
of the outstanding shares of the Common Stock of the Company.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------------ ----------------- -------
<S> <C> <C>
David H. Batchelder(1)................................ 6,922,100 13.37%
Ralph V. Whitworth(1)................................. 6,847,100 13.21
Relational Investors, LLC(1).......................... 6,847,100 13.21
Joel L. Reed(1)....................................... 6,847,100 13.21
Richard C. Blum & Associates, L.P.(2)................. 5,123,200 9.89
Richard C. Blum & Associates, Inc.(2)................. 5,123,200 9.89
Richard C. Blum(2).................................... 5,123,200 9.89
Capital Guardian Trust Company(3)..................... 4,815,600 9.30
Franklin Mutual Advisors, Inc.(4)..................... 4,434,508 8.56
Charles B. Johnson(4)................................. 4,434,508 8.56
Rupert H. Johnson, Jr.(4)............................. 4,434,508 8.56
Joseph L. Harrosh(5).................................. 3,308,508 6.38
George L. Argyros(6).................................. 2,763,768 5.33
Stephen Feinberg(7)................................... 2,615,400 5.05
Jeremy M. Jones (8)................................... 1,254,314 2.42
Philip L. Carter(9)................................... 400,000 *
David L. Goldsmith(10)................................ 345,236 *
Lawrence H. Smallen(11)............................... 159,860 *
Steven T. Plochocki(12)............................... 86,029 *
H.J. Mark Tompkins(13)................................ 35,100 *
Richard H. Koppes(14)................................. 26,000 *
Philip R. Lochner, Jr.(15)............................ 26,000 *
Beverly Benedict Thomas(16)........................... 25,000 *
Robert S. Holcombe(17)................................ 24,100 *
Leonard Green(18)..................................... 20,000 *
Merl A. Wallace(19)................................... 106 *
Thomas M. Robbins(20)................................. 0 *
All Directors and Named Executive Officers as a group
(15 persons)(21).................................... 9,348,951 18.06%
</TABLE>
- -------------------------
* Less than 1%
(1) According to a Schedule 13D, dated September 29, 1997, and amendments
thereto dated January 27, 1998, February 3, 1998 and November 23, 1998,
respectively, filed
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<PAGE> 73
with the Securities and Exchange Commission, Relational Investors, LLC
("RILLC") has sole voting and sole dispositive power as to 6,847,100
shares, which includes 50,000 shares subject to options which will become
exercisable on December 31, 1998. Each of Messrs. Whitworth, Batchelder and
Reed, as Managing Members of RILLC, may be deemed for certain purposes to
be beneficial owners of the shares beneficially owned by RILLC and to have
shared voting and shared dispositive power over these shares. Mr. Whitworth
became a Director of the Company on January 27, 1998 to fill a newly
created position. Mr. Batchelder became a Director of the Company on July
28, 1998. Mr. Batchelder's holdings include 75,000 held in a personal
account. The mailing address of RILLC and each of Messrs. Whitworth,
Batchelder and Reed is 4330 La Jolla Village Drive, Suite 220, San Diego,
California 92122.
(2) According to a Schedule 13D, dated July 17, 1998, and an amendment thereto
dated August 10, 1998, filed with the Securities and Exchange Commission,
Richard C. Blum & Associates, L.P. ("RCBA L.P."), has sole voting and sole
dispositive power as to 5,123,200 shares. As the sole general partner of
RCBA L.P., Richard C. Blum & Associates, Inc. ("RCBA Inc."), is deemed the
beneficial owner of the shares beneficially owned by RCBA L.P. and to have
shared voting and shared dispositive power over these shares. As Chairman,
director and a substantial shareholder of RCBA, Inc., Richard C. Blum might
be deemed to be the beneficial owner of the shares beneficially owned by
RCBA L.P. and to have shared voting and shared dispositive power over these
shares. The mailing address of RCBA L.P., RCBA Inc. and Richard C. Blum is
909 Montgomery Street, Suite 400, San Francisco, California 94133.
(3) According to a Schedule 13G Amendment, dated February 10, 1998, filed with
the Securities and Exchange Commission, the Capital Group Companies, Inc.
("Capital Group"), the parent holding company of a group of investment
management companies (including Capital Guardian Trust Company, a bank as
defined in Section 3(a)(6) of the Securities Exchange Act of 1934
("Capital"), and several investment advisors registered under Section 203
of the Investment Advisors Act of 1940) that hold investment power and in
some cases voting power over the securities reported, has sole voting power
as to 4,574,900 shares and sole dispositive power as to 4,815,600 shares.
Capital has sole voting power as to 4,516,900 shares and sole dispositive
power as to 4,757,600 shares. The mailing address of Capital is 333 S. Hope
Street, 52nd Floor, Los Angeles, California 90071.
(4) According to a Schedule 13D, dated January 20, 1998, filed with the
Securities and Exchange Commission, Franklin Mutual Advisors, Inc.
("Franklin") has sole voting and sole dispositive power as to 4,443,008
shares. Each of Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. own
in excess of 10% of the outstanding Common Stock of Franklin Resources,
Inc. ("FRI"), and Franklin is a wholly-owned subsidiary of FRI. As the
principal shareholders of FRI, each of Messrs. Charles B. Johnson and
Rupert H. Johnson, Jr. may be deemed for certain purposes to be beneficial
owners of the shares beneficially owned by Franklin. The mailing address of
Franklin is 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078. The
mailing address of Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. is
c/o Franklin Resources, Inc., 777 Mariners Island Blvd., San Mateo,
California 94404.
(5) According to a Schedule 13G, dated October 7, 1998, filed with the
Securities and Exchange Commission, Joseph L. Harrosh has sole voting and
dispositive power as
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<PAGE> 74
to 3,308,508 shares. The mailing address for Mr. Harrosh is 40900 Grimmer
Boulevard, Fremont, California 94538.
(6) According to a Schedule 13D Amendment, dated April 27, 1998, filed with the
Securities and Exchange Commission, Mr. Argyros has sole investment and
dispositive power as to all 2,763,768 shares. This number includes
2,430,670 shares owned by HBI Financial, Inc., of which Mr. Argyros is the
sole shareholder. This number also includes (i) 280,912 shares held in
trust by two private charitable foundations of which Mr. Argyros is a vice
president and director with respect to which he disclaims beneficial
ownership, (ii) 500 shares held in a charitable trust of which Mr. Argyros
is a trustee but not a beneficiary with respect to which he disclaims
beneficial ownership, (iii) 31,050 shares held in a trust for the benefit
of Mr. Argyros' children, for which Mr. Argyros disclaims beneficial
ownership and (iv) 20,636 shares held by Mr. Argyros individually. The
amount listed does not include 3,450 shares held in a trust of which Mr.
Argyros is not a trustee for the benefit of certain of Mr. Argyros' adult
children who do not share his household for which he disclaims beneficial
ownership and 2,400 shares held in a trust of which Mr. Argyros is not a
trustee for the benefit of Mr. Argyros' mother-in-law for which he
disclaims beneficial ownership. Mr. Argyros resigned his position as
Chairman of the Board effective as of May 27, 1998. The mailing address for
Mr. Argyros is c/o Arnel Development Company, 949 South Coast Drive, Suite
600, Costa Mesa, California 92626.
(7) According to a Schedule 13D, dated February 17, 1998, filed with the
Securities and Exchange Commission, Stephen Feinberg, in his capacity as
the managing member of Cerberus Associates, L.L.C., the general partner of
Cerberus Partners, L.P., and as the investment manager for each of Cerberus
International, Ltd., Ultra Cerberus Fund, Ltd. and as a person possessing
investment authority on behalf of certain other persons and entities, has
sole dispositive and voting power as to 1,950,000 shares and has certain
investment authority over an additional 665,400 shares. Mr. Feinberg's
address is 450 Park Avenue, 28th Floor, New York, New York 10022.
(8) Includes 516,322 shares subject to options that are currently exercisable.
Also includes (i) 696,262 shares held in a family trust of which Mr. Jones
is a trustee, (ii) 2,000 shares held in trusts for the benefit of Mr.
Jones' grandchildren for which Mr. Jones disclaims beneficial ownership,
(iii) 19,730 shares held in a trust for the benefit of Mr. Jones' children
for which Mr. Jones disclaims beneficial ownership and (iv) 20,000 shares
held in an income trust for the benefit of Mr. Jones' children and
grandchildren for which Mr. Jones disclaims beneficial ownership. Mr. Jones
resigned as Chairman of the Board and Chief Executive Officer effective as
of January 19, 1998. He resigned his position as Director of the Company on
May 27, 1998.
(9) Includes 375,000 shares subject to options that are currently exercisable.
Mr. Carter became a Director and the Chief Executive Officer of the Company
on May 5, 1998.
(10) Includes 20,000 shares subject to options that are currently exercisable
and 25,000 shares subject to options which will become exercisable on
December 31, 1998.
(11) Includes 56,120 shares subject to options that are currently exercisable.
Mr. Smallen resigned as the Chief Financial Officer, Senior Vice President
and Treasurer effective June 16, 1998.
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<PAGE> 75
(12) Includes 84,600 shares subject to options that are currently exercisable.
Mr. Plochocki resigned as President and Chief Operating Officer of the
Company effective as of September 26, 1997.
(13) Includes 25,000 shares subject to options that will become exercisable on
December 31, 1998. Does not include 262,400 shares held through a company
which is owned by trusts of which Mr. Tompkins is a contingent beneficiary.
Said trusts are irrevocable, and neither Mr. Tompkins nor any member of his
immediate family has any investment control with respect to the trusts or
the company owned by them. Mr. Tompkins became a Director of the Company on
March 4, 1997.
(14) Includes 25,000 shares subject to options that will become exercisable on
December 31, 1998. Mr. Koppes became a member of the Board of Directors on
May 5, 1998.
(15) Includes 25,000 shares subject to options that will become exercisable on
December 31, 1998. Mr. Lochner became a member of the Board of Directors on
June 30, 1998.
(16) Includes 25,000 shares subject to options that will become exercisable on
December 31, 1998. Ms. Thomas became a member of the Board of Directors on
June 30, 1998.
(17) Includes 14,000 shares subject to options that are currently exercisable.
Also includes 100 shares held by Mr. Holcombe's spouse.
(18) Includes 19,000 shares subject to options that are currently exercisable
and 25,000 shares subject to options which will become exercisable on
December 31, 1998. Also includes 1,000 shares held by Mr. Green's spouse.
(19) Mr. Wallace resigned as the Executive Vice President, Corporate Operations
of the Company, effective July 17, 1998.
(20) Mr. Robbins resigned as the Executive Vice President, Field Operations of
the Company, effective August 7, 1998.
(21) Includes shares owned by certain trusts. Also includes 837,640 shares
subject to options that are currently exercisable or will become
exercisable on or before December 31, 1998.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax consequences
expected to result to stockholders from the issuance of the Rights, the
disposition and exercise by holders of the Rights, and the ownership and
disposition of the Debentures by holders acquiring them on original issue for
cash pursuant to an exercise of the Rights. This summary is based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury Regulations, judicial authority and administrative rulings
and practice, any of which may be altered with retroactive effect thereby
changing the federal income tax consequences discussed below.
The tax treatment of a holder of the Rights and the Debentures may vary
depending upon such holder's particular situation. Certain holders (including,
but not limited to, certain financial institutions, insurance companies,
tax-exempt organizations, broker-dealers, foreign corporations, nonresident
alien individuals and persons holding the Debentures as part of a "straddle,"
"hedge" or "conversion transaction") may be subject to special rules not
discussed below. This discussion is limited to holders who hold their Common
Stock and will hold the Debentures as "capital assets" (generally, property held
for investment)
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<PAGE> 76
within the meaning of Section 1221 of the Code. The Company will not seek a
ruling from the Internal Revenue Service ("IRS") with respect to any of the
matters discussed herein and there can be no assurance that the IRS will not
challenge one or more of the tax consequences described below. STOCKHOLDERS
SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
RECEIPT OF THE RIGHTS AND THE OWNERSHIP AND DISPOSITION OF THE DEBENTURES
RECEIVED PURSUANT TO AN EXERCISE OF THE RIGHTS, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
ISSUANCE, TRANSFER, LAPSE, AND EXERCISE OF RIGHTS
The Company intends to take the position that issuance of the Rights to its
stockholders is not a taxable event to the stockholders based on analogous
authorities and an IRS memorandum. It must be noted, however, that an IRS
memorandum does not constitute binding precedent and there can be no assurance
that the IRS would not change its views.
The issuance of the Rights will not result in taxable income to the stockholders
if (i) it is treated as a nontaxable distribution of rights to acquire Common
Stock under Section 305 of the Code and (ii) none of the exceptions under
Section 305(b) of the Code to that general rule of nontaxability applies. The
issuance of the Rights will be treated as a Section 305 distribution if the
value (if any) of the Rights is attributable solely to the conversion feature of
the Debentures. The Company believes that any market value attributable to the
Rights would be attributable to that conversion feature. In addition, none of
the exceptions to the general rule of nontaxability in Section 305(a) of the
Code applies to the issuance of the Rights. Accordingly, the issuance of the
Rights should not result in taxable income to the stockholders.
The basis of Rights issued in a Section 305 distribution is determined under
Section 307 of the Code. If the fair market value of the Rights at the time of
the issuance is less than 15% of the fair market value of the Common Stock, the
basis of the Rights issued to each Stockholder will be zero and the basis of the
shares of Common Stock held by each of the stockholders will not change as a
result of the issuance of the Rights. However, a Stockholder can elect to
apportion the basis of the shares of Common Stock held by him between the Rights
and the Common Stock on the basis of the fair market value of each as of the
time of the issuance of the Rights. Such an apportionment will be made only if
the Rights are exercised or sold and will not be made if the Rights expire
unexercised.
A holder of the Rights who permits the Rights received in the issuance to expire
unexercised does not realize a loss for federal income tax purposes since the
receipt of the Rights does not give rise to taxable income and no basis is
allocated to the Rights if they expire unexercised.
A holder of the Rights who sells the Rights received in the issuance prior to
exercise will recognize capital gain or loss equal to the difference between the
sale proceeds and the portion of the basis of the Common Stock, if any, that is
allocated to such Rights. The holding period of the Rights issued to each of the
Stockholders will include the holding period of the Common Stock held by the
stockholder with respect to which the issuance of the Rights was made.
A holder of the Rights who exercises the Rights received in the issuance will
not recognize any gain or loss upon the exercise. The basis of the Debentures
acquired through exercise of the Rights will be equal to the sum of the
subscription price therefor and the holder's
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<PAGE> 77
basis in such Rights. The holding period of the Debentures acquired will begin
on the date of issuance of the Debentures.
If the Rights were determined to fall outside of the protective ambit of Section
305 of the Code, the issuance of the Rights would be treated as a distribution
of property to the stockholders under Section 301 of the Code. The fair market
value of the Rights would be a dividend, and thus ordinary income, to a
stockholder to the extent of his pro rata share of the Company's current and
accumulated earnings and profits. Any excess value would first reduce the
stockholder's basis in his Common Stock, and thus be a tax-free return of
capital, and the remainder would be treated as capital gain to the stockholder.
A Stockholder's tax basis in the Rights would be equal to the fair market value
of the Rights on the date of issuance and the holding period for the Rights
would commence on that date. A holder of the Rights who permits the Rights
received in the issuance to expire unexercised would have a capital loss and one
who sells such Rights prior to exercise will recognize capital gain or loss
equal to the difference between the sale proceeds and the basis of the Rights. A
holder of the Rights who exercises the Rights received in the issuance will not
recognize any gain or loss upon the exercise.
ORIGINAL ISSUE DISCOUNT
Because the Debentures will be issued at a discount from their "stated
redemption price at maturity," the Debentures will have original issue discount
("OID") for federal income tax purposes. The amount of OID on a Debenture
generally equals the excess of the "stated redemption price at maturity" of the
Debenture over its issue price. The issue price of a Debenture is the first
price to the public at which a substantial amount of the Debentures is sold. The
stated redemption price at maturity of a Debenture is the sum of all payments to
be made on the Debenture, regardless of whether denominated as principal or
interest, other than "qualified stated interest" payments. For these purposes,
"qualified stated interest" generally means stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at a single fixed rate or other qualified rates as
prescribed in the Treasury Regulations. Because the Company is not
unconditionally required to make any payments of interest on the Debentures
prior to the third anniversary of the issuance of the Debentures, none of the
interest payments on the Debentures constitutes "qualified stated interest."
Accordingly, each Debenture bears OID in amount equal to the excess of (i) the
sum of its principal amount and all interest payments over (ii) its issue price.
A holder of a Debenture must include OID as ordinary interest income as it
accrues in accordance with a constant yield method based on a compounding of
interest before the receipt of cash attributable to such income, regardless of
such holder's regular method of tax accounting. The amount of OID required to be
included in a holder's income for any taxable year is the sum of the "daily
portions" of OID with respect to the Debenture for each day during the taxable
year or portion of the taxable year during which such holder holds the
Debenture. The daily portion is determined by allocating to each day of any
"accrual period" within a taxable year a pro rata portion of an amount equal to
the "adjusted issue price" of the Debenture at the beginning of the accrual
period multiplied by the "yield to maturity" of the Debenture. The accrual
period is generally the period ending on the interest payment dates of each
calendar year. The adjusted issue price of a Debenture at the beginning of any
accrual period is the issue price of the Debenture increased by the amount of
OID previously includable in the gross income of the holder of the Debenture and
decreased by any payments on the Debenture that are not qualified stated
interest. The yield to maturity is the discount rate that, when used in
computing the
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present value of all payments of principal and interest on the Debenture
produces an amount equal to the issue price of the Debenture. Since the OID with
respect to a Debenture arises from the potential deferral of interest, the yield
to maturity of a Debenture is equal to its stated rate.
The Company will furnish annually to the IRS and to holders of Debentures (other
than with respect to certain exempt holders, including, in particular,
corporations) information with respect to the OID accruing during the calendar
year. However, under certain circumstances, such as those involving acquisition
premium, holders may be required to include different amounts of OID in gross
income than that reported by the Company.
RECEIPT OF ACTUAL PAYMENTS OF INTEREST
Because none of the stated interest payments on the Debentures constitute
payments of qualified stated interest, the OID on the Debentures includes all
stated interest payments. Hence, since holders will be taxed on the OID as it
accrues, the receipt of actual interest payments will not be separately included
in income of the holder of the Debenture, but rather will be treated first as a
payment of previously accrued OID and then as a payment of principal and
consequently will reduce the holder's basis in the Debenture.
ILLUSTRATION OF THE APPLICATION OF THE OID RULES
The following discussion illustrates the application of the OID rules on a
holder of a $1,000 Debenture assuming that the Debenture is issued on January 1,
1999, and that no interest is paid with respect to the Debenture until December
31, 2001, at which time the entire amount of the accrued but unpaid interest is
paid. Under this scenario, the holder of the Debenture will receive the
following interest payments at the end of the periods indicated, and will be
required under the OID rules to include the following approximate amounts of
interest in income for these periods:
<TABLE>
<CAPTION>
INTEREST INCLUDABLE
IN THE HOLDER'S
INTEREST PAYMENTS INCOME FOR
RECEIVED BY FEDERAL INCOME
ACCRUAL PERIOD THE HOLDER TAX PURPOSES
-------------- ----------------- ----------------------
<S> <C> <C>
Jan. 1, 1999 -- Dec. 31, 1999................ $ -- $102.50
Jan. 1, 2000 -- Dec. 31, 2000................ $ -- $113.01
Jan. 1, 2001 -- Dec. 31, 2001................ $340.10 $124.59
Jan. 1, 2002 -- Dec. 31, 2002................ $ 100 $ 100
Jan. 1, 2003 -- Dec. 31, 2003................ $ 100 $ 100
</TABLE>
Accordingly, the OID rules require the holder of the $1,000 Debenture to include
the OID with respect to the Debenture in income as it accrues throughout the
term of the Debenture, even though no interest is paid to the holder until
December 31, 2001, which is three years after the issuance of the Debenture. The
holder will thus have ordinary interest income for the first two years after the
issuance of the Debenture even though he does not receive any actual interest
payments during those years. However, since the holder is taxed on that interest
as it accrues, the actual payment of that interest on December 31, 2001, will
not be separately includable in his income.
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EFFECT OF MANDATORY AND OPTIONAL REDEMPTIONS
In the event of a change of control, the Company will be required to offer to
redeem all of the Debentures at a purchase price equal to 101% of the aggregate
principal amount thereof, plus any accrued and unpaid interest. Based on the
Company's current expectations, the likelihood of a redemption of the Debentures
as a result of a change in control is remote. Accordingly, the Company intends
to take the position that redemption rights and obligations triggered by a
change of control do not, as of the date of issuance of the Debentures, affect
the computation of the amount of OID on the Debentures or the yield to maturity
or maturity date of the Debentures.
The Company also has the right to redeem the Debentures, in whole or in part, at
the following redemption prices (expressed as percentages of the principal
amount) during the twelve month period commencing on of each the years
set forth below, plus in each case, accrued interest thereon, to the date of the
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002................................................ 104%
2003................................................ 102%
2004................................................ 100%
</TABLE>
The applicable Treasury Regulations contain rules for determining the yield and
maturity of any instrument that may be redeemed prior to its stated maturity
date at the option of the issuer. Under those rules, solely for purposes of the
accrual of OID, it is assumed that the issuer will exercise any option to redeem
a debt instrument if such exercise will lower the yield-to-maturity of the debt
instrument. The Company believes that it will not be presumed to redeem the
Debentures prior to their stated maturity under the foregoing rules because the
exercise of such option would not lower the yield-to-maturity of the Debentures.
THE COMPANY'S ENTITLEMENT TO AN INTEREST DEDUCTION
Pursuant to Section 163(e), the issuer of a debt instrument with OID is
generally entitled to deduct the aggregate daily portions of OID for each day
that the debt is outstanding during the taxable year. However, Section 163(l),
which was enacted into the Code as part of the Taxpayer Relief Act of 1997,
disallows a deduction for interest paid or accrued with respect to a
"disqualified debt instrument." A disqualified debt instrument includes a
convertible debt instrument that is convertible at the holder's option provided
that there is "substantial certainty" that the holder will exercise the option.
The Company does not believe that there is a substantial certainty that the
holders of the Debentures will convert the Debentures to Common Stock. However,
because there is no current authority establishing when a conversion feature on
a debt instrument is substantially certain to be exercised by the holder of the
instrument for purposes of Section 163(l), there can be no assurance that the
IRS or the courts would not reach a contrary conclusion, thereby resulting in
the disallowance of a deduction by the Company for the OID with respect to the
Debentures.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF THE DEBENTURES
In general, a holder of a Debenture will recognize gain or loss upon the sale,
retirement, or other taxable disposition of such Debenture in an amount equal to
the difference between (i) the amount of cash and the fair market value of
property received in exchange therefor (except to the extent attributable to the
payment of accrued interest, which generally will
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<PAGE> 80
be taxable to a holder as ordinary income) and (ii) the holder's adjusted tax
basis in such Debenture. A holder's tax basis in a Debenture generally will be
equal to the subscription price paid for such Debenture plus the holder's basis
in the Rights exercised therefor, and will be adjusted upward to reflect
inclusion of OID in income and downward to reflect the receipt of payments of
interest. Any gain or loss recognized on the sale, retirement, or other taxable
disposition of a Debenture generally will be capital gain or loss. The capital
gain or loss will be long-term if the Debenture had been held for more than 12
months. Capital losses sustained by a holder of a Debenture will be subject to
certain limitations as to deductibility. Capital losses of an individual
taxpayer generally may be used to offset his capital gains and, to the extent
that such taxpayer's capital losses exceed his capital gains, they may be used
to offset up to $3,000 of ordinary income. To the extent that an individual
taxpayer's capital losses are not used in any one year, they may be carried
forward indefinitely to future taxable years, subject to the same limitations as
to deductibility. Capital losses of a corporate taxpayer generally may be used
only to offset capital gains. To the extent that a corporate taxpayer's capital
losses are not used in any one year, they may generally be carried back three
years and carried forward for a maximum of five years.
CONVERSION OF DEBENTURES
A holder's conversion of a Debenture into Common Stock will generally not be a
taxable event (except with respect to cash received in lieu of a fractional
share). A holder's basis in the Common Stock received on conversion of a
Debenture will be the same as the holder's basis in the Debenture at the time of
conversion (exclusive of any tax basis allocable to a fractional share), and the
holding period for the Common Stock received on conversion will include the
holding period of the Debenture converted. The receipt of cash in lieu of
fractional Common Stock should generally result in capital gain or loss
(measured by the difference between the cash received for the fractional share
interest and the holder's tax basis in the fractional share interest).
DIVIDENDS; ADJUSTMENT OF CONVERSION RATE
Dividends, if any, paid on the Common Stock generally will be includable in the
income of a holder as ordinary income to the extent of the Company's current or
accumulated earnings and profits.
If at any time the Company makes a distribution of property to stockholders that
would be taxable to such stockholders as a dividend for federal income tax
purposes (for example, distributions of indebtedness or assets of the Company,
but generally not stock dividends or rights to subscribe for Common Stock) and,
pursuant to the anti-dilution provisions of the indenture governing the Notes,
the Conversion Rate of the Debentures is increased, such increase may be deemed
to be the payment of a taxable dividend to holders of Debentures. If the
Conversion Rate is increased at the discretion of the Company or in certain
other circumstances, such increase also may be deemed to be the payment of a
taxable dividend to holders of Debentures.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, holders generally will recognize
capital gain or capital loss equal to the difference between the amount realized
on such sale or exchange and the holder's adjusted tax basis in such shares.
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<PAGE> 81
INFORMATION REPORTING AND BACKUP WITHHOLDING
A holder of Debentures may be subject to backup withholding at the rate of 31%
with respect to interest paid on, and gross proceeds from a sale of, the
Debentures unless (i) such holder is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A holder of Debentures who does not provide the
Company with his or her correct taxpayer identification number may be subject to
penalties imposed by the IRS.
The Company will report to the holders of the Debentures and the IRS the amount
of any "reportable payments" (including original issue discount accrued on the
Debentures) and any amount withheld with respect to the Debentures during the
calendar year.
APPLICATION OF SECTION 382
As of the end of 1997, the Company had NOLs of approximately $230 million that
could be carried forward to offset taxable income recognized by the Company in
the future. In addition, the Company expects to generate substantial NOLs in
1998 that also could be carried forward to future years. For federal income tax
purposes, these NOLs will expire in material amounts beginning in the year 2003.
NOLs benefit the Company by offsetting taxable income dollar-for-dollar by the
amount of the NOLs, thereby eliminating (subject to a relatively minor
alternative minimum tax) the federal corporate tax on such income. The maximum
federal corporate tax rate is currently 35%.
The benefit of NOLs can be reduced or eliminated under Section 382 of the Code
if a corporation undergoes an "ownership change," as defined in Section 382.
Generally, an ownership change occurs if one or more stockholders, each of whom
owns 5% or more in value of a corporation's capital stock, increase their
aggregate percentage ownership by more than 50 percentage points over the lowest
percentage of stock owned by such stockholders over the preceding three-year
period. For this purpose, all holders who each own less than 5% of a
corporation's capital stock are generally aggregated into one or more "public
groups," each of which is treated as a separate 5% stockholder. Transactions in
the public markets among stockholders owning less than 5% of the equity
securities are not included in the calculation. In addition, certain
constructive ownership rules, which generally attribute ownership of stock to
the ultimate beneficial owner thereof without regard to ownership by nominees,
trusts, corporations, partnerships or other entities, or to related individuals,
are applied in determining the level of stock ownership of a particular
stockholder. Special rules, described below, can result in the treatment of
options as having been exercised if such treatment would result in an ownership
change. All percentage determinations are based on the fair market value of a
corporation's capital stock.
If an ownership change of the Company were to occur, the amount of taxable
income in any year (or portion of a year) subsequent to the ownership change
that could be offset by NOLs or other carryovers prior to such ownership change
could not exceed the product obtained by multiplying (i) the aggregate value of
the Company's stock immediately prior to the ownership change (with certain
adjustments) by (ii) the then applicable federal long-term tax exempt rate
(currently 5.0%) (the "Section 382 limitation"). In addition, to the extent the
Company is determined to have a net unrealized built-in loss (generally defined
as the excess of the tax basis of a corporation's assets over their fair market
value) which is greater than the lesser of (i) 15% of the fair market value of
the Company's assets or (ii) $10 million, in the event of an ownership change,
any net unrealized built-in
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<PAGE> 82
losses recognized within the five-year period beginning on the date of the
ownership change would be subject to the Section 382 limitation (as if it were a
pre-change NOL). Any portion of the annual Section 382 limitation amount not
utilized in any year may be carried forward and increase the available Section
382 limitation amount of the succeeding tax year.
Impact of the Issuance and Exercise of the Rights. The Treasury Regulations
issued under Section 382 define the term option to include any contingent
purchase, warrant, convertible debt or similar right. Hence, the Right and the
Debentures constitute options for purposes of Section 382. Options are deemed
exercised for purposes of computing whether an ownership change has occurred if
certain conditions are met, including most importantly the requirement that a
principal purpose for the issuance of the option (alone or in combination with
other arrangements) is to avoid or ameliorate the impact of an ownership change
on the loss corporation. The particular terms of the Rights and the Debentures
are the result of business and current market considerations and were not
motivated by the proscribed purpose. Accordingly, the Company does not believe
the Rights or the conversion privilege should be deemed exercised for purposes
of determining whether an ownership change has occurred. Furthermore, based on
the Company's current knowledge concerning its shareholdings even if all the
Debentures were deemed exercised, the Company would not experience an ownership
change.
Impact of Exercise of Conversion Privilege. The exercise of the conversion
privilege of a Debenture will result in the issuance of Common Stock to the
person exercising such privilege and such issuance will be taken into account
under Section 382 in computing whether an ownership change has occurred.
Although based on current information an immediate conversion of all Debentures
would not trigger an ownership change, it is possible that exercises in the
future could trigger such a change. In such event, the ability of the Company to
utilize any NOLs in existence at the time of such an event could be limited
under the rules described above under "Application of Section 382."
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<PAGE> 83
PLAN OF DISTRIBUTION
The Debentures being offered pursuant to the Rights Offering are being offered
by the Company directly to its holders of Common Stock.
The Company will pay the fees and expenses of , as Subscription Agent,
and has also agreed to indemnify the Subscription Agent from any liability which
it may incur in connection with the Rights Offering, including liabilities under
the Securities Act.
Holders of Common Stock or Rights Holders who desire to purchase Debentures in
the Rights Offering are urged to complete, date and sign the Subscription
Warrant evidencing his or its Rights and return it to the Subscription Agent on
or before the Expiration Date of the Rights Offering, together with payment in
full of the aggregate Subscription Price. See "The Rights Offering -- Exercise
of Rights." Rights may be transferred. See "The Rights Offering -- Method of
Transferring Rights." Any questions concerning the procedure for subscribing for
the purchase of Debentures should be directed to the Subscription Agent.
THE STANDBY PURCHASE AGREEMENT
GENERAL
The Company has entered into the Standby Purchase Agreement with Relational
Investors, LLC, on behalf of the Relational Affiliates, pursuant to which the
Relational Affiliates have agreed, subject to certain conditions and on certain
terms specified in such agreement and summarized below, to fully exercise their
Basic Subscription Privileges and to exercise the Oversubscription Privilege to
which each may be entitled so that the Relational Affiliates subscribe for a
combined total of $50,000,000 principal amount of the Debentures offered hereby.
BENEFICIAL OWNERSHIP OF RELATIONAL INVESTORS, LLC AND THE RELATIONAL AFFILIATES
As of November 20, 1998, Relational Investors, LLC and the Relational Affiliates
owned beneficially an aggregate of 6,847,100 shares, or approximately 13.21% of
the outstanding Common Stock. Pursuant to the Rights Offering, based on the
shares of Common Stock beneficially owned by Relational Investors, LLC and the
Relational Affiliates on November 20, 1998, Relational Investors, LLC and the
Relational Affiliates will receive Debentures in a total principal amount of
approximately $6,847,100 upon exercise of their combined Basic Subscription
Privileges. If no other Rights Holders exercise their Basic Subscription
Privileges and Relational Investors, LLC and the Relational Affiliates fully
convert their Debentures, pursuant to the Standby Purchase Agreement, Relational
Investors, LLC and the Relational Affiliates could beneficially own as much as
approximately % of the Common Stock outstanding immediately after such
conversion. However, the Company has in place a "Rights Plan", unrelated to the
Rights, which could have the effect of discouraging an attempt by a person to
acquire 15% or more of the Common Stock. See "Description of Capital
Stock -- Preferred Stock Purchase Rights."
FEE
Pursuant to the Standby Purchase Agreement, Relational Investors, LLC is to
receive from the Company a fee in the amount of $1,000,000 (the "Standby Fee").
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EXPENSES
The Company will reimburse Relational Investors, LLC and the Relational
Affiliates for all out-of-pocket expenses reasonably incurred by them in
connection with the Standby Purchase Agreement and the transactions contemplated
thereby, whether or not such transactions are consummated, including, without
limitation, reasonable fees and disbursements of counsel.
CONDITIONS TO OBLIGATIONS OF THE RELATIONAL AFFILIATES
The obligations of the Relational Affiliates under the Standby Purchase
Agreement are subject to the fulfillment or waiver of the following conditions:
(i) no stop order suspending the effectiveness of the Registration Statement of
which this prospectus forms a part having been issued and no proceeding therefor
having been initiated or threatened; (ii) a prospectus having been filed in
accordance with Rule 424(b) of the Regulations of the 1933 Act, or a
post-effective amendment having been filed and declared effective in accordance
with the requirements of Rule 430A of the Regulations of the 1933 Act; (iii) the
accuracy of the representations and warranties of the Company contained in the
Standby Purchase Agreement; (iv) the performance by the Company of its
obligations under the Standby Purchase Agreement; (v) Relational Investors, LLC
and the Relational Affiliates having received the favorable opinion of Robert S.
Holcombe, Esq., the Company's General Counsel, as to certain matters as
described in the Standby Purchase Agreement; (vi) Relational Investors, LLC and
the Relational Affiliates having received a letter from Gibson, Dunn & Crutcher
LLP, as to certain matters as described in the Standby Purchase Agreement; (vii)
Relational Investors, LLC and the Relational Affiliates having received a
certificate of certain specified officers of the Company, dated as of the
Closing Date, to the effect that, (a) there has been no Material Adverse Effect
(as defined in the Standby Purchase Agreement) since the date of the Standby
Purchase Agreement, (b) the representations and warranties of the Company made
in the Standby Purchase Agreement are true and correct in all material respects
with the same force and effect as though expressly made at and as of Closing
Date, and (c) the Company has complied in all material respects with all
agreements and satisfied all conditions required on its part to be performed or
satisfied at or prior to Closing Date pursuant to the Standby Purchase
Agreement; (viii) Relational Investors, LLC and the Relational Affiliates having
received a letter from Deloitte & Touche, as to certain matters as described in
the Standby Purchase Agreement; (ix) at the Closing Date, (a) no preliminary or
permanent injunction or other order which prohibits or prevents the consummation
of the transactions contemplated by the Standby Purchase Agreement shall have
been issued and remain in effect, (b) the November Amendment to the Company's
Credit Agreement shall have been executed and delivered by all parties thereto
and the Relational Affiliates and the Company shall be reasonably satisfied that
none of the transactions contemplated by the Standby Purchase Agreement will
constitute a Default or Event of Default under the amended credit agreement, (c)
the Company shall have obtained all consents and approvals from, and shall have
made all filings and registrations with, any person necessary to be obtained or
made in order to consummate the transactions contemplated by the Standby
Purchase Agreement, (d) the Company shall have issued certificates evidencing
the Debentures and executed and delivered to each Relational Affiliate a receipt
of payment for the amount subscribed for by such Relational Affiliate, and (e)
the Company shall have executed and delivered the Registration Rights Agreement
in substantially the form attached as an annex to the Standby Purchase
Agreement; (x) at the Closing Date, the Debentures and the Common Stock issuable
upon conversion thereof shall have been
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<PAGE> 85
approved for listing on the New York Stock Exchange, subject only to official
notice of issuance; and (xi) that the Debentures contain such terms as are sort
forth in this prospectus and that the conversion price is equal to 10% above the
average trading price of the Common Stock for the ten trading days ending three
days prior to the effective date of the Registration Statement of which this
prospectus forms a part; provided, however, if such average trading price (a) is
equal to or less than $3.6363, the conversion price is equal to $4.00 and (b) is
equal to or greater than $4.5454, the conversion price is equal to $5.00.
TERMINATION
The Standby Purchase Agreement may be terminated prior to the Closing Date: (i)
by written agreement of the Company and Relational Investors, LLC, on behalf of
the Relational Affiliates; (ii) by the Company or Relational Investors, LLC, on
behalf of the Relational Affiliates, if the Closing shall not have occurred on
or prior to February 28, 1999, subject to certain exceptions; (iii) by
Relational Investors, LLC, on behalf of the Relational Affiliates, if since the
date of the Standby Purchase Agreement or since the respective dates as of which
information is given in this prospectus, any event has occurred or failed to
occur which would have a Material Adverse Effect, or if there has been a breach
by the Company of any representation, warranty, covenant or agreement that would
give rise to the failure of the conditions to the obligations of the Relational
Affiliates set forth in clauses (iii) and (iv) of "-- Conditions to Obligations
of the Relational Affiliates," subject to an opportunity to cure any such
breach; (iv) by the Company or Relational Investors, LLC, on behalf of the
Relational Affiliates, in the event that any governmental authority shall have
issued a final, non-appealable order, decree or ruling or taken any other final,
non-appealable action restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Standby Purchase Agreement; or (v) by the
Company, if the Company's Board of Directors determines in good faith that such
action is in the best interests of the Company and its stockholders.
If the Standby Purchase Agreement is terminated: (i) by either party prior to
the effective date of the Registration Statement, then, provided that the
Relational Affiliates are not in breach of their obligations under the Standby
Purchase Agreement, they will be entitled to reimbursement of expenses as set
forth in "-- Expenses" above; (ii) by the Company after the effective date of
the Registration Statement pursuant to clause (v) in the preceding paragraph
other than as a result of an alternative debt or equity financing proposal, the
Company shall pay to Relational Investors, LLC an amount equal to one-half of
the Standby Fee plus expenses as set forth in "-- Expenses" above; or (iii) by
the Company after the effective date of the Registration Statement pursuant to
clause (v) in the preceding paragraph as a result of an alternative debt or
equity financing proposal, the Company shall pay to Relational Investors, LLC an
amount equal to the Standby Fee plus expenses as set forth in "-- Expenses"
above. If the Standby Purchase Agreement has been terminated and the Company,
within six months of the date of termination, enters into an agreement or letter
of intent providing for, or consummates, any debt or equity financing not
contemplated in the Standby Purchase Agreement, the Company shall pay to
Relational Investors, LLC a fee equal to the Standby Fee, less any amount paid
pursuant to clause (ii) or (iii) of this paragraph; provided, however, that no
such fee shall be payable if the Standby Purchase Agreement is terminated by the
Relational Investors, LLC as a result of clause (iii) in the preceding
paragraph.
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NO ASSURANCE
There can be no assurance that all of the conditions to the Standby Purchase
Agreement will be satisfied or waived or that an event permitting termination of
the Standby Purchase Agreement will not occur.
INDEMNIFICATION
In the Standby Purchase Agreement, the Company has agreed to indemnify and hold
harmless each Relational Affiliate and each person who controls a Relational
Affiliate against any and all loss, liability, claim, damage or expense arising
out of or resulting from the transactions contemplated under the Standby
Purchase Agreement, including: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or this
prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, but only with respect to untrue statements or omissions or alleged
untrue statements or omissions which were not made in reliance upon and in
conformity with written information furnished to the Company by the Relational
Entities expressly for use in the Registration Statement (or any amendment
thereto); (ii) any breach or default by the Company of any of the
representations or warranties under the Standby Purchase Agreement or any other
document contemplated by the Standby Purchase Agreement; (iii) any breach or
default by the Company of any of the covenants or agreements (other than
breaches of covenants or agreements to be performed after the Closing) of the
Company under the Standby Purchase Agreement or any other document contemplated
by the Standby Purchase Agreement; or (iv) any litigation or proceedings brought
by any shareholder of the Company (whether such action is brought in such
shareholder's name or derivatively on behalf of the Company) in respect of the
transactions contemplated by the Standby Purchase Agreement or the Registration
Statement or any other document contemplated by the Standby Purchase Agreement.
Each Relational Affiliate has severally agreed to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company against any and all
loss, liability, claim, damage or expense described in the indemnity contained
in clause (i) of the preceding paragraph, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), or any preliminary prospectus
or this prospectus (or any amendment or supplement thereto) in reliance upon and
in conformity with written information furnished to the Company by such
Relational Affiliate expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or this prospectus (or any
amendment or supplement thereto).
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REGISTRATION RIGHTS
In connection with the Standby Purchase Agreement, the Company has entered into
a Registration Rights Agreement with Relational Investors, LLC, on behalf of the
Relational Affiliates, which gives the Relational Affiliates certain
registration rights with respect to the shares of Common Stock held by the
Relational Affiliates or hereafter acquired or issuable under warrants, options
or convertible securities, including upon conversion of the Debentures purchased
by the Relational Affiliates pursuant to the Rights Offering, as summarized
below.
- Demand Registration. At any time after the first anniversary of the
Closing Date and until the later of (i) the fifth anniversary of the
Closing Date or (ii) such time as the Relational Affiliates own less than
10% of the outstanding shares of Common Stock of the Company, one or more
of the Relational Affiliates may request that the Company effect the
registration under the Securities Act of all or a part of certain
securities held by such Relational Affiliates, subject to certain
conditions and exceptions. The Company shall not be obligated to file
more than an aggregate of two registration statements pursuant to the
demand registration right.
- Piggyback Registration. If the Company at any time proposes to register
any of its equity or debt securities under the Securities Act of 1933, as
amended, the Company will give notice of such registration to the
Relational Affiliates. Upon the request of one or more Relational
Affiliates, the Company will use its best efforts to include certain
securities held by such Relational Affiliates in the registration,
subject to certain conditions and exceptions.
LEGAL MATTERS
The validity of the issuance of the Rights and the Debentures has been passed
upon by Gibson, Dunn & Crutcher LLP.
EXPERTS
The consolidated financial statements and financial statement schedule of Apria
Healthcare Group Inc. appearing in Apria Healthcare Group Inc.'s Annual Report
(Form 10-K/A Amendment No. 3) for the year ended December 31, 1997 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
therein, incorporated herein by reference. Such consolidated financial
statements and financial statement schedule are incorporated herein by reference
upon reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the Securities and
Exchange Commission pursuant to the Exchange Act, are hereby incorporated by
reference:
- The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended on Form 10-K/A, filed on April 30, 1998, as
amended on Form 10-K/A, filed on September 4, 1998, as amended on Form
10-K/A, filed on November 25, 1998;
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- The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998;
- The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998;
- The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998;
- The Company's Current Report on Form 8-K, filed on February 2, 1998;
- The Company's Current Report on Form 8-K, filed on July 10, 1998; and
- The Company's Current Report on Form 8-K, filed on July 15, 1998.
Each document filed subsequent to the date of this prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of this offering shall be deemed to be incorporated by reference in this
prospectus and shall be part hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom a copy of this prospectus has been delivered, upon the
written or oral request of any such person, a copy of any document described
above. Requests for such copies should be directed to Apria Healthcare Group
Inc., 3560 Hyland Avenue, Costa Mesa, California 92626, Attention: Robert S.
Holcombe, Esq., the Company's Secretary and General Counsel, telephone number:
(714) 427-2000.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission a registration
statement (of which this prospectus is a part) on Form S-3 under the Securities
Act, with respect to the rights and the Debentures offered hereby. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits and schedules thereto. Statements contained in this
prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and in accordance therewith files reports and other information with the
commission. The registration statement, including the exhibits and schedules
thereto, as well as reports, proxy and information statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the commission at its principal office
located at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, the
New York Regional Office located at 7 World Trade Center, New York, New York
10048, and the Chicago Regional Office located at Northwest Atrium Center, 500
West Madison Street, Room 1204, Chicago, Illinois 60661-2511, and copies of such
material can be obtained from the Public Reference Section of the commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Electronics
filings made by the Company through the commission's Electronic Data Gathering,
Analysis and Retrieval System are publicly available through the commission's
World Wide Web site (http://www.sec.gov), which contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the commission. The Common Stock is listed on the NYSE, and
reports and other information concerning the Company can also be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
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ANNEX
1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-14316
APRIA HEALTHCARE GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0488566
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3560 HYLAND AVENUE, COSTA MESA, CA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (714) 427-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 51,779,059 shares of Common Stock, $.001 par value, outstanding at
October 30, 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE> 91
APRIA HEALTHCARE GROUP INC.
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)............................
Consolidated Balance Sheets................................. A-3
Consolidated Statements of Operations....................... A-4
Consolidated Statements of Cash Flows....................... A-5
Notes to Consolidated Financial Statements.................. A-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... A-12
Item 3. Quantitative and Qualitative Disclosures About Market
Price....................................................... A-19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... A-20
Item 2. Changes in Securities....................................... A-21
Item 3. Defaults Upon Senior Securities............................. A-21
Item 4. Submission of Matters to a Vote of Security Holders......... A-21
Item 5. Other Information........................................... A-21
Item 6. Exhibits and Reports on Form 8-K............................ A-22
SIGNATURES............................................................ A-23
</TABLE>
A-2
<PAGE> 92
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................... $ 95,686 $ 16,317
Accounts receivable, less allowance for doubtful
accounts of $45,738 and $58,413 at September
30, 1998 and December 31, 1997, respectively... 157,680 256,845
Inventories....................................... 16,227 26,082
Prepaid expenses and other current assets......... 5,703 12,329
--------- ---------
TOTAL CURRENT ASSETS...................... 275,296 311,573
PATIENT SERVICE EQUIPMENT, less accumulated
depreciation of $268,141 and $245,772 at September
30, 1998 and December 31, 1997, respectively...... 136,931 184,704
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET........... 53,766 87,583
INTANGIBLE ASSETS, NET.............................. 85,825 167,620
OTHER ASSETS........................................ 877 5,690
--------- ---------
$ 552,695 $ 757,170
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................. $ 48,278 $ 50,691
Accrued payroll and related taxes and benefits.... 30,760 40,397
Accrued insurance................................. 12,437 12,247
Other accrued liabilities......................... 53,142 30,463
Current portion of long-term debt................. 118,513 8,685
--------- ---------
TOTAL CURRENT LIABILITIES................. 263,130 142,483
LONG-TERM DEBT...................................... 423,619 540,220
COMMITMENTS AND CONTINGENCIES....................... -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value:
10,000,000 shares authorized; none issued.... -- --
Common stock, $.001 par value:
150,000,000 shares authorized; 51,771,259 and
51,568,525 shares issued and outstanding
at September 30, 1998 and December 31,
1997, respectively........................ 52 51
Additional paid-in capital........................ 325,832 324,090
Accumulated deficit............................... (459,938) (249,674)
--------- ---------
(134,054) 74,467
$ 552,695 $ 757,170
========= =========
</TABLE>
See notes to consolidated financial statements.
A-3
<PAGE> 93
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues.......................... $ 219,367 $304,356 $ 710,532 $913,954
Costs and expenses:
Cost of net revenues................ 96,996 104,650 263,651 337,792
Selling, distribution and
administrative................... 164,016 151,782 446,366 449,148
Impairment of intangible assets..... 76,223 -- 76,223 --
Impairment of long-lived assets and
internally developed software.... 22,187 -- 22,187 --
Provision for doubtful accounts..... 36,860 15,194 63,471 101,141
Amortization of intangible assets... 3,463 4,256 10,528 12,633
--------- -------- --------- --------
399,745 275,882 882,426 900,714
--------- -------- --------- --------
OPERATING (LOSS) INCOME.......... (180,378) 28,474 (171,894) 13,240
Interest expense, net................. 12,823 12,288 35,870 37,779
--------- -------- --------- --------
(LOSS) INCOME BEFORE TAXES....... (193,201) 16,186 (207,764) (24,539)
Income taxes.......................... 1,500 -- 2,500 9,911
--------- -------- --------- --------
NET (LOSS) INCOME................ $(194,701) $ 16,186 $(210,264) $(34,450)
========= ======== ========= ========
Net (loss) income per common share.... $ (3.76) $ 0.31 $ (4.07) $ (0.67)
========= ======== ========= ========
Net (loss) income per common share
assuming dilution................... $ (3.76) $ 0.31 $ (4.07) $ (0.67)
========= ======== ========= ========
</TABLE>
See notes to consolidated financial statements.
A-4
<PAGE> 94
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(210,264) $ (34,450)
Items included in net loss not requiring (providing) cash:
Provision for doubtful accounts......................... 63,471 101,141
Provision for revenue adjustments....................... 14,642 20,000
Provision for excess/obsolete equipment................. 22,563 23,000
Depreciation............................................ 81,291 89,076
Amortization of intangible assets....................... 10,528 12,633
Amortization of deferred debt costs..................... 1,256 860
Impairment of intangible assets......................... 76,223 --
Impairment of long-lived assets and internally developed
software............................................. 22,187 --
Loss (gain) on disposition of assets.................... 3,628 (1,596)
Deferred income taxes................................... -- 8,911
Changes in operating assets and liabilities, net of effects
of acquisitions:
Decrease (increase) in accounts receivable.............. 23,943 (86,085)
Decrease in inventories................................. 807 1,220
Decrease in prepaids and other assets................... 7,088 25,213
Decrease in accounts payable............................ (3,136) (20,105)
Increase (decrease) in accrued payroll and other
liabilities.......................................... 12,849 (22,250)
Net purchases of patient service equipment, net of effects
of acquisitions........................................... (26,931) (51,795)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 100,145 65,773
INVESTING ACTIVITIES
Purchases of property, equipment and improvements, net
of effects of acquisitions........................... (12,005) (17,561)
Proceeds from disposition of assets..................... 200 6,835
Acquisitions and payments of contingent consideration... (2,348) (3,862)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES................ (14,153) (14,588)
FINANCING ACTIVITIES
Proceeds under revolving credit facility................ -- 129,950
Payments under revolving credit facility................ -- (174,950)
Payments of senior and other long-term debt............. (6,803) (9,411)
Capitalized debt costs, net............................. (1,467) (711)
Issuances of common stock............................... 1,647 3,580
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES................ (6,623) (51,542)
--------- ---------
NET INCREASE (DECREASE) IN CASH............................. 79,369 (357)
CASH AT BEGINNING OF PERIOD................................. 16,317 26,930
--------- ---------
CASH AT END OF PERIOD....................................... $ 95,686 $ 26,573
========= =========
</TABLE>
See notes to consolidated financial statements.
A-5
<PAGE> 95
APRIA HEALTHCARE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Apria
Healthcare Group Inc. ("the Company") and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
In the opinion of management, all adjustments, consisting of normal recurring
accruals necessary for a fair presentation of the results of operations for the
interim periods presented, have been reflected herein. The unaudited results of
operations for interim periods are not necessarily indicative of the results to
be expected for the entire year. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1997, included in the Company's 1997 Form 10-K, as amended.
NOTE B -- RECLASSIFICATIONS, USE OF ACCOUNTING ESTIMATES AND SIGNIFICANT
ACCOUNTING POLICIES
Reclassifications: Certain amounts from prior periods have been reclassified to
conform to the current year presentation.
Use of Accounting Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make assumptions that affect the amounts reported in the financial statements
and accompanying notes. Such amounts include, among others, the allowance for
doubtful accounts, revenue adjustment reserves, patient service equipment
reserves, other asset valuation allowances and certain liabilities. Management
periodically reevaluates the estimates inherent in certain financial statement
amounts and may adjust accounts accordingly.
Significant Accounting Policies: The Company has adopted the provisions of
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income. There is no difference between comprehensive income (loss) and net
income (loss) for the periods presented herein.
NOTE C -- DISPOSITIONS AND BUSINESS COMBINATIONS
During the third quarter, the Company sold its infusion business in California
to Crescent Healthcare, Inc. and is exiting the infusion business in Texas,
Louisiana, West Virginia and Western Pennsylvania. Third quarter charges related
to the wind-down of unprofitable infusion operations amounted to $6,883,000 and
a loss on sale of the California business of $3,798,000 (included in selling,
distribution and administrative) was recorded. The operations of these infusion
locations had revenues and gross profits of $35,175,000 and $12,431,000,
respectively, for the nine months ended September 30, 1998, compared to
$50,783,000 and $23,001,000 for the same period in 1997.
The Company periodically makes acquisitions of complementary businesses in
specific geographic markets. Acquisitions that closed during the nine-month
period ended September 30, 1998 resulted in cash payments of approximately
$2,098,000. The transactions were accounted for as purchases.
A-6
<PAGE> 96
APRIA HEALTHCARE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- ACCOUNTS RECEIVABLE
In August 1998, management reviewed the historic performance and collectibility
of the Company's accounts receivable portfolio. Management also reviewed its
existing policies and procedures for estimating the collectibility of its
accounts receivable. In this review, management considered the continued
high-level of bad debt write-offs and revenue adjustments. Also considered were
initiatives introduced earlier in the year: a special quality assurance function
designed to improve workflow and billing accuracy, and software enhancements to
simplify the order-intake process and thereby reduce billing errors. Based upon
this review, management has decided to change its policy on collection and is
formally shifting the focus of the collection function to the more current
balances. Management believes this concentration on more current balances will
limit the amount of receivables that age. Consequently, the accounts that do age
will undoubtedly be receivables where collection will be difficult.
With this change in collection policy, management has developed a new estimate
of the allowance for doubtful accounts and revenue adjustments. Specifically,
management refined and changed their procedures used to estimate the
collectibility of its accounts receivable by increasing the allowance related to
balances over 180 days. As a result of this change in policy, the Company
recorded an adjustment to reduce revenue and accounts receivable by $14,642,000
and increase bad debt expense and the allowance for doubtful accounts by
$12,065,000. Also recorded was a provision for specific uncollectible accounts
totaling $1,529,000 and an increase to the allowance for doubtful accounts
related to the infusion sale and the exited businesses totaling $9,128,000.
NOTE E -- LONG-TERM DEBT
The Company's credit agreement with a syndicate of banks was amended twice in
1997 and further amended in January, March, April and November of 1998. The
latest amendment required a $50 million permanent repayment of the loan upon
execution. The remaining indebtedness under the credit agreement was
restructured into a $288 million term loan and a $30 million revolving credit
facility with a maturity date of August 9, 2001. Term loan principal payments
are payable quarterly, in varying amounts, commencing on March 31, 1999 and
continuing through June 30, 2001. Also, the amended agreement requires that the
Company issue not less than $50 million of convertible subordinated debentures
by February 28, 1999, the net proceeds of which must be applied to the term
loan. Further, between the effective date of the latest amendment and the
earlier of February 28, 1999 or the issuance date of the convertible
subordinated debentures, the Company is subject to prepayments on the term loan
based on excess cash flow (as defined by the agreement).
The credit agreement, as amended, allows the Company to make acquisitions under
an acquisition "basket" provision of up to $62 million, subject to certain
restrictions, that may be increased given certain levels of financial
performance by the Company. In 1999, the acquisition limit is subject to dollar
for dollar reduction by the amount of any unusual cash expenses (as defined by
the agreement) incurred and paid in 1999.
The credit agreement, as amended, permits the Company to elect one of two
variable rate interest options at the time an advance is made. The first option
is a rate expressed as
A-7
<PAGE> 97
APRIA HEALTHCARE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2.5% plus the higher of the Federal Funds Rate plus 0.50% per annum or the Bank
of America "reference" rate. The second option is a rate based on the London
Interbank Offered Rate ("LIBOR") plus an additional increment of 3.5% per annum.
The agreement requires payment of commitment fees of 0.75% on the unused portion
of the revolving credit facility.
Borrowings under the credit agreement are secured by substantially all the
assets of the Company and the agreement also contains numerous restrictions,
including, but not limited to, covenants requiring the maintenance of certain
financial ratios, limitations on additional borrowings, capital expenditures,
mergers, acquisitions and investments and restrictions on cash dividends, loans
and other distributions.
As of September 30, 1998, as required in its amended credit agreement, the
Company was in compliance with the credit agreement covenants.
In October 1998, the Company announced that it expects to make a distribution of
rights entitling stockholders to subscribe, on a prorata basis, for an aggregate
of $50 million principal amount of the Company's convertible subordinated
debentures. The Company has entered into a standby commitment agreement with one
of its institutional stockholders on behalf of certain of its affiliates
pursuant to which the stockholder has agreed, subject to certain conditions, to
purchase any of the debentures not purchased by others in the offering. A
registration statement for the rights offering is expected to be filed with the
Securities and Exchange Commission in the near future; the record date is set
for December 1, 1998.
NOTE F -- EQUITY
The change in stockholders' equity, other than from net loss, resulted primarily
from the exercise of stock options. For the nine months ended September 30,
1998, proceeds from the exercise of stock options amounted to $1,647,000.
NOTE G -- IMPAIRMENT OF INTANGIBLE ASSETS
The deterioration in the infusion therapy industry and the Company's decision to
withdraw from the infusion business in certain geographic markets served as
potential indicators of intangible asset impairment. Other potential indicators
of impairment identified by management include, among other issues, the
Company's depressed common stock price, failure to meet its already lowered
financial expectations, the threat of continued Medicare reimbursement
reductions, government investigations against the Company, slower than expected
progress in improving its revenue management process, and reported financial
difficulties within major managed care organizations with which the Company does
business which has resulted in collection difficulties.
In the third quarter of 1998, management conducted an evaluation of the carrying
value of the Company's recorded intangible assets. Management considered current
and anticipated industry conditions, recent changes in its business strategies,
and current and anticipated operating results. The evaluation resulted in an
impairment charge of $71,452,000 of which $32,145,000 related to infusion
therapy and $39,307,000 related to respiratory/home medical equipment.
A-8
<PAGE> 98
APRIA HEALTHCARE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The impairment charge recognized for the infusion business line resulted
primarily from the deteriorating operating and industry trends and lower future
earnings expectations. The impairment recognized for the RT/HME business line
resulted primarily from the scheduled and potential Medicare reimbursement
reductions and to the adverse impact that withdrawal from the infusion business
in certain areas is expected to have on the RT/HME business. The Company had,
until recently, marketed itself as an integrated, full-service provider. The
Company's inability to provide infusion therapy in certain geographic areas may
result in the loss of RT/HME contract business.
Also included in the impairment charge is the write-off of $4,771,000 in
intangible assets primarily associated with the exit of the infusion business in
certain areas.
NOTE H -- IMPAIRMENT OF LONG-LIVED ASSETS AND INTERNALLY DEVELOPED SOFTWARE
One of the actions taken as a result of the management's new strategic direction
is the termination of the project to implement an enterprise resource planning
(ERP) system. Accordingly, the Company wrote off related software and other
capitalized costs of $7,548,000 in the third quarter of 1998. As part of the
decision to terminate the ERP project, management evaluated its current systems
to determine their long-term viability in the context of the Company's new
overall strategic direction. It was determined that the Company was at some risk
in continuing to run the infusion billing system on its current platform which
is no longer supported by the computer industry. To eliminate the risk, the
Company is currently converting the infusion system to the IBM AS/400 operating
platform on which the respiratory/home medical equipment system currently
operates. Also, the Company is now proceeding with a number of enhancements to
the systems, rendering certain previously developed modules obsolete. Further,
pharmacy and branch consolidations and closures resulted in a variety of
computer equipment that was no longer needed. Due to its age and technological
obsolescence, it was deemed to have no future value. As a result of these
actions, the Company recorded an impairment charge of $11,843,000.
NOTE I -- OTHER SIGNIFICANT CHARGES
The Company recorded charges totaling $3,939,000 for severance, stay bonuses and
other employee costs (included in selling, distribution and administrative) and
a charge of $5,400,000 (included in cost of net revenues) to settle several
procurement contracts.
NOTE J -- INCOME TAXES
Current income tax expense includes state tax amounts accrued and paid on a
basis other than or in addition to taxable income.
At December 31, 1997 the Company had a federal net operating loss carryforward
of approximately $230,000,000 which will begin to expire in 2003. Additionally,
the Company has various state operating loss carryforwards which began to expire
in 1997. As a result of an ownership change in 1992 which met specified criteria
of Section 382 of the Internal Revenue Code, future use of a portion of the
federal and state operating loss carryforwards generated prior to 1992 are
limited to approximately $5,000,000 per year. Because of the annual limitation,
approximately $57,000,000 of the Company's net operating loss carryforwards may
expire unused.
A-9
<PAGE> 99
APRIA HEALTHCARE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- PER SHARE AMOUNTS
The following table sets forth the computation of basic and diluted per share
amounts:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator:
Net (loss) income........ $ (194,701) $ 16,186 $ (210,264) $ (34,450)
Numerator for basic per
share
amounts -- (loss)
income available to
common stockholders... $ (194,701) $ 16,186 $ (210,264) $ (34,450)
Numerator for diluted per
share
amounts -- (loss)
income available to
common stockholders... $ (194,701) $ 16,186 $ (210,264) $ (34,450)
Denominator:
Denominator for basic per
share
amounts -- weighted
average shares........ 51,765 51,481 51,717 51,384
Effect of dilutive
securities:
Employee stock
options............. -- 413 -- --
---------- ---------- ---------- ----------
Dilutive potential
common shares....... -- 413 -- --
---------- ---------- ---------- ----------
Denominator for diluted
per share
amounts -- adjusted
weighted average
shares................ 51,765 51,894 51,717 51,384
========== ========== ========== ==========
Basic (loss) income per
share amounts............ $ (3.76) $ 0.31 $ (4.07) $ (0.67)
========== ========== ========== ==========
Diluted (loss) income per
share amounts............ $ (3.76) $ 0.31 $ (4.07) $ (0.67)
========== ========== ========== ==========
Employee stock options
excluded from the
computation of diluted
per share amounts:
Exercise price exceeds
average market price
of common stock....... 6,041,496 1,984,663 3,522,753 1,277,619
Other.................... 23,671 -- 78,487 513,720
---------- ---------- ---------- ----------
6,065,167 1,984,663 3,601,240 1,791,339
========== ========== ========== ==========
Average exercise price per
share that exceeds
average market price of
common stock............. $ 11.20 $ 19.99 $ 14.55 $ 21.48
========== ========== ========== ==========
</TABLE>
A-10
<PAGE> 100
APRIA HEALTHCARE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Due to the net losses incurred for the three months ended September 30, 1998 and
for the nine months ended September 30, 1998 and 1997, the impact of employee
stock options is antidilutive and there is no difference between basic and
diluted per share amounts for these periods.
NOTE L -- COMMITMENTS AND CONTINGENCIES
The Company is engaged in the defense of certain claims and lawsuits, the
outcomes of which are not determinable at this time. The Company has insurance
policies covering potential losses from claims and lawsuits where such coverage
is available and cost effective. In the opinion of management, any liability
that might be incurred by the Company upon the resolution of these claims and
lawsuits will not, in the aggregate, have a material adverse effect on the
consolidated results of operations or financial position of the Company. The
Company is also in the process of responding to subpoenas from the United States
Attorney's office, as to which the Company is unaware of what claims or
proceedings, if any, may result.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995: The Company's business is subject to a
number of risks, some of which are beyond the Company's control. The Company has
described certain of those risks in this Form 10-Q and in previous documents
filed with the Securities and Exchange Commission (including the Current Report
on Form 8-K filed on June 26, 1997 and the Form 10-K filed on April 15, 1998).
Such reports may be used for purposes of the Private Securities Litigation
Reform Act of 1995 as readily available documents containing meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in any forward-looking
statements the Company may make from time to time. These risks include ongoing
issues pertaining to management stability and recruiting, the collectibility of
its accounts receivable, the cost of and the Company's ability to implement its
reorganization plan, healthcare reform and the effect of federal and state
healthcare regulations, the ongoing U.S. Attorney investigation regarding the
Company's billing practices, pricing pressures (including changes in
governmental reimbursement levels), the effectiveness of its information systems
and controls, the highly competitive market, recent losses, the concentration
and market power of large payors, the Company's high leverage and restrictions
on its borrowing capacity, dependence on relationships with third parties and
the availability and adequacy of insurance.
A-11
<PAGE> 101
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Background: In June 1997, the Company announced that it retained an investment
banking firm as its financial advisor to explore strategic alternatives to
enhance shareholder value, including the possible sale, merger, or
recapitalization of the Company. During the first quarter of 1998, the Company
entered into a recapitalization agreement, however, the agreement was terminated
by mutual consent of the parties on April 3, 1998. By May 1998, the Company's
active exploration of strategic alternatives was terminated as a result of the
hiring of a new Chief Executive Officer and other key management executives and
the reconfiguration of the Board of Directors. This process and resulting
uncertainties are believed to have adversely affected the Company's financial
results.
In July 1998, after an evaluation of the business, the Company's new management
team announced its strategic plan, or "reorganization", to improve the Company's
performance. The key elements of the reorganization are: (1) no change would be
made to the fundamental nature of the business, (2) the Company would withdraw
from unprofitable components of the business, which would include exiting the
infusion therapy business in certain geographic areas (3) a comprehensive cost
reduction and capital conservation program would be instituted, (4) the debt and
capital structure would be reexamined, and (5) the Company would pursue
expansion through internal growth and acquisitions. Significant actions taken by
the Company's new management team since it announced the reorganization include
the change in management's collection policy and a refinement of the accounts
receivable collectibility estimation methodologies as described below in
Liquidity and Capital Resources -- Accounts Receivable, the sale of the
California component of the infusion therapy business ("the infusion sale"), the
decision to exit the infusion therapy business in Texas, Louisiana, West
Virginia and Western Pennsylvania, the decision to close or sell its operations
in downstate New York, and the consolidation or closure of certain small branch
locations throughout the United States (collectively, "the exited businesses").
Other significant actions include, the termination of plans to proceed with the
capital-intensive implementation of an enterprise resource planning system, a
significant reduction of corporate and regional labor and general administrative
costs and the development of a comprehensive plan to capture cost savings in the
areas of purchasing, distribution and inventory management. Each of these
measures is discussed more fully below.
RESULTS OF OPERATIONS
Net Revenues: Net revenues were $219.4 million for the three-month period ended
September 30, 1998 compared with $304.4 million for the same period in 1997. For
the nine months ended September 30, 1998, net revenues decreased to $710.5
million from $914.0 million for the same period last year. A number of factors
impacted revenue, the most significant of which was the reduction in Medicare
reimbursement rates. The Balanced Budget Act of 1997 contained several
provisions affecting reimbursement rates for products and services provided by
the Company. The reimbursement rates for home oxygen therapy were reduced by 25%
effective January 1, 1998 with an additional 5% reduction scheduled for 1999,
and the reimbursement rates for respiratory drugs were reduced by 5%. The
estimated impact of the rate reductions on revenues for the first nine months in
1998 was approximately $43.4 million; the impact of the additional 5% reduction
on 1999 revenues is estimated at approximately $9.0 million. Also included in
the Balanced Budget Act of 1997 was a freeze on Consumer Price Index-based
reimbursement rate increases for 1998 through 2002. Further, authority has been
granted
A-12
<PAGE> 102
to the Secretary of Health and Human Services to reduce Medicare reimbursement
under an inherent reasonableness rulemaking procedure. In September 1998, at
least two products the Company provides were identified as potential 1999
reimbursement reduction candidates (estimated impact on revenues in 1999: $5.7
million) with many other products under review for future reductions.
The Company's 1997 decisions to discontinue the medical supply, women's health
and nursing management service lines, which represented combined 1997 revenues
of approximately $55.8 million, contributed to revenue declines in 1998.
However, some small portion of the medical supply and nursing management
business has continued due to core- business customer requirements.
Additionally, the Company's planned exiting of unprofitable managed care
contracts represented approximately $25.0 million and $15.2 million in annual
revenues during 1997 and during the first nine months of 1998, respectively.
Also, the Company disposed of several unprofitable branch locations in
California and Arizona in the latter part of 1997 with annual revenues of
approximately $3.3 million.
As part of the reorganization, the Company reviewed its procedures for
estimating the collectibility of accounts receivable. The review resulted in an
adjustment to the estimate for unidentified revenue adjustments, and
accordingly, a charge of $14.6 million was recorded in the third quarter of 1998
(see Accounts Receivable). Such revenue adjustments result from (1) differences
in contract prices due to complex contract terms, a biller's lack of familiarity
with a contract, payor, or system price, (2) subsequent changes to estimated
revenue amounts for services not covered by a preexisting contract and (3)
failure subsequent to service delivery to qualify a patient for reimbursement
due to lack of written authorization or a missed filing or appeal deadline. The
nine-month period in 1997 reflects a $20.0 million charge recorded in the second
quarter to provide for estimated revenue adjustments.
Other conditions and factors had an adverse impact on net revenues in 1998, but
are difficult to quantify. First, the process discussed above to identify a
strategic alternative to enhance shareholder value created uncertainties that
affected the Company's ability to retain current business and secure new
business. Next, formidable competition at both the local and national levels
affected revenues and margins, especially in the infusion line. Finally, a
shortage in trained sales personnel also contributed to the decrease in
revenues.
Gross Profit: Gross margins for the third quarter and the nine months ended
September 30, 1998 were 55.8% and 62.9%, respectively, compared to 65.6% and
63.0% for the same periods in the prior year. The gross margins for the 1998
periods reflect the Medicare reimbursement rate reduction and the revenue
adjustment charge discussed above. Also reflected in the gross margins for the
third quarter and nine months periods of 1998 were $14.8 million in additional
charges consisting of $5.4 million estimated to settle certain procurement
contracts, $3.5 million to provide for an additional estimate of losses in the
Company's oxygen cylinders and $2.8 million to provide for additional losses and
obsolescence in inventory and patient service equipment as a result of the
Company upgrading its equipment quality standards. In addition, the Company
recorded a $3.5 million charge in order to write-down operational assets in
connection with its exiting of certain portions of its infusion therapy
business. The gross margins for the 1997 periods reflect the $20.0 million
revenue adjustment charge and a $23.0 million charge to provide for losses in
inventory and patient service equipment.
Selling, Distribution and Administrative: Selling, distribution and
administrative expenses as a percentage of net revenues were 74.8% and 62.8% for
the third quarter and first nine
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months of 1998, respectively, compared with 49.9% and 49.1% for the same periods
in 1997. Reflected in the third quarter and nine-month periods of 1998 are the
following reorganization charges: $3.8 million loss on the infusion sale, $1.8
million to record certain costs associated with the exited businesses (see
Dispositions and Business Combinations), $3.9 million in severance, stay bonuses
and other employee costs and $2.0 million in lease liability on vacant
facilities due to consolidation activities. Other charges recorded in the third
quarter of 1998 include additional amounts for legal fees and settlements.
In response to the reduction in revenues, management has taken steps to reduce
costs, the most significant of which is a reduction in the Company's labor
force. From September 30, 1997 to September 30, 1998, full-time equivalent
employees have been reduced by approximately 1,200. The labor force reduction
commenced in the fourth quarter of 1997 and continues through 1998. The labor
reductions made in the third quarter of 1998 resulted from the reorganization of
the Company's field operations into 16 geographic regions (previously 23) and
through the elimination of positions at the Company's corporate headquarters.
Impairment of Intangible Assets: The deterioration in the infusion therapy
industry and the Company's decision to withdraw from the infusion business in
certain geographic markets served as potential indicators of intangible asset
impairment. Other potential indicators of impairment identified by management
include, among other issues, the Company's depressed common stock value, failure
to meet its already lowered financial expectations, the threat of continued
Medicare reimbursement reductions, government investigations against the Company
(see Recent Developments), slower than expected progress in improving its
revenue management process, and reported financial difficulties within major
managed care organizations with which the Company does business which has
resulted in collection difficulties.
In the third quarter of 1998, management conducted an evaluation of the carrying
value of the Company's recorded intangible assets. Management considered current
and anticipated industry conditions, recent changes in its business strategies,
and current and anticipated operating results. The evaluation resulted in an
impairment charge of $71.4 million of which $32.1 million related to infusion
therapy and $39.3 million related to respiratory/ home medical equipment.
The impairment charge recognized for the infusion business line resulted
primarily from the deteriorating operating and industry trends and lower future
earnings expectations. The impairment recognized for the RT/HME business line
resulted primarily from the scheduled and potential Medicare reimbursement
reductions and to the adverse impact that withdrawal from the infusion business
in certain areas is expected to have on the RT/HME business. The Company had,
until recently, marketed itself as an integrated, full-service provider. The
Company's inability to provide infusion therapy in certain geographic areas may
result in the loss of RT/HME contract business.
Also included in the impairment charge is the write-off of $4.8 million in
intangible assets associated with the exited businesses (see Dispositions and
Business Combinations).
Impairment of Long-lived Assets and Internally Developed Software: One of the
actions taken as a result of management's new strategic direction is the
termination of the project to implement an enterprise resource planning (ERP)
system. Accordingly, the Company wrote off related software and other
capitalized costs of $7.5 million in the third quarter of 1998. As part of the
decision to terminate the ERP project, management evaluated its current systems
to determine their long-term viability in the context of the Company's new
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overall strategic direction. It was determined that the Company was at some risk
in continuing to run the infusion billing system on its current platform which
is no longer supported by the computer industry. To mitigate the risk, the
Company is currently converting the infusion system to the IBM AS/400 operating
platform on which the respiratory/home medical equipment system currently
operates. Also, the Company is now proceeding with a number of enhancements to
the systems rendering certain previously developed modules obsolete. Further,
pharmacy and branch consolidations and closures rendered a variety of computer
equipment obsolete. Due to its age and technological obsolescence, it was deemed
to have no future value. As a result of these actions, the Company recorded an
impairment charge of $11.8 million.
The Company also recognized additional asset impairments of $1.4 million in
conjunction with the exited businesses (see Dispositions and Business
Combinations) and $1.4 million related to other facility closures and
consolidations.
Provision for Doubtful Accounts: The provision for doubtful accounts as a
percentage of net revenues was 16.8% and 8.9% for the quarter and nine-month
periods ended September 30, 1998 as compared to 5.0% and 11.1% for the same
periods in the prior year. The 1998 periods reflect a charge of $12.1 million to
increase the allowance for doubtful accounts due to the change in management's
collection policy as described below (see Accounts Receivable). Also recorded in
the third quarter of 1998 are charges totaling $9.1 million to increase the
allowance for doubtful accounts on accounts receivable associated with the
infusion sale and the exited businesses (see Dispositions and Business
Combinations). The provision in the nine-month period in 1997 reflects a $55.0
million charge taken in the second quarter of 1997 to increase the allowance for
doubtful accounts.
Amortization of Intangible Assets: Amortization of intangible assets was $3.5
million and $10.5 million for the third quarter and first nine months of 1998,
respectively, compared to $4.3 million and $12.6 million for the same periods
last year. The decreases are due to the $133.5 million write-off of impaired
goodwill in the fourth quarter of 1997. The resulting reduction in amortization
expense was offset somewhat by a reduction in the amortization period for a
certain class of the Company's goodwill from 40 years to 20 years.
Interest Expense: Interest expense was $12.8 million and $35.9 million for the
three- and nine-month periods ended September 30, 1998, respectively, compared
to $12.3 million and $37.8 million for the same periods in 1997. Reflected in
the 1998 periods are lower long-term debt levels, offset by higher effective
interest rates, as compared to the 1997 periods.
Income Taxes: Income tax expense for the nine months ended September 30, 1998
was $2.5 million versus $9.9 million for the same period last year. The decrease
is attributable to valuation allowances that were recorded in prior years. The
recorded tax expense in 1998 includes state taxes payable on a basis other than
or in addition to taxable income.
As of December 31, 1997, the Company has substantial federal and state net
operating losses ("NOLs") which can be carried forward to offset taxable income
recognized by the Company in the future. Additionally, based on the first three
quarters of 1998, the Company estimates there being an additional federal
carryforward of approximately $130 million, which will expire in 2018. The
Company's ability to utilize those NOLs, however, is subject to Section 382 of
the Internal Revenue Code which provides that upon the occurrence of an
ownership change the benefits of NOLs can be reduced or eliminated. Based on
information as of early October about the Company's stockholdings, the Company
was approximately halfway toward an ownership change. Additional
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purchases of stock in the Company by existing 5% shareholders or acquisitions of
stock by new 5% shareholders could bring the Company closer to or, if large
enough, could cause an additional ownership change and thus trigger an
additional Section 382 limitation on NOLs.
LIQUIDITY AND CAPITAL RESOURCES
Operating Cash Flow: Cash provided by the Company's operations for the nine
months ended September 30, 1998 was $100.1 million versus $65.8 million for the
same period last year. This increase was achieved despite the significant
decrease in net income, after adding back the non-cash charges, between the two
periods. A significant reason for the improvement in operating cash flow was the
decrease in accounts receivable during the first nine months of 1998 as compared
to a significant increase in the same period in 1997 (see Accounts Receivable).
Also contributing to the increase in operating cash flow was a 48% reduction in
net purchases of patient service equipment. Additionally, less cash was used in
1998 due to the timing of payments against accounts payable and payroll and
other accrued liabilities. Cash flow was enhanced in 1997 with a $12.0 million
federal tax refund received in the first quarter.
Accounts Receivable: Accounts receivable before allowance for doubtful accounts
decreased by $111.8 million during the first nine months of 1998. The decrease
is attributable to the decline in net revenues, a high-level of bad debt
write-offs and revenue adjustments and strong cash collections.
In August 1998, management reviewed the historic performance and collectibility
of the Company's accounts receivable portfolio. Management also reviewed its
existing policies and procedures for estimating the collectibility of its
accounts receivable. In this review, management considered the continued
high-level of bad debt write-offs and revenue adjustments. Also considered were
initiatives introduced earlier in the year: a special quality assurance function
designed to improve workflow and billing accuracy, and software enhancements to
simplify the order-intake process and thereby reduce billing errors. Based upon
this review, management has decided to change their policy on collection and is
formally shifting the focus of the collection function to the more current
balances. Management believes this concentration on more current balances will
limit the amount of receivables that age. Consequently, the accounts that do age
will undoubtedly be receivables where collection will be difficult.
With this change in collection policy, management has developed a new estimate
of the allowance for doubtful accounts and revenue adjustments. Specifically,
management refined and changed their procedures used to estimate the
collectibility of its accounts receivable by increasing the allowance related to
balances over 180 days. As a result of this change in policy, the Company
recorded an adjustment to reduce revenue and accounts receivable by $14.6
million and increase bad debt expense and the allowance for doubtful accounts by
$12.1 million. Also recorded was a provision for specific uncollectible accounts
totaling $1.5 million and an increase to the allowance for doubtful accounts
related to the infusion sale and the exited businesses totaling $9.1 million
(see Provision for Doubtful Accounts and Dispositions and Business
Combinations).
Dispositions and Business Combinations: As part of the new strategic direction,
management performed an extensive profitability study to identify product lines
and/or geographic markets as potential candidates for exit. Most significant of
the decisions arising from the study is the decision to withdraw from the
infusion business in California, Texas, Louisiana, West Virginia and Western
Pennsylvania. Shortly after the Company announced
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its plans to exit the infusion line in these geographic markets, a buyer emerged
for the California locations. Crescent Healthcare, Inc. purchased substantially
all the assets (accounts receivable excluded) and business of the California
infusion locations. The Company recorded a $3.8 million loss on the sale in the
third quarter of 1998. In the other locations where the Company has decided to
exit the infusion business, management is currently working with its business
partners to modify contracts and transfer patients to other providers and
expects the transition to be substantially complete by the end of 1998. The
operations of these infusion locations had revenues and gross profits of $35.2
million and $12.4 million, respectively, for the nine months ended September 30,
1998, compared to $50.8 million and $23.0 million for the same period in 1997.
Another significant action taken in conjunction with the reorganization was the
decision to withdraw from the downstate New York market in all product lines.
Revenues and gross profit in this market totaled approximately $12.6 million and
$7.9 million for the nine months ended September 30, 1998, respectively,
compared to $17.2 million and $9.6 million for the same period last year.
The Company periodically makes acquisitions of complementary businesses in
specific geographic markets. The cost of acquisitions that closed during the
nine-month period ended September 30, 1998 totaled approximately $2.1 million.
Long-term Debt: The Company's credit agreement with a syndicate of banks was
amended twice in 1997 and further amended in January, March, April and November
of 1998. The latest amendment required a $50 million permanent repayment of the
loan upon execution. The remaining indebtedness under the credit agreement was
restructured into a $288 million term loan and a $30 million revolving credit
facility with a maturity date of August 9, 2001. Term loan principal payments
are payable quarterly, in varying amounts, commencing on March 31, 1999 and
continuing through June 30, 2001. Also, the amended agreement requires that the
Company issue not less than $50 million of convertible subordinated debentures
by February 28, 1999 (see Recent Developments), the net proceeds of which must
be applied to the term loan. Further, between the effective date of the latest
amendment and the earlier of February 28, 1999 or the issuance date of the
convertible subordinated debentures, the Company is subject to prepayments on
the term loan based on excess cash flow (as defined by the agreement).
The credit agreement, as amended, allows the Company to make acquisitions under
an acquisition "basket" provision of up to $62 million, subject to certain
restrictions, that may be increased given certain levels of financial
performance by the Company. In 1999, the acquisition limit is subject to dollar
for dollar reduction by the amount of any unusual cash expenses (as defined by
the agreement) incurred and paid in 1999.
The credit agreement, as amended, permits the Company to elect one of two
variable rate interest options at the time an advance is made. The first option
is a rate expressed as 2.5% plus the higher of the Federal Funds Rate plus 0.50%
per annum or the Bank of America "reference" rate. The second option is a rate
based on the London Interbank Offered Rate ("LIBOR") plus an additional
increment of 3.5% per annum. The agreement requires payment of commitment fees
of 0.75% on the unused portion of the revolving credit facility.
Borrowings under the credit agreement are secured by substantially all the
assets of the Company and the agreement also contains numerous restrictions,
including, but not limited to, covenants requiring the maintenance of certain
financial ratios, limitations on additional borrowings, capital expenditures,
mergers, acquisitions and investments and restrictions on cash dividends, loans
and other distributions.
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As of September 30, 1998, as required in its amended credit agreement, the
Company was in compliance with the credit agreement covenants.
At September 30, 1998, borrowings under the credit agreement totaled $338
million.
Under the Indenture governing the Company's $200.0 million 9 1/2% Senior
Subordinated Notes due 2002, the Company's ability to incur indebtedness becomes
restricted at times when the Company's "Fixed Charge Coverage Ratio" (as defined
in the Indenture) is less than 3.0 to 1.0. Charges taken in the second and
fourth quarters of 1997 and in the third quarter of 1998 resulted in the Fixed
Charge Coverage Ratio being less than 3.0 to 1.0. This condition is expected to
continue at least through the third quarter of 1999. The Company has changed its
cash management procedures to avoid the need to incur indebtedness that would
otherwise require a modification of the terms of the Indenture and has
accumulated a cash balance of $95.7 million ($50 million of which must be used
to make the required loan prepayment described above) as of September 30, 1998.
The Company believes that cash provided by operations will be sufficient to
finance its current operations for at least the next 12 months or until the
borrowing restriction is eliminated.
Other Balance Sheet Changes: The decrease in accrued payroll and related taxes
and benefits at September 30, 1998, compared to December 31, 1997 is due to the
difference in the number of days' costs accrued at each period-end. At December
31, 1997, other assets was primarily comprised of payments for businesses
acquired late in the year. The payments were then allocated to the various
underlying acquired assets in early 1998.
Year 2000 Issue: As the year 2000 approaches, an issue ("Year 2000 Issue")
impacting all companies has emerged regarding how existing application software
programs and operating systems can accommodate this date value. In brief, many
existing application programs in the marketplace were designed to accommodate a
two digit date position which represents the year (e.g., "95" is stored on the
system and represents the year 1995). Consequently, the year 1999 could be the
maximum date value that systems would be able to accurately process.
Beginning in late 1997, the Company conducted a comprehensive review of its
existing computer systems, including an assessment of the nature and potential
extent of the impact of the Year 2000 Issue. As a result, the Company has begun
the modification process of its software in order for its computer systems to
function properly in the year 2000 and thereafter. The Company is utilizing
internal resources to reprogram and test the software for the year 2000
modifications. The project is currently on schedule and the Company anticipates
all phases of the project, including the testing and implementation phases, to
be completed by December 31, 1998. Further, the Company's systems underwent two
external assessments of the Year 2000 Issue and received a "low" risk rating.
The total cost of the project is not expected to have a material effect on the
Company's results of operations; all costs are being expensed as incurred.
Additionally, a formal process has been instituted to assess other potential
risks the Company may face in light of the Year 2000 Issue. Examples of such
issues include, but are not limited to, electronic interfaces with external
agents such as payors (including Medicare and Medicaid), banks and suppliers. As
a contingency, in the event of failure on the part of an external agent, the
exchange of data and payments can continue via paper documents and other
more-traditional methods. Potential internal operational issues include
date-sensitive security systems and elevators. Another area of potential risk is
with certain patient service equipment items that have microprocessors with date
functionality that could malfunction in the year 2000. Among other steps, the
Company has initiated formal
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communications with all its significant suppliers of patient service equipment
to ensure those third parties are also working to remediate their own year 2000
issues, if applicable. If the Company is unable to resolve all its Year 2000
issues with external agents, it may have a material adverse effect on the
Company's business, results of operations or financial condition.
Expectations about future year 2000-related costs are subject to various
uncertainties that could cause the actual results to differ materially from the
Company's expectations, including the success of the Company in identifying
systems and programs that are not year 2000-ready, the nature and amount of
programming required to upgrade or replace each of the affected programs, the
availability, rate and magnitude of related labor and consulting costs and the
success of the Company's business partners, vendors and clients in addressing
the Year 2000 Issue.
Recent Developments: In October 1998, the Company announced that it expects to
make a distribution of rights entitling stockholders to subscribe, on a prorata
basis, for an aggregate of approximately $50 million principal amount of the
Company's convertible subordinated debentures. The Company has entered into a
standby purchase agreement with one of its institutional stockholders on behalf
of certain of its affiliates pursuant to which the stockholder has agreed,
subject to certain conditions, to purchase any of the debentures not purchased
by others in the offering. A registration statement for the rights offering is
expected to be filed with the Securities and Exchange Commission in the near
future; the record date is set for December 1, 1998.
On July 8, 1998, the Company issued a press release reporting that it had
received six subpoenas from the U. S. Attorney's office in Sacramento,
California, requesting documents related to the Company's billing practices. The
documents requested include those located at the Company's corporate
headquarters and offices in San Diego and Sacramento, California, and
Canonsburg, Pennsylvania. On July 29, 1998, the Company received another
subpoena requesting additional billing-related documents from its Sacramento
office. The Company is in the process of complying with the subpoenas.
The Company has experienced problems as the result of errors and deficiencies in
supporting documentation affecting a portion of its billings, including billings
under the Medicare and Medicaid programs. If the U.S. Attorney were to conclude
that such errors and deficiencies constituted criminal violations, or were to
make claims for the maximum amount potentially recoverable as a result, the
Company could face criminal charges and/or civil claims for amounts that would
be highly material to its business and financial condition. Such amounts could
include claims for treble damages. It is the Company's position that the
assertion of criminal charges or the assertion of any such claims would be
unwarranted. If such charges or claims were asserted, the Company believes that
it would be in a position to assert numerous defenses. However, no assurance can
be provided as to the outcome of any such possible proceedings.
Presently, the Company is unaware of what claims or proceedings, if any, the
government may be contemplating with respect to these subpoenas.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its present and former officers and/or directors are
defendants in a class action lawsuit, In Re Apria Healthcare Group Securities
Litigation, filed
in the U.S. District Court for the Central District of California, Southern
Division
(Case No. SACV98-217 GLT). This case is a consolidation of three similar class
actions filed in March and April, 1998. Pursuant to a Court Order dated May 27,
1998, the plaintiffs in the original three class actions filed a Consolidated
Amended Class Action Complaint on August 6, 1998. The Amended Complaint purports
to establish a class of plaintiff shareholders who purchased the Company's
common stock between May 22, 1995 and January 20, 1998. No class has been
certified at this time. The Amended Complaint alleges, among other things, that
the defendants made false and/or misleading public statements regarding the
Company and its financial condition in violation of federal securities laws. The
Amended Complaint seeks compensatory and punitive damages as well as other
relief.
Two similar class actions were filed during July, 1998 in the Superior Court for
the State of California for the County of Orange: Schall v. Apria Healthcare
Group Inc., et al. (Case No. 797060) and Thompson v. Apria Healthcare Group
Inc., et al. (Case No. 797580). These two actions were consolidated by a Court
Order dated October 22, 1998. Pursuant to that Order, a consolidated and amended
complaint must be filed by December 7, 1998. The Company anticipates that
allegations similar to those asserted in the Amended Complaint in the federal
action will be asserted in the consolidated state action, although the claims
will be founded on state law, as opposed to federal law.
The Company believes that it has meritorious defenses to the plaintiffs' claims
in all of these class actions, and it intends to vigorously defend itself in
both the federal and state cases. In the opinion of the Company's management,
the ultimate disposition of these class actions will not have a material adverse
effect on the Company's financial condition or results of operations.
On July 8, 1998, the Company issued a press release reporting that it had
received six subpoenas from the U. S. Attorney's office in Sacramento,
California, requesting documents related to the Company's billing practices. The
documents requested include those located at the Company's corporate
headquarters and offices in San Diego and Sacramento, California, and
Canonsburg, Pennsylvania. On July 29, 1998, the Company received another
subpoena requesting additional billing-related documents from its Sacramento
office. The Company is in the process of complying with the subpoenas.
The Company has experienced problems as the result of errors and deficiencies in
supporting documentation affecting a portion of its billings, including billings
under the Medicare and Medicaid programs. If the U.S. Attorney were to conclude
that such errors and deficiencies constituted criminal violations, or were to
make claims for the maximum amount potentially recoverable as a result, the
Company could face criminal charges and/or civil claims for amounts that would
be highly material to its business and financial condition. Such amounts could
include claims for treble damages. It is the Company's position that the
assertion of criminal charges or the assertion of any such claims would be
unwarranted. If such charges or claims were asserted, the Company believes that
it would be in a position to assert numerous defenses. However, no assurance can
be provided as to the outcome of any such possible proceedings.
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Presently, the Company is unaware of what claims or proceedings, if any, the
government may be contemplating with respect to these subpoenas.
ITEMS 2-3. Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual Meeting of Stockholders of the Company on July 28, 1998.
(b) Directors re-elected at the Annual Meeting for a term expiring in 2001:
Philip R. Lochner, Jr.
Beverly Benedict Thomas
Members of the Board whose terms expire in 1999:
David L. Goldsmith
Leonard Green
Richard H. Koppes
Members of the Board whose terms expire in 2000:
Philip L. Carter
H.J. Mark Tompkins
Ralph V. Whitworth
(c) Matters Voted Upon at Annual Meeting:
Election of Directors -- The Company's Board currently consists of nine
directors and is divided into three classes with staggered three year
terms. Stockholder voting results for the two directors re-elected were
as follows:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- ---------
<S> <C> <C>
Philip R. Lochner, Jr........................ 43,402,444 1,031,250
Beverly Benedict Thomas...................... 43,402,743 1,030,951
</TABLE>
ITEM 5. OTHER INFORMATION
David H. Batchelder was elected to the Board of Directors at the July 28, 1998
Board meeting immediately following the Annual Meeting. His term will expire in
2001.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.1 Standby Purchase Agreement dated as of November 3, 1998
between Apria Healthcare Group Inc. and Relational
Investors, LLC, on behalf of the entities named therein.
10.2 Registration Rights Agreement dated as of November 3, 1998
between Apria Healthcare Group Inc. and Relational
Investors, LLC, on behalf of the entities named therein.
10.3 Amended and Restated Credit Agreement dated as of November
13, 1998 between Apria Healthcare Group Inc. and certain of
its subsidiaries and Bank of America National Trust and
Savings Association, NationsBank, N.A., and other financial
institutions.
16.1 Letter dated July 8, 1998 from Ernst & Young, LLP addressed
to the Securities and Exchange Commission. Incorporated by
reference to the Company's Current Report on Form 8-K, filed
on July 6, 1998.
27.1 Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K:
1. The Company filed a Current Report on Form 8-K, dated July 6, 1998, with
the Securities and Exchange Commission reporting that the Company had
elected to change the independent auditors for the Company's fiscal year
ending December 31, 1998. The Company reported the following specific
information:
(i) Effective July 6, 1998, the Company dismissed Ernst & Young, LLP as
its independent auditors for the fiscal year ending December 31, 1998.
(ii) The reports of Ernst & Young, LLP on the financial statements for
each of the past two years contained no adverse opinion or disclaimer of
opinion, and no such report was qualified or modified as to uncertainty,
audit scope or accounting principles.
(iii) The decision to change independent auditors was not recommended or
approved by the Audit Committee of the Company's Board of Directors.
(iv) There were no disagreements on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or
procedure, between the Company and its independent auditors during the
Company's two most recent fiscal years or during the year-to-date period
ended July 6, 1998.
2. The Company filed a Current Report on Form 8-K, dated July 15, 1998,
with the Securities and Exchange Commission reporting that the Company had
engaged Deloitte & Touche LLP as the principal accountants to audit the
Company's financial statements for the fiscal year ending December 31,
1998.
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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 thereunto duly authorized.
APRIA HEALTHCARE GROUP INC.
Registrant
November 16, 1998 /s/ JAMES E. BAKER
--------------------------------------
James E. Baker
Vice President, Controller
(Chief Accounting Officer)
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<PAGE> 113
$51,779,000
APRIA HEALTHCARE GROUP INC.
10% CONVERTIBLE SUBORDINATED
DEBENTURES
DUE 2004
------------------------
PROSPECTUS
------------------------
The Company has not authorized any dealer,
salesperson or other person to give any
information or represent anything not contained in
this prospectus. Prospective investors must not
rely on any unauthorized information. This
prospectus does not offer to sell or buy any
shares in any jurisdiction in which it was
unlawful. The information in this prospectus is
current as of November 25, 1998.
<PAGE> 114
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable in connection with the sale and distribution
of the securities being registered. All amounts are estimates except the
Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
SEC registration fee....................................... $ 14,395
Blue Sky fees and expenses................................. 0
Printing and engraving expenses............................ 55,000
Legal and accounting fees and expenses..................... 510,000
Financial advisory fees.................................... 200,000
Subscription Agent fees and expenses....................... 10,000
Trustee fees and expenses.................................. 10,000
Standby commitment fee..................................... 1,000,000
Miscellaneous expenses related to standby commitment....... 105,000
Special Finance Committee fees and expenses................ 250,000
NYSE listing fees.......................................... 40,000
Miscellaneous.............................................. 25,000
----------
Total............................................ $2,219,395
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
As provided under applicable provisions of the Delaware General Corporation Law
(the "DGCL"), the Company's Certificate of Incorporation and By-Laws contain
provisions whereunder the Company will indemnify each of the officers and
directors of the Company (or their estates, if applicable), and may indemnify
any employee or agent of the Company (or their estates, if applicable), to the
fullest extent permitted by the DGCL as it exists or may in the future be
amended. The Company maintains insurance on behalf of any person who is or was a
director or officer of the Company.
ITEM 16. EXHIBITS
See Exhibit Index attached hereto and incorporated herein by reference
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or
II-1
<PAGE> 115
controlling person in connection with the securities being registered hereby,
the registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in such Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities shall be deemed to be
the initial bone fide offering thereof.
II-2
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Costa Mesa, State of California, on November 25,
1998.
APRIA HEALTHCARE GROUP INC.
By: /s/ PHILIP L. CARTER
-----------------------------------
Philip L. Carter
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual and corporation whose
signature appears below constitutes and appoints Philip L. Carter, Ralph L.
Whitworth and Robert S. Holcombe, and each of them singly, as his, her or its
true and lawful attorneys-in-facts and agents with full power of substitution,
for him, her or it and in his, her or its name, place and stead, in the
capacities indicated below, to sign any and all amendments (including any and
all pre-effective and post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them singly, full power and authority
to do and to perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he, she
or it might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them singly, or his, her or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PHILIP S. CARTER Chief Executive Officer and November 25, 1998
- --------------------------------------------- Director (Principal
Philip L. Carter Executive and Financial
Officer)
/s/ JAMES E. BAKER Vice President, Controller November 25, 1998
- --------------------------------------------- (Principal Accounting
James E. Baker Officer)
/s/ RALPH L. WHITWORTH Director, Chairman of the November 25, 1998
- --------------------------------------------- Board
Ralph L. Whitworth
/s/ DAVID H. BATCHELDER Director November 25, 1998
- ---------------------------------------------
David H. Batchelder
/s/ DAVID L. GOLDSMITH Director November 25, 1998
- ---------------------------------------------
David L. Goldsmith
</TABLE>
II-3
<PAGE> 117
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LEONARD GREEN Director November 25, 1998
- ---------------------------------------------
Leonard Green
/s/ RICHARD H. KOPPES Director November 25, 1998
- ---------------------------------------------
Richard H. Koppes
/s/ PHILIP R. LOCHNER, JR. Director November 25, 1998
- ---------------------------------------------
Philip R. Lochner, Jr.
/s/ BEVERLY BENEDICT THOMAS Director November 25, 1998
- ---------------------------------------------
Beverly Benedict Thomas
/s/ H.J. MARK TOMPKINS Director November 25, 1998
- ---------------------------------------------
H.J. Mark Tompkins
</TABLE>
II-4
<PAGE> 118
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE/
NUMBER DESCRIPTION REFERENCE
- ------- ----------- ---------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated March 1, 1995 between (e)
Abbey and Homedco.
2.2 Agreement and Plan of Merger dated March 1, 1995, as (h)
amended on May 18, 1995, by and between Abbey and Homedco.
2.3 Agreement for the Sale and Purchase of the Whole of the (i)
Issued Share Capital of The Omnicare Group Limited and
Assumption of Certain Liabilities, dated June 20, 1995,
between Abbey Health Services Limited and Stanton
Industries Limited.
3.1 Restated Certificate of Incorporation of Registrant. (f)
3.2 Certificate of Ownership and Merger merging Apria (i)
Healthcare Group Inc. into Abbey and amending Abbey's
Restated Certificate of Incorporation to change Abbey's
name to "Apria Healthcare Group Inc."
3.3 Amended and Restated Bylaws of Registrant, as amended on (n)
January 27, 1997.
3.4 Amended and Restated Bylaws of Registrant, as amended on (t)
January 27, 1998.
3.5 Bylaws of the Registrant, as amended and restated through (w)
May 5, 1998.
4.1 Form of 9 1/2% Senior Subordinated Note due 2002. (b)
4.2 Indenture dated November 1, 1993, by and among Abbey, (d)
certain Subsidiary Guarantors defined therein and U.S.
Trust Company of California, N.A.
4.3 Shareholder Rights Agreement dated February 8, 1995, (e)
between Abbey and U.S. Stock Transfer Corporation, as
Rights Agent.
4.4 Specimen Stock Certificate of the Registrant. (t)
4.5 Certificate of Designation of the Registrant. (f)
4.6 Amendment No. I to the Rights Agreement dated as of June (p)
30, 1997, by and among Apria Healthcare Group Inc., Norwest
Bank Minnesota, NA. and U.S. Stock Transfer Corporation.
4.7 Form of 10% Convertible Subordinated Debentures due 2004
(included in the Indenture filed as Exhibit 4.8)
4.8 Indenture dated , 1998, by and among Apria
Healthcare Group Inc., certain Subsidiary Guarantors
defined therein and .
4.9 Form of Subscription Warrant.
5.1 Opinion of Gibson, Dunn & Crutcher LLP (to be filed
supplementally).
8.1 Opinion of Gibson, Dunn & Crutcher LLP re: tax matters (to
be filed supplementally).
10.1 Abbey 1991 Stock Option Plan. (a)
10.2 Abbey Schedule of Registration Procedures and Related (c)
Matters.
</TABLE>
II-5
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT PAGE/
NUMBER DESCRIPTION REFERENCE
- ------- ----------- ---------
<S> <C> <C>
10.3 Homedco 401(k) Savings Plan, restated effective October 1, (k)
1993, amended December 28, 1994.
10.4 Apria/Homedco Stock Incentive Plan, dated June 28, 1995. (g)
10.5 Abbey Amended and Restated 1992 Stock Incentive Plan. (k)
10.6 Amendment Number Two to the Homedco 401(k) Savings Plan, (l)
dated June 28, 1995.
10.7 Building lease, dated July 21, 1995, between C.J. (l)
Segerstrom & Sons, a California general partnership, and
Apria Healthcare, Inc. for 10 locations within Harbor
Gateway Business Center, Costa Mesa, California.
10.8 Assignment, Assumption and Consent Re: Lease (dated (j)
December 1, 1988, between C.J. Segerstrom & Sons, a
California general partnership, and Abbey Medical, Inc. for
premises located within Harbor Gateway Business Center,
Costa Mesa, California), executed by Abbey Medical, Inc.
and Apria Healthcare, Inc. as of July 21, 1995 and executed
by C.J. Segerstrom & Sons, a California general
partnership, as of July 24, 1995.
10.9 First Amendment to Complete Restatement of Lease Amendments (n)
and Amendment to Building Lease, dated as of July 24, 1996,
between C.J. Segerstrom & Sons, a California general
partnership, and Apria Healthcare, Inc., amending the
Building Lease, dated July 21, 1995, between the parties.
10.10 Assignment and Assumption of Lease (Building Lease, dated (n)
July 21, 1995, between C.J. Segerstrom & Sons, a California
general partnership, and Apria Healthcare, Inc.), dated as
of January 1, 1996, between Apria Healthcare, Inc. and
Apria Healthcare Group Inc.
10.11 Amendment Number Three to the Homedco 401(k) Savings Plan, (l)
dated January 1, 1996
10.12 Executive Severance Agreement dated June 28, 1997, between (o)
Apria Healthcare Group Inc. and Lisa M. Getson.
10.13 Executive Severance Agreement dated June 28, 1997, between (o)
Apria Healthcare Group Inc. and Robert S. Holcombe.
10.14 Executive Severance Agreement dated June 28, 1997, between (o)
Apria Healthcare Group Inc. and Dennis E. Walsh.
10.15 Resignation and General Release Agreement dated September (q)
26, 1997, between Apria Healthcare Group Inc. and Steven T.
Plochocki.
10.16 Resignation and General Release Agreement dated November 7, (t)
1997, between Apria Healthcare Group Inc. and Gary L.
Mangiofico.
10.17 Apria Healthcare Group Inc. 1997 Stock Incentive Plan, (r)
dated December 16, 1997.
10.18 Resignation and General Release Agreement dated January 19, (t)
1998, between Apria Healthcare Group Inc. and Jeremy M.
Jones.
</TABLE>
II-6
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT PAGE/
NUMBER DESCRIPTION REFERENCE
- ------- ----------- ---------
<S> <C> <C>
10.19 Executive Employment Agreement dated January 26, 1998, (t)
between Apria Healthcare Group Inc. and Lawrence M. Higby.
10.20 Third Amendment to Credit Agreement and Waiver, dated (t)
January 30, 1998, among Apria Healthcare Group Inc. and
certain of its subsidiaries, Bank of America National Trust
and Savings Association, Nationsbank of Texas, NA, and
other financial institutions party to the Credit Agreement.
10.21 Resignation and General Release Agreement dated February 4, (t)
1998, between Apria Healthcare Group Inc. and Jerome J.
Lyden.
10.22 Security Agreement, dated March 13, 1998, between Apria (t)
Healthcare Group Inc., Apria Healthcare, Inc., ApriaCare
Management Systems, Inc., Apria Number Two, Inc., Apria
Healthcare of New York State, Inc. and Bank of America
National Trust and Savings Association.
10.23 First Amendment to Security Agreement dated April 15, 1998 (u)
among Apria Healthcare Group Inc. and certain of its
subsidiaries, Bank of America National Trust and Savings
Association, NationsBank of Texas, N.A. and certain other
financial institutions party to the Credit Agreement.
10.24 Employment Agreement dated May 5, 1998 between Apria (w)
Healthcare Group Inc. and Philip L. Carter.
10.25 Resignation and General Release Agreement dated May 15, (w)
1998, between Lawrence H. Smallen and Apria Healthcare
Group Inc.
10.26 Executive Severance Agreement dated May 22, 1998, between (w)
the Apria Healthcare Group Inc. and Frank Bianchi.
10.27 Resignation and General Release Agreement dated June 20, (w)
1998, between Susan K. Skara and Apria Healthcare Group
Inc.
10.28 Executive Severance Agreement dated June 20, 1998, between (w)
the Apria Healthcare Group Inc. and Michael R. Dobbs.
10.29 Resignation and General Release Agreement dated June 30, (w)
1998 (effective date July 17, 1998), between Merl A.
Wallace and Apria Healthcare Group Inc.
10.30 Resignation and General Release Agreement dated July 1, (w)
1998 (effective date August 7, 1998), between Thomas R.
Robbins and Apria Healthcare Group Inc.
10.31 Amended and Restated Credit Agreement, dated as of November (x)
13, 1998 among Apria Healthcare Group Inc. and certain of
its subsidiaries, Bank of America National Trust and
Savings Association, NationsBank N.A. and other financial
institutions party to the Credit Agreement.
10.32 Standby Purchase Agreement dated as of November 3, 1998 (x)
between Apria Healthcare Group Inc. and Relational
Investors, LLC, on behalf of the entities named therein.
10.33 Registration Rights Agreement dated as of November 3, 1998 (x)
between Apria Healthcare Group Inc. and Relational
Investors, LLC, on behalf of the entities named therein.
</TABLE>
II-7
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT PAGE/
NUMBER DESCRIPTION REFERENCE
- ------- ----------- ---------
<S> <C> <C>
12.1 Statement re: Computation of Ratios of Earnings to Fixed
Charges.
16.1 Letter dated July 8, 1998 from Ernst and Young LLP (v)
addressed to the Securities and Exchange Commission.
21.1 List of Subsidiaries. (t)
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Gibson, Dunn & Crutcher LLP (to be included in
their opinion filed as Exhibit 5.1).
24.1 Power of Attorney (included on page II-3).
25.1 Statement of eligibility of trustee (to be filed
supplementally).
99.1 Form of Instructions to Stockholders as to use of
Subscription Warrants.
99.2 Form of Notice of Guaranteed Delivery for Subscription
Warrants.
99.3 Form of Letter to Common Stockholders who are record
holders.
99.4 Form of Letter to Common Stockholders who are beneficial
holders.
99.5 Form of Notice of Record Date.
99.6 Form of Letter to banks and brokers.
</TABLE>
REFERENCES -- DOCUMENTS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
<TABLE>
<S> <C>
(a) Incorporated by reference to Abbey's Registration Statement
on Form S-1 (Registration No. 33-44690), as filed on
December 23, 1991.
(b) Incorporated by reference to Abbey's Registration Statement
on Form S-1 (Registration No. 33-69078), as filed on
September 17, 1993.
(c) Incorporated by reference to Abbey's Registration Statement
on Form S-4 (Registration No. 33-69094). as filed on
September 17, 1993.
(d) Incorporated by reference to Abbey's Annual Report on Form
10-K for the year ended January 1, 1994.
(e) Incorporated by reference to Abbey's Current Report on Form
8-K, as filed on March 20, 1995.
(f) Incorporated by reference to Abbey's Registration Statement
on Form S-4 (Registration No. 33-90658), and its appendices,
as filed on March 27, 1995.
(g) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 (Registration No. 33-94026), as filed
on June 28, 1995.
(h) Incorporated by reference to Abbey's final joint proxy
statement/prospectus as filed pursuant to Rule 424(b) on May
26, 1995.
(i) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q dated June 30, 1995, as filed on August
14, 1995.
(j) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q dated September 30, 1995, as filed on
November 14, l995.
</TABLE>
II-8
<PAGE> 122
<TABLE>
<S> <C>
(k) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 (Registration No. 33-80581), as filed
on December 19, 1995.
(l) Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995.
(m) Incorporated by reference to the Registrant's Registration
Statement on Amendment No. 1 to Form S-4 (Registration No.
333-09407), as filed on August 27, 1996.
(n) Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996.
(o) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q dated June 30, 1997, as filed on August
14, 1997.
(p) Incorporated by reference to the Registrant's Registration
Statement on Form 8-A/A as filed on July 10, 1997.
(q) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q dated September 30, 1997, as filed on
November 14, 1997.
(r) Incorporated by reference to Registrant's Registration
Statement on Form S-8 (Registration No. 333-42775), as filed
on December 19, 1997.
(s) Incorporated by reference to Registrant's Current Report on
Form 8-K, as filed on February 6, 1998.
(t) Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997.
(u) Incorporated by reference to the Registrant's Amendment No.
1 to the Annual Report on Form 10-K/A for the year ended
December 31, 1997.
(v) Incorporated by reference to Registrant's Current Report on
Form 8-K, as filed on July 10, 1998.
(w) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q dated June 30, 1998, as filed on August
14, 1998.
(x) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q dated September 30, 1998, as filed on
November 16, 1998.
</TABLE>
II-9
<PAGE> 1
EXHIBIT 4.8
APRIA HEALTHCARE GROUP INC.
AS ISSUER
AND
THE SUBSIDIARY GUARANTORS PARTIES HERETO
AND
-----------------------
AS TRUSTEE
---------------------------
INDENTURE
Dated as of ______________, 1998
---------------------------
$51,779,000
10% CONVERTIBLE SUBORDINATED DEBENTURES
DUE ________________, 2004
<PAGE> 2
CROSS REFERENCE TABLE*
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- -------
<S> <C>
310(a)(1)..................................................................................... 6.8
(a)(2)................................................................................... 6.8
(a)(3)................................................................................... N.A.**
(a)(4)................................................................................... N.A.
(a)(5)................................................................................... 6.8
(b)...................................................................................... 6.9; 6.10; 6.13
(c)...................................................................................... N.A.
311(a)........................................................................................ 6.14
(b)...................................................................................... 6.14
(c)...................................................................................... N.A.
312(a)........................................................................................ 8.1; 8.2(a)
(b)...................................................................................... 8.2(b)
(c)...................................................................................... 8.2(b)
313(a)........................................................................................ 8.4
(b)(1)................................................................................... N.A.
(b)(2)................................................................................... 8.4
(c)...................................................................................... 1.6; 8.4
(d)...................................................................................... 8.4
314(a)........................................................................................ 1.6; 12.6(a); 12.8
(b)...................................................................................... N.A.
(c)(1)................................................................................... 1.2(a)
(c)(2)................................................................................... 1.2(a)
(c)(3)................................................................................... N.A.
(d)...................................................................................... N.A.
(e)...................................................................................... 1.2(b)
(f)...................................................................................... N.A.
315(a)........................................................................................ 6.1(b)
(b)...................................................................................... 1.6; 6.2
(c)...................................................................................... 6.1(a)
(d)...................................................................................... 6.1(c)
(e)...................................................................................... 5.11
316(a)(last sentence)......................................................................... 1.1(definition of
"Outstanding")
(a)(1)(A)................................................................................ 5.5
(a)(1)(B)................................................................................ 5.4
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
(a)(2)................................................................................... N.A.
(b)...................................................................................... 5.7
317(a)(1)..................................................................................... 5.8
(a)(2)................................................................................... 5.9
(b)...................................................................................... 3.6
318(a)........................................................................................ 1.13
</TABLE>
* This Cross-Reference Table shall not, for any purpose, be deemed a part of
this Indenture.
** "N.A." shall mean Not Applicable.
ii
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION..................................1
SECTION 1.1 DEFINITIONS........................................................1
SECTION 1.2 COMPLIANCE CERTIFICATES AND OPINIONS..............................15
SECTION 1.3 FORM OF DOCUMENTS DELIVERED TO THE TRUSTEE........................16
SECTION 1.4 ACTS OF HOLDERS OF SECURITIES.....................................16
SECTION 1.5 NOTICES, ETC......................................................18
SECTION 1.6 NOTICE TO HOLDERS OF SECURITIES; WAIVER...........................19
SECTION 1.7 EFFECT OF HEADINGS AND TABLE OF CONTENTS..........................19
SECTION 1.8 SUCCESSORS AND ASSIGNS............................................19
SECTION 1.9 SEPARABILITY CLAUSE...............................................19
SECTION 1.10 BENEFITS OF INDENTURE.............................................19
SECTION 1.11 GOVERNING LAW.....................................................20
SECTION 1.12 LEGAL HOLIDAYS....................................................20
SECTION 1.13 CONFLICT WITH TIA.................................................20
SECTION 1.14 COUNTERPARTS......................................................20
ARTICLE II SECURITY FORMS..........................................................................20
SECTION 2.1 FORMS GENERALLY...................................................20
SECTION 2.2 FORM OF FACE OF SECURITY..........................................22
SECTION 2.3 FORM OF REVERSE OF SECURITY.......................................23
SECTION 2.4 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION...................29
ARTICLE III THE SECURITIES..........................................................................29
SECTION 3.1 TITLE AND TERMS...................................................29
SECTION 3.2 DENOMINATIONS.....................................................30
SECTION 3.3 EXECUTION, AUTHENTICATION, DELIVERY AND DATING....................30
SECTION 3.4 TEMPORARY SECURITIES..............................................31
SECTION 3.5 REGISTRAR, PAYING AGENT AND CONVERSION AGENT......................31
SECTION 3.6 PAYING AGENT TO HOLD MONEY IN TRUST...............................32
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 3.7 REGISTRATION OF TRANSFER AND EXCHANGE.............................32
SECTION 3.8 MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES...................33
SECTION 3.9 PAYMENT OF INTEREST, INTEREST RIGHTS PRESERVED....................33
SECTION 3.10 PERSONS DEEMED OWNERS.............................................35
SECTION 3.11 CANCELLATION......................................................35
SECTION 3.12 COMPUTATION OF INTEREST...........................................35
SECTION 3.13 CUSIP NUMBERS.....................................................35
ARTICLE IV SATISFACTION AND DISCHARGE..............................................................36
SECTION 4.1 SATISFACTION AND DISCHARGE OF INDENTURE...........................36
SECTION 4.2 APPLICATION OF TRUST MONEY........................................37
ARTICLE V REMEDIES................................................................................37
SECTION 5.1 EVENTS OF DEFAULT.................................................37
SECTION 5.2 ACCELERATION......................................................39
SECTION 5.3 OTHER REMEDIES....................................................40
SECTION 5.4 WAIVER OF PAST DEFAULTS...........................................40
SECTION 5.5 CONTROL BY MAJORITY...............................................40
SECTION 5.6 LIMITATION ON SUITS...............................................40
SECTION 5.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO CONVERT...............41
SECTION 5.8 COLLECTION SUIT BY TRUSTEE........................................41
SECTION 5.9 TRUSTEE MAY FILE PROOFS OF CLAIM..................................41
SECTION 5.10 PRIORITIES........................................................42
SECTION 5.11 UNDERTAKING FOR COSTS.............................................42
SECTION 5.12 EVENT OF DEFAULT FROM WILLFUL ACTION..............................42
ARTICLE VI THE TRUSTEE.............................................................................43
SECTION 6.1 CERTAIN DUTIES AND RESPONSIBILITIES...............................43
SECTION 6.2 NOTICE OF DEFAULTS................................................44
SECTION 6.3 CERTAIN RIGHTS OF TRUSTEE.........................................44
SECTION 6.4 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES............45
SECTION 6.5 MAY HOLD SECURITIES, ACT AS TRUSTEE UNDER OTHER INDENTURES........45
SECTION 6.6 MONEY HELD IN TRUST...............................................46
SECTION 6.7 COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR
CLAIMS............................................................46
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 6.8 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY...........................47
SECTION 6.9 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.................47
SECTION 6.10 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR............................48
SECTION 6.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS..........................................................48
SECTION 6.12 AUTHENTICATING AGENT..............................................49
SECTION 6.13 DISQUALIFICATION; CONFLICTING INTERESTS...........................50
SECTION 6.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.............50
ARTICLE VII LEGAL DEFEASANCE AND COVENANT DEFEASANCE................................................50
SECTION 7.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE..........50
SECTION 7.2 LEGAL DEFEASANCE AND DISCHARGE....................................51
SECTION 7.3 COVENANT DEFEASANCE...............................................51
SECTION 7.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE........................52
SECTION 7.5 DEPOSITED U.S. LEGAL TENDER AND U.S. GOVERNMENT
OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS
PROVISIONS........................................................53
SECTION 7.6 REPAYMENT TO THE COMPANY..........................................53
SECTION 7.7 REINSTATEMENT.....................................................54
ARTICLE VIII HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY.......................................54
SECTION 8.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.........54
SECTION 8.2 PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS............55
SECTION 8.3 REPORTS BY THE COMPANY............................................55
SECTION 8.4 REPORTS BY TRUSTEE TO HOLDERS.....................................55
ARTICLE IX CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE....................................55
SECTION 9.1 COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS..............55
SECTION 9.2 SUCCESSOR SUBSTITUTED.............................................56
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C> <C>
ARTICLE X AMENDMENTS, SUPPLEMENTS AND WAIVERS.....................................................56
SECTION 10.1 WITHOUT CONSENT OF HOLDERS........................................56
SECTION 10.2 WITH CONSENT OF HOLDERS...........................................57
SECTION 10.3 COMPLIANCE WITH TIA...............................................59
SECTION 10.4 REVOCATION AND EFFECT OF CONSENTS.................................59
SECTION 10.5 NOTATION ON OR EXCHANGE OF NOTES..................................59
SECTION 10.6 TRUSTEE TO SIGN AMENDMENTS, ETC...................................60
ARTICLE XI MEETINGS OF HOLDERS OF SECURITIES.......................................................60
SECTION 11.1 PURPOSES FOR WHICH MEETINGS MAY BE CALLED.........................60
SECTION 11.2 CALL, NOTICE AND PLACE OF MEETINGS................................60
SECTION 11.3 PERSONS ENTITLED TO VOTE AT MEETINGS..............................60
SECTION 11.4 QUORUM; ACTION....................................................61
SECTION 11.5 DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF
MEETINGS..........................................................61
SECTION 11.6 COUNTING VOTES AND RECORDING ACTION OF MEETINGS...................62
ARTICLE XII COVENANTS...............................................................................63
SECTION 12.1 PAYMENT OF PRINCIPAL AND INTEREST.................................63
SECTION 12.2 MAINTENANCE OF OFFICE OR AGENCY...................................63
SECTION 12.3 CORPORATE EXISTENCE...............................................63
SECTION 12.4 PAYMENT OF TAXES AND OTHER CLAIMS.................................63
SECTION 12.5 MAINTENANCE OF PROPERTIES AND INSURANCE...........................64
SECTION 12.6 COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.........................64
SECTION 12.7 COMPLIANCE WITH LAWS..............................................65
SECTION 12.8 COMMISSION REPORTS................................................65
SECTION 12.9 WAIVER OF CERTAIN COVENANTS.......................................66
SECTION 12.10 GUARANTEES BY SUBSIDIARIES........................................66
SECTION 12.11 LIMITATION ON CHANGE OF CONTROL...................................66
ARTICLE XIII REDEMPTION OF SECURITIES................................................................68
SECTION 13.1 RIGHT OF REDEMPTION...............................................68
SECTION 13.2 APPLICABILITY OF ARTICLE..........................................68
SECTION 13.3 ELECTION TO REDEEM; NOTICE TO TRUSTEE.............................68
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 13.4 SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.................68
SECTION 13.5 NOTICE OF REDEMPTION..............................................69
SECTION 13.6 DEPOSIT OF REDEMPTION ON PRICE....................................69
SECTION 13.7 SECURITIES PAYABLE ON REDEMPTION DATE.............................70
ARTICLE XIV CONVERSION OF SECURITIES................................................................70
SECTION 14.1 CONVERSION PRIVILEGE AND CONVERSION RATE..........................70
SECTION 14.2 EXERCISE OF CONVERSION PRIVILEGE..................................71
SECTION 14.3 FRACTIONS OF SHARES OF COMMON STOCK...............................73
SECTION 14.4 ADJUSTMENT OF CONVERSION RATE.....................................73
SECTION 14.5 NOTICE OF ADJUSTMENTS OF CONVERSION RATE..........................77
SECTION 14.6 NOTICE OF CERTAIN CORPORATE ACTION................................78
SECTION 14.7 COMPANY TO RESERVE COMMON STOCK...................................79
SECTION 14.8 TAXES ON CONVERSIONS..............................................79
SECTION 14.9 COVENANT AS TO COMMON STOCK.......................................79
SECTION 14.10 CANCELLATION OF CONVERTED SECURITIES..............................79
SECTION 14.11 PROVISION IN CASE OF CONSOLIDATION, MERGER OR CONVEYANCE
OF ASSETS.........................................................80
SECTION 14.12 RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS...............81
ARTICLE XV SUBORDINATION OF THE SECURITIES.........................................................81
SECTION 15.1 SUBORDINATED OBLIGATIONS SUBORDINATED TO SENIOR DEBT..............81
SECTION 15.2 NO PAYMENT ON SUBORDINATED OBLIGATIONS IN CERTAIN
CIRCUMSTANCES.....................................................82
SECTION 15.3 SUBORDINATED OBLIGATIONS SUBORDINATED TO PRIOR PAYMENT OF
ALL SENIOR DEBT ON DISSOLUTION, LIQUIDATION OR
REORGANIZATION OF THE COMPANY.....................................83
SECTION 15.4 HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR
DEBT..............................................................84
SECTION 15.5 OBLIGATIONS OF COMPANY UNCONDITIONAL..............................84
</TABLE>
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<TABLE>
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SECTION 15.6 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN
ABSENCE OF NOTICE.................................................85
SECTION 15.7 APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT................85
SECTION 15.8 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF
THE COMPANY OR HOLDERS OF SENIOR DEBT.............................86
SECTION 15.9 HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF
SECURITIES........................................................87
SECTION 15.10 ARTICLE XV NOT TO PREVENT EVENTS OF DEFAULT.......................87
SECTION 15.11 NO FIDUCIARY DUTY OF TRUSTEE TO HOLDERS OF SENIOR DEBT............87
ARTICLE XVI SENIOR SUBORDINATED GUARANTEE OF SECURITIES.............................................87
SECTION 16.1 UNCONDITIONAL GUARANTEE...........................................87
SECTION 16.2 SEVERABILITY......................................................88
SECTION 16.3 RELEASE OF A SUBSIDIARY GUARANTOR.................................88
SECTION 16.4 LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY....................89
SECTION 16.5 SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN
TERMS.............................................................89
SECTION 16.6 CONTRIBUTION......................................................90
SECTION 16.7 WAIVER OF SUBROGATION.............................................90
SECTION 16.8 EXECUTION OF GUARANTEE............................................91
ARTICLE XVII SUBORDINATION OF THE GUARANTEES.........................................................91
SECTION 17.1 GUARANTOR SUBORDINATED OBLIGATIONS SUBORDINATED TO
GUARANTOR SENIOR DEBT.............................................91
SECTION 17.2 NO PAYMENT ON GUARANTOR SUBORDINATED OBLIGATIONS IN
CERTAIN CIRCUMSTANCES.............................................92
SECTION 17.3 GUARANTOR SUBORDINATED OBLIGATIONS SUBORDINATED TO PRIOR
PAYMENT OF ALL GUARANTOR SENIOR DEBT ON DISSOLUTION,
LIQUIDATION OR REORGANIZATION OF ANY SUBSIDIARY GUARANTOR.........93
SECTION 17.4 HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF GUARANTOR
SENIOR DEBT.......................................................94
</TABLE>
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SECTION 17.5 OBLIGATIONS OF SUBSIDIARY GUARANTORS UNCONDITIONAL................95
SECTION 17.6 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN
ABSENCE OF NOTICE.................................................95
SECTION 17.7 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF
THE SUBSIDIARY GUARANTORS OR HOLDERS OF GUARANTOR SENIOR
DEBT..............................................................96
SECTION 17.8 HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF
GUARANTEES........................................................97
SECTION 17.9 ARTICLE XVII NOT TO PREVENT EVENTS OF DEFAULT.....................97
SECTION 17.10 NO FIDUCIARY DUTY OF TRUSTEE TO HOLDERS OF GUARANTOR
SENIOR DEBT.......................................................97
</TABLE>
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<PAGE> 11
INDENTURE, dated as of _______________, 1998 (the "Indenture"), between
Apria Healthcare Group Inc., a Delaware corporation (the "Company"), the
subsidiary guarantors parties hereto (the "Subsidiary Guarantors") and
______________, a _____________, as Trustee hereunder (the "Trustee").
RECITALS
WHEREAS, the Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance of its 10% Convertible Subordinated
Debentures due _____________, 2004 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth.
WHEREAS, 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 covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) Unless the context otherwise requires, any reference to an
"Article" or a "Section," or to an "Exhibit," refers to an Article or Section
of, or an Exhibit attached to, this Indenture, as the case may be;
(c) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles in
the United States prevailing at the time of any relevant computation hereunder;
and
<PAGE> 12
(d) 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; provided, however, that where such words
are used in any form of Security, form of notice or form of certificate, such
words shall refer only to the particular form of Security, form of notice or
form of certificate, as the case may be, in which such words are contained.
"Accrued Interest Payment" has the meaning specified in Section
14.2(c).
"Act" when used with respect to any Holder of a Security has the
meaning specified in Section 1.4(a).
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean
the lesser of the amount by which (a) the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Guarantee, of such Subsidiary Guarantor at such date and
(b) the present fair saleable value of the assets of such Subsidiary Guarantor
at such date exceeds the amount that will be required to pay the probable
liability of such Subsidiary Guarantor on its debts (after giving effect to all
other fixed and contingent liabilities incurred or assumed on such date and
after giving effect to any collection from any Subsidiary of such Subsidiary
Guarantor in respect of the obligations of such Subsidiary under the Guarantee),
excluding debt in respect of the Guarantee, as they become absolute and matured.
"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.
"Agent" means any Registrar, Paying Agent or Conversion Agent.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 6.12 to act on behalf of the Trustee to authenticate
Securities.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means, with respect to any particular place of payment,
place of conversion or any other place, as the case may be, each Monday,
Tuesday, Wednesday, Thursday
2
<PAGE> 13
and Friday, other than any such day on which banking institutions in New York
City, New York, or in such particular place are authorized or obligated by law
or executive order to close. If any day on which any delivery, request,
surrender, payment or other action is required or permitted hereunder to be
taken by or on behalf of a Holder is not a Business Day in any place where such
action is permitted hereunder to be taken, then such actions may be taken at
such or any other permitted place on the next succeeding Business Day at such
place with the same force and effect as if taken at the same time on such day
that is not a business day at such place.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such Person,
including Preferred Stock.
"Capitalized Lease Obligation" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Change of Control" means either (a) the acquisition after the Issue
Date, in one or more transactions, of beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) by any Person or entity or any group of
Persons or entities who constitute a group (within the meaning of Section
13(d)(3) of the Exchange Act), other than Permitted Holders, of any securities
of the Company such that, as a result of such acquisition, such Person, entity
or group either (i) beneficially owns (within the meaning of Rule 13d-3 under
the Exchange Act), directly or indirectly, more than 50% of the Company's then
outstanding Voting Securities or (ii) otherwise has the ability to elect,
directly or indirectly, a majority of the members of the Company's Board of
Directors; or (b) a change in the composition of the Board of Directors of the
Company such that a majority of the members of the Board of Directors of the
Company are not Continuing Directors.
"Change of Control Offer" has the meaning specified in Section 12.11.
"Change of Control Payment" has the meaning specified in Section 12.11.
"Change of Control Payment Date" has the meaning specified in Section
12.11.
"Claim" means any and all rights to payment under or in respect of any
Security, any Guarantee or this Indenture, all rights, remedies, demands, causes
of action and claims of every type and description at any time held or asserted
by, or arising in favor of, any holder of a Security against the Company or any
Subsidiary Guarantor, or any of them or any of their assets, in each case on
account of any breach of any promise, obligation, agreement, indemnity or
covenant in a Security, a Guarantee or this Indenture or in any manner arising
out of, or directly relating to, the offer, sale or purchase of a Security or
the performance or nonperformance or the payment or nonpayment thereof or under
any Guarantee.
"Closing Price Per Share" means, with respect to the Common Stock of
the Company, for any day, the reported last sales price regular way per share on
such day or, in case no such
3
<PAGE> 14
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case (a) on the principal (as determined
by the Company's Board of Directors) national securities exchange on which the
Common Stock is listed or admitted to trading or (b) if not listed or admitted
to trading on any national securities exchange, on the Nasdaq National Market or
(c) 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.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Commission" means the U.S. Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, 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 applicable law, then
the body performing such duties at such time.
"Common Stock" means the Common Stock, par value $____ per share, of
the Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 14.11, shares issuable on conversion or
repurchase of Securities shall include only shares of Common Stock or shares of
any class or classes of common stock resulting from any reclassification or
reclassifications thereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of
Securities shall include shares of all such classes, and 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 preamble 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 Order" or "Company Request" means a written request or order
signed in the name of the Company by any one of its Chairman of the Board, its
Chief Executive Officer, its President, or any Vice President, and by any one of
its Chief Financial Officer, Treasurer, any Assistant Treasurer, its Secretary
or any Assistant Secretary, and delivered to the Trustee.
"Constituent Person" has the meaning specified in Section 14.11(a).
"Continuing Director" means, as of any date of determination, any
member of the Board of Directors of the Company who (a) was a member of such
Board of Directors on the Issue Date or (b) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Conversion Agent" means any Person authorized by the Company to
convert Securities in accordance with Article XIV.
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<PAGE> 15
"Conversion Price" and "Conversion Rate" have the meanings specified in
Section 14.1(d) hereof, as adjusted in accordance with Section 14.4.
"Conversion Securities" means the securities delivered on conversion of
Securities (or any securities successor thereto), together with any securities
successor thereto to those so delivered on conversions.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time the trust created by this Indenture shall be administered
(which at the date of this Indenture is located at _______________ (Apria
Healthcare Group Inc., 10% Convertible Subordinated Debentures Due 2004)).
"Covenant Defeasance" has the meaning specified in Section 7.3.
"Credit Agreement" means that certain Credit Agreement, dated as of
August 9, 1996, by and among the Company and certain of its Subsidiaries, Bank
of America National Trust and Savings Association, NationsBank of Texas, N.A.
and certain other financial institutions, as amended, or other analogous
documents entered into in connection with any refinancing thereof, as any of the
foregoing has been or may from time to time be amended, received, supplemented
or otherwise modified at the option of the parties thereto.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.9(b).
"Designated Senior Debt" means (a) Indebtedness or Obligations under
the Senior Credit Facility and (b) any other Senior Debt permitted under this
Indenture, the outstanding principal amount of which is $25 million or more and,
if at least $25 million of Indebtedness (or commitments to fund Indebtedness) is
outstanding under the Senior Credit Facility, consented to in writing by the
Senior Credit Representative.
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States as at the time shall be legal tender for the
payment of public and private debts.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934 (including any
successor act thereto), as it may be amended from time to time, and (unless the
context otherwise requires) includes the rules and regulations of the Commission
promulgated thereunder.
["Existing Foreign Subsidiary" means the Abbey Health Services Limited,
a company organized under the laws of the United Kingdom, or any successor
corporation formed pursuant
5
<PAGE> 16
to a merger, consolidation, reorganization, or sale of assets of such Existing
Foreign Subsidiary, so long as such successor corporation is not an Unrestricted
Subsidiary.]
"Existing Indenture" means that certain Indenture, dated November 1,
1993, by and among Abbey Healthcare Group Incorporated, a Delaware corporation
and the predecessor of the Company, the subsidiary guarantors parties thereto
and U.S. Trust Company of California, N.A., as Trustee.
"Existing John Ventures" means each non-wholly owned subsidiary of each
of the Company existing on the Issue Date.
"Existing Notes" means those 9-1/2% Senior Subordinated Notes due 2002,
duly authorized and issued by the Company under the Company's Existing
Indenture.
"Expiration Date" has the meaning specified in Section 1.4(g).
"Foreign Exchange Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect against fluctuations in currency values.
"Foreign Subsidiary" means any Subsidiary which is organized under the
laws of a jurisdiction outside of the United States and which does not own any
material assets or properties located within the United States.
"Funding Guarantor" shall have the meaning set forth in Section 16.6.
"GAAP" means generally accepted accounting principles as in effect in
the United States of America as of the date of this Indenture.
"Guarantee" means the guarantee of each Subsidiary Guarantor set forth
in Article XVI and any additional guarantee of the Securities executed by any
Subsidiary.
"Guarantor Non-Payment Default" shall have the meaning specified in
Section 17.2(b).
"Guarantor Payment Blockage Notice" shall have the meaning specified in
Section 17.2(b).
"Guarantor Senior Debt" means all Indebtedness and other Obligations
specified below payable directly or indirectly by the applicable Subsidiary
Guarantor, whether outstanding on the date of this Indenture or thereafter
created, incurred or assumed by such Subsidiary Guarantor: (a) the principal of
and interest on and all other Obligations related to the Senior Credit Facility
(including, without limitation, all loans, letters of credit and other
extensions of credit under the Senior Credit Facility, and all expenses, fees,
reimbursements, indemnities and other amounts owing pursuant to the Senior
Credit Facility); (b) any other Indebtedness permitted to be incurred by any
Subsidiary Guarantor under the terms of this Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Guarantee of such
Subsidiary Guarantor; and (c) all permitted renewals,
6
<PAGE> 17
extensions, refundings or refinancings thereof. All Post-Petition Interest on
Guarantor Senior Debt shall constitute Guarantor Senior Debt. Notwithstanding
anything to the contrary in the foregoing, Guarantor Senior Debt shall not
include (i) any liability for federal, state, local or other taxes owed or owing
by the Subsidiary Guarantor, (ii) any Indebtedness of the Subsidiary Guarantor
to the Company or any of its Subsidiaries or other Affiliates, (iii) any trade
payables or (iv) any Indebtedness that is incurred in violation of this
Indenture. To the extent any payment of Guarantor Senior Debt (whether by or on
behalf of the Company or any Subsidiary Guarantor, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to a trustee, receiver or other
similar party under any bankruptcy, insolvency, receivership or similar law,
then if such payment is recovered by, or paid over to, such trustee, receiver or
other similar party, the Guarantor Senior Debt or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred. All Guarantor Senior Debt shall be and remain
Guarantor Senior Debt for all purposes of this Indenture, whether or not
subordinated in an Insolvency or Liquidation Proceeding.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"Indebtedness" means with respect to any Person, without duplication,
(a) all liabilities, contingent or otherwise, of such Person (i) for borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such Person or only to a portion thereof), (ii) evidenced by bonds, notes,
debentures, drafts accepted or similar instruments or letters of credit or
representing the balance deferred and unpaid of the purchase price of any
property (other than any such balance that represents an account payable or any
other monetary obligation to a trade creditor created, incurred, assumed or
guaranteed by such Person in the ordinary course of business of such Person in
connection with obtaining goods, materials or services, which account is not
overdue by more than 90 days, according to the original terms of sale, unless
such account payable is being contested or has been renegotiated in good faith),
(iii) for the payment of money relating to a Capitalized Lease Obligation or
(iv) pursuant to any Stock Guarantee Obligations; (b) reimbursement obligations
of such Person with respect to letters of credit; (c) obligations of such Person
with respect to Interest Swap Obligations and Foreign Exchange Agreements; (d)
all liabilities of others of the kind described in the preceding clause (a), (b)
or (c) that such Person has guaranteed, that have been incurred by a partnership
in which it is a general partner to the extent such Person is liable,
contingently or otherwise, therefor) or that is otherwise its legal (other than
endorsements for collection in the ordinary course of business); and (e) all
obligations of others secured by a Lien to which any of the properties or assets
(including, without limitation, leasehold interests and any other tangible or
intangible property rights) of such Person are subject, whether or not the
obligations secured thereby shall have been assumed by such Person or shall
otherwise be such Person's legal liability (provided that if the obligations so
secured have not been assumed by such Person or are not otherwise such Person's
legal liability, such obligations shall be deemed to be in an amount equal to
the lesser of the fair market value of such properties or assets or the amount
necessary to discharge such Lien, as determined in good faith by the Board of
Directors of such Person, which determination shall be evidenced by a Board
Resolution).
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<PAGE> 18
"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 Exhibits attached to this instrument.
"Insolvency or Liquidation Proceeding" means (a) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to the Company or any Subsidiary
Guarantor or to the creditors of the Company or such Subsidiary Guarantor, as
such, or to the assets of the Company or such Subsidiary Guarantor, or (b) any
liquidation, dissolution, reorganization or winding up of the Company or such
Subsidiary Guarantor, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy, or (c) any assignment for the benefit of
creditors or any other marshaling of assets and liabilities of the Company or
such Subsidiary Guarantor.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Swap Obligation" means any obligation of any Person pursuant
to any arrangement with any other Person whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such Person calculated by applying a
fixed or floating rate of interest on the same notional amount; provided that
the term "Interest Swap Obligation" shall also include interest rate exchange,
collar, cap, swap option or similar agreements providing interest rate
protection.
"Investment" by any Person means any investment or acquisition by such
Person, in any transaction or series of related transactions, whether by a
purchase of assets, share purchase, capital contribution, loan, advance (other
than reasonable loans and advances to employees for moving and travel expenses,
as salary advances, and other customary loans and advances to employees
incurred, in each case, in the ordinary course of business consistent with past
practice) or similar credit extension constituting Indebtedness of such other
Person, and any guarantee of Indebtedness of any other Person.
"Issue Date" means the date of the first issuance of the Securities
under this Indenture.
"Legal Defeasance" has the meaning specified in Section 7.2.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, (other than bona fide options and agreements
for the sale of assets) and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
8
<PAGE> 19
"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 or by declaration of
acceleration, call for redemption, exercise of the repurchase rights set forth
in Section 12.11 or otherwise.
"Non-Electing Share" has the meaning specified in Section 14.11(a).
"Non-Payment Default" shall have the meaning provided in Section
15.2(b).
"Non-Recourse Indebtedness" means Indebtedness that, under the terms
thereof or pursuant to applicable law (i) neither the Company nor any Subsidiary
other than a Subsidiary being designated as an Unrestricted Subsidiary) is
directly or indirectly liable with respect thereto, as an obligor, guarantor or
otherwise, (ii) with respect to which there is no recourse against any of the
assets or properties of the Company or such Subsidiary and (iii) upon the
occurrence of a default or event of default with respect thereto, would not
permit (upon notice, lapse of time or both) any holder of other Indebtedness of
the Company or any Subsidiary (other than the Subsidiary being designated as an
Unrestricted Subsidiary) to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity.
"Notice of Default" has the meaning specified in the last paragraph of
Section 5.1.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the Board,
the President, the Chief Financial Officer, the Controller, the Secretary or any
Vice President of such Person.
"Officers' Certificate" means, with respect to any Person, a written
certificate signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of such Person and otherwise complying with
the requirements of Section 1.2.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company and shall be reasonably acceptable to the Trustee,
complying with the requirements of Section 1.2.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities for the payment, redemption or repurchase of
which money in the necessary amount has been deposited with the Trustee
or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities, provided
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<PAGE> 20
that if such Securities are to be redeemed or repurchased, notice of
such redemption or repurchase has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been
made; and
(c) Securities which have been replaced pursuant to Section
3.8 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;
(d) Securities which have been converted or surrendered for
conversion pursuant to Article XIV.
provided, however, that in determining whether the Holders of the
requisite principal amount of Outstanding Securities are present at a meeting of
Holders of Securities for quorum purposes or 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 such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in conclusively relying upon any such determination as to the presence of a
quorum or upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
actually 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 such other
obligor.
"Partnership Interest" means any general or limited partnership
interest and any interest as a member of a limited liability company.
"Paying Agent" means the office or agency maintained by the Company
where Securities may be presented or surrendered for payment, provided, however,
that for purposes of Articles XIII and IV and Section 12.11 herein, the Paying
Agent shall not be the Company or any Subsidiary.
"Payment Blockage Notice" shall have the meaning set forth in Section
15.2(b).
"Permitted Holder" means each of ____________ and _____________ and any
group within the meaning of Section 13(d)(3) of the Exchange Act) of which one
or both of them are member; so long as, with respect to any group, _________ and
__________, either singly or in the aggregate, own more than 20% of the Voting
Securities of the Company.
"Permitted Joint Venture" means any subsidiary which owns, operates,
contracts with or services a health care business or facility or manufactures or
provides health care products or services and (a) is formed to offer a
participation in the assets, businesses or revenues (income)
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<PAGE> 21
owned or to be acquired by such subsidiary to any other Person; (b) of which the
Company or any subsidiary is a general partner (or equivalent) or controls the
general partner (or equivalent); and (iii) does not receive any Investment from
the Company or any subsidiary.
"Permitted Junior Securities" shall mean securities, including
guarantees of any debt securities, of the Company or any other corporation
provided for by a plan of reorganization or readjustment, which securities are
equity securities or debt securities which are subordinated in right of payment
to Senior Debt to the same extent as the Securities are so subordinated as
provided in Article XV of this Indenture, authorized by an order or decree
giving effect and stating in such order or decree that effect has been given, to
subordination of the Securities to Senior Debt and made by a court of competent
jurisdiction in a reorganization proceeding under any applicable bankruptcy,
insolvency or similar law; provided that (a) the Senior Debt is assumed by the
new corporation, if any, resulting from any such reorganization or readjustment;
(b) the rights of the holders of any Designated Senior Debt are not, without the
consent of such holders, altered by such reorganization or readjustment, which
consent shall be deemed to have been given if the holders of such Designated
Senior Debt (or their respective Representatives, if any), individually or as a
class, shall have affirmatively accepted such reorganization or analogous plan;
and (c) such securities shall contain only such other terms and conditions
(including, without limitation, as to maturity, interest, amortization,
covenants and defaults) as are at least as favorable, in all material respects
(and provide the same relative benefits), to the holders of Designated Senior
Debt as the Securities.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, estate,
unincorporated organization or other legal entity or government or any agency or
political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether outstanding on the date
hereof or issued after the date of this Indenture, and including, without
limitation, all classes and series of preferred or preference stock of such
Person.
"Post-Petition Interest" means all interest accrued or accruing after
the commencement of any Insolvency or Liquidation Proceeding in accordance with
and at the contract rate (including, without limitation, any rate applicable
upon default) specified in the agreement or instrument creating, evidencing or
governing any Senior Debt or Guarantor Senior Debt, whether or not pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"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 3.8 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.
"Record Date" means any Regular Record Date or Special Record Date.
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<PAGE> 22
"Record Date Period" means the period from the close of business on any
Regular Record Date next preceding any Interest Payment Date to the opening of
business on such Interest Payment Date.
"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.
"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.
"Registrar" has the meaning specified in Section 3.5(a).
"Regular Record Date" for interest payable in respect of any Security
on any Interest Payment Date means the ___________ 15 or ____________ 15
(whether or not a Business Day) next preceding the relevant Interest Payment
Date.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.
"Responsible Officer," when used with respect to the Trustee, shall
mean any officer of the Trustee within the Corporate Trust Office including any
Senior Vice President, Assistant Vice President, Trust Officer, Secretary,
Assistant Secretary or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of such officer's knowledge and familiarity
with the particular subject.
"Securities" has the meaning ascribed to it in the first paragraph of
the "Recitals."
"Securities Act" means the Securities Act of 1933 (including any
successor act thereto), as it may be amended from time to time, and (unless the
context otherwise requires) includes the rules and regulations of the Commission
promulgated thereunder.
"Security Register" has the meaning specified in Section 3.5(a).
"Senior Credit Facility" means (i) the Credit Agreement; (ii) and any
other agreement (including all related ancillary agreements) pursuant to which
any of the indebtedness, obligations, commitments, costs, expenses, fees,
reimbursements and other indemnities payable or owing thereunder (or under any
subsequent Senior Credit Facility) may be refinanced, restructured, renewed,
extended, refunded, replaced or increased, as any such other agreement may from
time to time at the option of the parties thereto be amended, renewed,
supplemented or otherwise modified.
"Senior Credit Representative" means Bank of America National Trust and
Savings Association, in its capacity as administrative agent under the Senior
Credit Facility, or any successor thereto as an agent or administrative agent
for the lenders under the Senior Credit Facility.
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<PAGE> 23
"Senior Debt" means all Indebtedness and other Obligations specified
below payable directly or indirectly by the Company, whether outstanding on the
date of this Indenture or thereafter created, incurred or assumed by the
Company: (a) the principal of and interest on and all other Obligations related
to the Senior Credit Facility (including, without limitation, all loans, letters
of credit and other extensions of credit under the Senior Credit Facility, and
all expenses, fees, reimbursements, indemnities and other amounts owing pursuant
to the Senior Credit Facility); (b) any other Indebtedness permitted to be
incurred by the Company under the terms of this Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Securities; and (c) all
permitted renewals, extensions, refundings or refinancings thereof. All
Post-Petition Interest on Senior Debt shall constitute Senior Debt.
Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not
include (i) the Company's Existing Notes, (ii) any liability for federal, state,
local or other taxes owed or owing by the Company, (iii) any Indebtedness of the
Company to any of its Subsidiaries or other Affiliates, (iv) any trade payables
or (v) any Indebtedness that is incurred in violation of this Indenture. To the
extent any payment of Senior Debt (whether by or on behalf of the Company or, as
proceeds of security or enforcement of any right of setoff or otherwise) is
declared to be fraudulent or preferential, set aside or required to be paid to a
trustee, receiver or other similar party under any bankruptcy, insolvency,
receivership or similar law, then if such payment is recovered by, or paid over
to, such trustee, receiver or other similar party, the Senior Debt or part
thereof originally intended to be satisfied shall be deemed to be reinstated and
outstanding as if such payment had not occurred. All Senior Debt shall be and
remain Senior Debt for all purposes of this Indenture, whether or not
subordinated in an Insolvency or Liquidation Proceeding.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.9.
"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Stock Guarantee Obligations" means all Obligations of a specified
Person or any subsidiary of such Person to make payments (whether in cash,
securities or other property) to any holder of the Capital Stock of such Person
or any of its Affiliates, or any option, warrant or other right to acquire such
Capital Stock, in order to guarantee the value of such Capital Stock (or any
such option, warrant or other right) at any time or to otherwise hold such
holder harmless, in full or in part, for any decline in the value of such
Capital Stock (or any such option, warrant or other right) or for the failure of
such Capital Stock (or any such option, warrant or other right) to appreciate
value.
"Subordinated Obligations" shall have the meaning specified in Section
15.1(a).
"subsidiary" means, with respect to any Person, (a) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is, at the date of determination, directly or indirectly,
owned by such Person, by one or more subsidiaries of such Person or by such
Person and one or more subsidiaries of such Person, or (b) a partnership
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<PAGE> 24
in which such Person or a subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership, but only if
such Person or its subsidiary is entitled to receive more than 50% of the assess
of such partnership upon its dissolution, or (c) any limited liability company
or any other Person (other than a corporation or a partnership) in which such
Person, a subsidiary of such Person or such Person and one or more subsidiaries
of such Person, directly or indirectly, at the date of determination, has (a) at
least a majority ownership interest or (d) the power to elect or direct the
election of a majority of the directors or other governing body of such Person.
"Subsidiary" means a corporation more than 50% of the outstanding
Voting Securities 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.
"Subsidiary Guarantor" means (a) ______________________, and (b) each
of the Company's Subsidiaries that becomes a guarantor of the Securities in
compliance with the provisions of Section 12.10 and Article XVI of this
Indenture and (c) any other Subsidiary executing a supplemental indenture in
which such Subsidiary agrees to be bound by the terms of this Indenture which
are applicable to a Subsidiary Guarantor hereunder.
"Trading Days" means (a) if the Common Stock is listed or admitted for
trading on any national securities exchange, days on which such national
securities exchange is open for business or (b) if the Common Stock is not
listed or admitted for trading on any national securities exchange, days on
which trades may be made on the Nasdaq National Market or any similar system of
automated dissemination of quotations of securities prices on which the Common
Stock is quoted or (c) if the Common Stock is not listed or admitted to trading
on any national securities exchange or quoted on such National Market or similar
system, days on which the Common Stock is traded regular way in the
over-the-counter market and for which a closing bid and a closing asked price
for the Common Stock is available.
"Trustee" means the Person named as the "Trustee" in the preamble 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.
"TIA" means the United States Trust Indenture Act of 1939 (including
any successor act thereto), as it may be amended from time to time, and (unless
the context otherwise requires) includes the rules and regulations of the
Commission thereunder.
"Unrestricted Subsidiary" means (a) __________________ (b) any Existing
Foreign Subsidiary, so long as the Company is an Affiliate of such Existing
Foreign Subsidiary, (c) any Existing Joint Venture, so long as the Company is an
Affiliate of such Existing Joint Venture, and (d) any other Subsidiary
incorporated or otherwise formed after the Issue Date that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a
Board Resolution and that, at the time of designation, has total assets not
exceeding $1,000, but only to the extent that any Person identified in the
foregoing clauses (a)-(d) also, at the time of such designation, (i) has no
Indebtedness other than Non-Recourse Indebtedness; (ii) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Subsidiary
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<PAGE> 25
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such other Subsidiary than those that
might be obtained at the time from persons who are not Affiliates; and (iii) is
a Person with respect to which neither the Company nor any Subsidiary has any
obligation (A) to subscribe for additional shares of Capital Stock or
Partnership Interests or (B) to maintain or preserve such Person's financial
condition or to cause such Person to achieve certain levels of operating
results. Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions. If, at
any time, such Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred as of such date. The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Subsidiary, provided that immediately after giving effect to such designation,
the Company could incur at least $1.00 of additional Indebtedness pursuant to
Section 4.12 of the Existing Indenture on a pro forma basis taking into account
such designation.
"U.S. Government Obligations" means direct non-callable obligations of,
or non-callable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the United
States of America is pledged.
"U.S. Legal Tender" has the meaning specified in Section 2.3.
"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."
"Voting Securities" means, with respect to any Person, the voting
securities of such Person entitled to vote on a regular basis for a majority of
the Board of Directors of such Person.
SECTION 1.2 COMPLIANCE CERTIFICATES AND OPINIONS.
(a) 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 an Officers' Certificate stating that all conditions precedent,
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with. Except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
(b) Every certificate or opinion with respect to the compliance of a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
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(ii) 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;
(iii) a statement that, in the opinion of such individual, he
or she has made such examination or investigation as is necessary to
enable him or her to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.3 FORM OF DOCUMENTS DELIVERED TO THE TRUSTEE.
(a) 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 such Person may certify
or give an opinion as to such matters in one or several documents.
(b) 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 1.4 ACTS OF HOLDERS OF SECURITIES.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided or permitted by this Indenture to be given or
taken by Holders of Securities may be embodied in and evidenced by (i) one or
more instruments of substantially similar tenor signed by such Holders in Person
or by agent or proxy duly appointed in writing; (ii) the record of Holders of
Securities voting in favor thereof, either in Person or by proxies duly
appointed in writing, at any meeting of Holders of Securities duly called and
held in accordance with the provisions of Article XI; or (iii) a combination of
such instruments and any such record. Except as herein otherwise expressly
provided, such action shall become effective when such instrument(s) or record
or both are delivered to the Trustee and, where it is hereby expressly required,
to the Company. Such instrument(s) and record (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders of Securities signing such instrument or instruments and so voting at
such meeting. Proof of execution of any such instrument or of a writing
appointing any such agent or proxy, or of the holding by any Person of a
Security, shall be sufficient for any purpose of this Indenture and (subject to
Section 6.1) conclusive in favor of the Trustee and the Company if made in the
manner provided in this Section 1.4. The record of any meeting of Holders of
Securities shall be proved in the manner provided in Section 11.6.
(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
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<PAGE> 27
public or other officer authorized by law to take acknowledgments of deeds,
certifying that the individual signing such instrument or writing acknowledged
to him or her the execution thereof. Where such execution is by a signer acting
in a capacity other than his or her individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his or her authority.
(c) The ownership of Securities shall be proven by the Security
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other 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 thereof 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.
(e) The Company may set any day as a Record Date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities, provided that the Company may not set a Record Date for,
and the provisions of this paragraph shall not apply to, the giving or making of
any notice, declaration, request or direction referred to in the next paragraph.
If any Record Date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such Record Date, and no other Holders, shall be entitled to take
the relevant action, whether or not such Holders remain Holders after such
Record Date; provided that no such action shall be effective hereunder unless
taken on or prior to the applicable Expiration Date by Holders of the requisite
principal amount of Outstanding Securities on such Record Date. Nothing in this
paragraph shall be construed to prevent the Company from setting a new Record
Date for any action for which a Record Date has previously been set pursuant to
this paragraph (whereupon the Record Date previously set shall automatically and
with no action by any Person be canceled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities on the date such
action is taken. Promptly after any Record Date is set pursuant to this
paragraph, the Company, at its own expense, shall cause notice of such Record
Date, the proposed action by Holders and the applicable Expiration Date to be
given to the Trustee in writing and to each Holder of Securities in the manner
set forth in Section 1.6.
(f) The Trustee may set any day as a Record Date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (i) any Notice of Default; (ii) any declaration of acceleration
referred to in Section 5.2; (iii) any direction referred to in Section 5.5; or
(iv) any request to institute proceedings referred to in Section 5.6(b). If any
Record Date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such Record Date, and no other Holders, shall be entitled to join
in such notice, declaration, request or direction, whether or not such Holders
remain Holders after such Record Date; provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities on such
Record Date. Nothing in this paragraph shall be construed to prevent the Trustee
from setting a new Record Date for any action (whereupon the Record Date
previously set shall automatically and without any action by any Person be
canceled and of no effect), nor shall anything in this paragraph be
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<PAGE> 28
construed to render ineffective any action taken by Holders of the requisite
principal amount of Outstanding Securities on the date such action is taken.
Promptly after any Record Date is set pursuant to this paragraph, the Trustee,
at the Company's expense, shall cause notice of such Record Date, the proposed
action by Holders and the applicable Expiration Date to be given to the Company
in writing and to each Holder of Securities in the manner set forth in Section
1.6.
(g) With respect to any Record Date set pursuant to this Section, the
party hereto that sets such Record Date may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day, provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities in the manner set forth in Section 1.6, on or prior
to the existing Expiration Date. If an Expiration Date is not designated with
respect to any Record Date set pursuant to this Section, the party hereto that
set such Record Date shall be deemed to have initially designated the 180th day
after such Record Date as the Expiration Date with respect thereto, subject to
its right to change the Expiration Date as provided in this paragraph.
Notwithstanding the foregoing, no Expiration Date shall be later than the 180th
day after the applicable Record Date.
(h) Without limiting the foregoing, a Holder entitled hereunder to 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 part of such principal amount.
SECTION 1.5 NOTICES, ETC.
(a) Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of Holders of Securities or other document
provided or permitted by this Indenture to be made upon, given or furnished to,
or filed with:
(i) the Trustee by any Holder of Securities or by the Company
shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee and received at
its Corporate Trust Office, Attention: Corporate Trust Administration
(Apria Healthcare Group, Inc. 10% Convertible Subordinated Debentures
Due 2004) _____________________, or
(ii) the Company by the Trustee or by any Holder of Securities
shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if in writing, mailed, first-class postage
prepaid, or telexed or telecopied and confirmed by mail, first-class
postage prepaid, or delivered by hand or overnight courier, addressed
to the Company at 3560 Hyland Avenue, Costa Mesa, California 92626,
Telephone No.: (714) 427-2000, Facsimile No.: (714) 437-1271,
Attention: Controller, or at any other address previously furnished in
writing to the Trustee by the Company.
(b) Any request, demand, authorization, direction, notice, consent,
election or waiver required or permitted under this Indenture shall be in the
English language, except that any published notice may be in an official
language of the country of publication.
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SECTION 1.6 NOTICE TO HOLDERS OF SECURITIES; WAIVER.
(a) Except as otherwise provided herein, 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 or
her registered address as recorded in the Security Register. In any case where
notice to Holders is given by mail, neither the failure to mail such 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
Holder 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.
(b) 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 1.7 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 1.8 SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company and/or
its Subsidiaries shall bind its respective successors and assigns, whether so
expressed or not.
SECTION 1.9 SEPARABILITY CLAUSE.
In case any provision in this Indenture or 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.
SECTION 1.10 BENEFITS OF INDENTURE.
(a) Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors and
assigns hereunder, the holders of Senior Debt of the Company and the Holders of
Securities and, solely with respect to this Article I and Sections 14.8, and
14.9, the holders of Conversion Securities any benefit or legal or equitable
right, remedy or claim under this Indenture.
(b) This Article I and Sections 14.8 and 14.9 shall not be amended or
modified, and neither compliance by the Company with, nor any default by it
under, such Article or any such Sections, shall be waived, in any manner that
adversely affects the interest of any holder of a Conversion Security at the
time outstanding without such Holder's consent.
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SECTION 1.11 GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA.
SECTION 1.12 LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date, Change of
Control Payment Date or Stated Maturity of any Security or the last day on which
a Holder of a Security has a right to convert his or her Security shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or of
the Securities) payment of principal of, premium, if any, or interest on, or the
payment of the Change of Control Payment (whether the same is payable in cash or
in shares of Common Stock) with respect to, or delivery for conversion of, such
Security need not be made on or by such day, but may be made on or by the next
succeeding Business Day with the same force and effect as if made on the
Interest Payment Date, Redemption Date, Change of Control Payment Date, or at
the Stated Maturity or by such last day for conversion, as the case may be;
provided, however, that in the case that payment is made on such succeeding
Business Day, no interest shall accrue on the amount so payable for the period
from and after such Interest Payment Date, Redemption Date, Change of Control
Payment Date, Stated Maturity or last day for conversion, as the case may be.
SECTION 1.13 CONFLICT WITH TIA.
If any provision hereof limits, qualifies or conflicts with a provision
of the TIA that is required under such Act to be a part of and govern this
Indenture (or would be required to be a part of and govern this Indenture if
this Indenture were required to be qualified under the TIA), the latter
provision shall control. If any provision of this Indenture modifies or excludes
any provision of the TIA 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 1.14 COUNTERPARTS.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
ARTICLE II
SECURITY FORMS
SECTION 2.1 FORMS GENERALLY.
(a) The Securities shall be in substantially the forms set forth in
this Article II, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture. The Securities
may have such letters, numbers or other marks of identification and such legends
or endorsements placed thereon as may be required to comply
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<PAGE> 31
with the rules of any securities exchange, the Code and regulations thereunder,
the Securities Act or as may, consistently herewith, be determined by the
Officers executing such Securities, as evidenced by their execution thereof. The
Company shall approve the form of the Securities and any notation, legend or
endorsement on the Securities.
(b) Any definitive Securities shall be printed, lithographed, engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed or quoted, as the case may be, all as determined by the Officers
executing such Securities as evidenced by their execution thereof.
(c) The Securities will be issued only in registered form. The
Securities will be issued in minimum denominations of $1,000, as provided in
Section 3.2.
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SECTION 2.2 FORM OF FACE OF SECURITY.
APRIA HEALTHCARE GROUP INC.
10% CONVERTIBLE SUBORDINATED DEBENTURES
DUE ________________, 2004
No. ________________ $ _______________________
Apria Healthcare Group Inc., a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture referred
to on the reverse hereof), for value received, hereby promises to pay to
__________________, or registered assigns, the principal sum of ________________
U.S. Dollars on ___________, 2004.
Interest Payment Dates:
Record Dates:
This Security is convertible as specified on the other side of this
Security. Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof or an Authenticating Agent by the
manual signature of one of their respective authorized signatories, 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 Security to be duly
executed under its corporate seal.
APRIA HEALTHCARE GROUP INC.
Corporate Seal
By____________________________
Name:
Title:
Attest:
- ----------------------------
Name:
Title:
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<PAGE> 33
SECTION 2.3 FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of securities of the
Company designated as its "10% Convertible Subordinated Debentures due
____________, 2004" (herein called the "Securities"), limited in aggregate
principal amount to $51,779,000, issued and to be issued under an Indenture,
dated as of _____________, 1998 (herein called the "Indenture") among the
Company, the Subsidiary Guarantors parties thereto and _______________, as
Trustee (herein called the "Trustee," which term includes any successor trustee
under the Indenture). The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "TIA"). Notwithstanding anything contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and the TIA for a statement of them. The
Securities are general, unsecured obligations of the Company subordinate in
right of payment to all existing and future Senior Debt of the Company and pari
passu with the Company's existing 9-1/2% Senior Subordinated Notes due 2002.
Payment on each Security is guaranteed on a subordinated, unsecured basis,
jointly and severally, by the Subsidiary Guarantors. Capitalized terms not
otherwise defined herein have the meanings assigned to them in the Indenture.
The Securities will bear interest from the date of issuance at the rate
of 10% per annum. Interest will be payable semi-annually on ________1 and 1 of
each year (each, an "Interest Payment Date"), commencing 1, 1999. Prior to
______, 2002, interest will accrue on each Interest Payment Date but will not be
paid by the Company, unless the Company elects to pay such interest in its sole
discretion. Interest that is accrued and not paid on any Interest Payment Date
occurring prior to _______, 2002 will bear interest at a rate of 10% per annum
from and after the applicable Interest Payment Date and will become due and
payable on ________, 2002. The Company shall pay interest on overdue principal
and on overdue installments of interest, to the extent lawful, at a rate of 10%
per annum.
The interest 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 ________ 15 or _________ 15 (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, provided
notice thereof shall have been given to Holders of Securities not less than 10
days prior to such Special Record Date, 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 the Indenture.
Payment of the principal of and interest on this Security will be made
in immediately available funds and in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts ("U.S. Legal Tender"), at the office or agency of the Company
maintained for that purpose in New York City; provided,
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<PAGE> 34
however, that payment of interest may, at the option of the Company, be made by
check mailed to the address of the Person entitled thereto as such address that
appears in the Security Register.
No sinking fund is provided for in the Securities. The Securities may
not be redeemed at the option of the Company prior to ________, 2002.
Thereafter, the Securities may be redeemed at the option of the Company, in
whole or in part, at the Redemption Prices set forth below. Such Redemption
Prices (expressed as a percentage of principal amount) are as follows for the
12-month period beginning on ___________ of the following years:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2002........................................ 104%
2003........................................ 102%
2004........................................ 100%
</TABLE>
in each case together with accrued and unpaid interest, including interest on
such accrued and unpaid interest, to the Redemption Date, provided that interest
installments whose Stated Maturity is on or prior to such Redemption 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.
Notice of redemption (which notice shall be irrevocable) will be given
by first-class mail to Holders of Securities at their registered addresses as
recorded in the Security Register. Notice will be given not more than 60 nor
less than 30 days prior to the Redemption Date, as provided in the Indenture.
In any case where the due date for the payment of the principal,
premium, if any, or interest on any Security, or the last day on which a Holder
of a Security has a right to convert his or her Security shall be at any place
of payment or place of conversion, as the case may be, a day on which banking
institutions at such place of payment or place of conversion are authorized or
obligated by law or executive order to close, then payment of principal of,
premium, if any, or interest on, or delivery for conversion of such Security,
need not be made on or by such date at such place but may be made on or by the
next succeeding day at such place which is not a day on which banking
institutions are authorized or obligated by law or executive order to close,
with the same force and effect as if made on the date for such payment or the
date fixed for redemption or repurchase, or at the Stated Maturity or by such
last day for conversion, and no interest shall accrue for the period after such
date.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Security is entitled, at its option, at any time after
June 1, 1999 and prior to the close of business on ___________ 2004 to convert
this Security into newly issued, fully paid and nonassessable shares of Common
Stock of the Company at an initial Conversion Rate equal to _________ shares of
Common Stock per $1,000 principal amount of Securities (or at the current
adjusted Conversion Rate if an adjustment has been made as provided in the
Indenture). In case a Security or portion thereof is called for redemption at
the election of the Company, such conversion right shall terminate at the close
of business on the Redemption Date for such Security (unless the Company shall
default in
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<PAGE> 35
making the redemption payment when due, in which case the conversion right shall
terminate at the close of business on the date such default is cured and such
Security is redeemed); provided, further, that, if the Holder of a Security
presents such Security for redemption prior to the close of business on the
Redemption Date for such Security, the right of conversion shall terminate upon
presentation of the Security to the Trustee (unless the Company shall default in
making the redemption payment when due, in which case the conversion right shall
terminate at the close of business on the date such default is cured and such
Security is redeemed). A Security in respect of which a Holder has delivered an
"Option of Holder to Elect Purchase" form pursuant to Section 12.11 accepting
the offer of the Company to repurchase the Securities may be converted only if
such Option of Holder to Elect Purchase form is withdrawn by a written notice of
withdrawal delivered to the Paying Agent no later than the close of business on
the second Business Day preceding the Change of Control Payment Date in
accordance with Section 12.11 (a)(vi) of the Indenture. If conversion is
elected, the Holder shall surrender this Security, and duly execute a conversion
notice substantially in the form provided in Exhibit A of the Indenture, to the
Company, subject to any laws or regulations applicable thereto and subject to
the right of the Company to terminate the appointment of the Conversion Agent
(as defined below), at the office or agency of the Company in New York City or
at such other offices or agencies outside the United States that the Company may
designate (each a "Conversion Agent").
No payment or adjustment will be made for dividends or distributions
with respect to shares of Common Stock issued upon conversion of a Security.
Except as otherwise provided in the Indenture, accrued interest shall not be
paid on converted Securities. If any holder surrenders a Security for conversion
between the Record Date for the payment of an installment of interest and the
related Interest Payment Date, then, notwithstanding such conversion, the
interest payable on such Interest Payment Date will be paid to the holder on
such record date. However, in such event, such Security, when surrendered for
conversion, must be accompanied by delivery by the converting Holder of a check
or draft payable in an amount equal to the interest payable on such Interest
Payment Date on the portion so converted.
Notwithstanding the foregoing paragraph, (a) if the Company elects not
to pay interest on any Interest Payment Date occurring prior to ________, 2002
and any holder surrenders a Debenture for conversion prior to _________, 2002,
unpaid interest accrued to such Interest Payment Date, together with interest at
a rate of 10% per annum thereon from such Interest Payment Date to the
conversion date (collectively, the "Accrued Interest Payment"), shall be paid to
the person who surrenders the Security for conversion by one of the following
methods selected by the Company: (i) in cash on the conversion date or (ii) in
cash on ________, 2002, together with interest accrued on such Accrued Interest
Payment at a rate of 10% per annum from the conversion date through ________,
2002, and (b) if any Security is called for redemption on or prior to
[_____________, 2002] [the first date upon which Securities can be redeemed or,
if such first redemption date is not an Interest Payment Date, the Interest
Payment Date immediately succeeding such date] and such Security is surrendered
for conversion at any time during the ten (10) business days immediately
preceding the date fixed for redemption, interest shall accrue on such Security
through, but not including, the earlier of (x) _________, 2002 and (y) the date
fixed for redemption and shall be payable on such redemption date to the person
who surrenders such Security for conversion and the conversion date of such
Security will be deemed to be the redemption date.
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<PAGE> 36
The Company shall thereafter deliver to the Holder the fixed number of
shares of Common Stock (together with any cash adjustment, as provided in the
Indenture) into which this Security is convertible and such delivery will be
deemed to satisfy the Company's obligation to pay the principal amount of this
Security. No fractions of shares or scrip representing fractions of shares will
be issued on conversion, but instead of any fractional interest (calculated to
the nearest 1/100th of a share) the Company shall pay a cash adjustment as
provided in the Indenture, or alternatively the Company shall round up the
conversion transaction to the next higher whole share. 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 consolidation, merger, sale or transfer by a holder of
the number of shares of Common Stock of the Company 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 at
least a plurality of Non-Electing Shares). Adjustments in the Conversion Rate of
less than one percent of such price will not be required, but any adjustment
that would otherwise be required to be made will be carried forward and taken
into account in the computation of any subsequent adjustment.
Notwithstanding any provision hereof, no securities will be delivered
on conversion of this Security or any portion hereof unless the certification
and other requirements described in the Indenture are satisfied.
If a Change of Control occurs, the Company is required to make an offer
to the Holders of this Security to repurchase the Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000) for cash at
a Change of Control Payment equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest to the Change of Control Payment Date.
Whenever in this Security there is a reference, in any context, to the principal
of any Security as of any time, such reference shall be deemed to include
reference to the Change of Control Payment payable in respect of such Security
to the extent that such Change of Control Payment is, was or would be so payable
at such time, and express mention of the Change of Control Payment in any
provision of this Security shall not be construed as excluding the Change of
Control Payment in those provisions of this Security when such express mention
is not made.
The indebtedness evidenced by this Security is, to the extent and in
the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all amounts then or thereafter to become
due on all Senior Debt of the Company, and this Security is issued subject to
such 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 its behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee as attorney-in-fact for any and all such
purposes.
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<PAGE> 37
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable to the extent, in the manner
and with the effect provided in the Indenture. Upon payment (a) of the amount of
principal so declared due and payable and (b) of interest on any overdue
principal and overdue interest, all of the Company's obligations in respect of
the payment of the principal of and interest on the Securities shall terminate.
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 either (a) with the written consent of
the Holders of a majority in principal amount of the Securities at the time
outstanding, or (b) by the adoption of a resolution, at a meeting of Holders of
the Outstanding Securities at which a quorum is present by the Holders of a
majority in principal amount of the Outstanding Securities represented at such
meeting. The Indenture also contains provisions permitting the Holders of
specified percentages in 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 in
exchange herefor or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Security or such other Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to pursue any remedy
thereunder, unless (a) such Holder shall have previously given the Trustee
written notice of a continuing Event of Default, (b) the Holders of not less
than 25% in aggregate principal amount of the Outstanding Securities shall have
made written request to the Trustee to pursue a remedy and offered the Trustee
indemnity satisfactory to it and (c) the Trustee shall not have received from
the Holders of a majority in principal amount of the Securities Outstanding a
direction inconsistent with such request and shall have failed to institute any
such proceedings for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or interest
hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the absolute and unconditional
obligations of the Company to pay the principal of, premium, if any, and
interest on this Security at the times, places 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 and
satisfaction of certain requirements therein set forth, the transfer of this
Security is registrable on the Security Register upon surrender of this Security
for registration of transfer at the office or agency of the Company as may be
designated by it for such purpose in New York City, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing. 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. No service charge shall be made to a
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<PAGE> 38
Holder for any such registration of transfer or exchange, but the Company may
require payment of a sum sufficient to recover any tax or other governmental
charge payable in connection therewith.
Prior to due presentation 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 such Security is registered as the owner
thereof for all purposes, whether or not such Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA
WITHOUT REGARD TO PRINCIPLES REGARDING CONFLICTS OF LAWS.
OPTION OF HOLDER TO ELECT PURCHASE
1. Pursuant to Section 12.11 of the Indenture, the undersigned hereby
accepts the offer of the Company to have this Security repurchased by the
Company.
2. The undersigned hereby directs the Trustee or the Company to pay it
or _______________________________________________________________ an amount in
cash equal to 101% of the principal amount hereof, plus interest accrued to the
Change of Control Payment Date as provided in the Indenture.
Dated: _________________________________
---------------------------------
Signature
---------------------------------
Signature Guaranteed
Principal amount to be repurchased: ______________________________
Remaining principal amount following such repurchase: _________________________
NOTICES: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
If payment is to be made to a Person other than the signatory above,
the signature must be guaranteed by an "Eligible Institution" (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved signature guarantee medallion program pursuant to Commission Rule
17Ad-15.
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<PAGE> 39
SECTION 2.4 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned
Indenture.
DATED: __________________________
as Trustee
By:_____________________________________
Authorized Signatory
ARTICLE III
THE SECURITIES
SECTION 3.1 TITLE AND TERMS.
(a) The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $51,779,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Sections
3.4, 3.7, 3.8 or 14.2.
(b) The Securities shall be known and designated as the "10%
Convertible Subordinated Debentures due ____________, 2004" of the Company.
Their Stated Maturity shall be ___________, 2004 and they shall bear interest at
the rate of 10% per annum.. Interest will be payable semi-annually on ________1
and
1 of each year (each, an "Interest Payment Date"), commencing 1, 1999, to the
Holders of record at the close of business on the ___ 15 or ___ 15 preceding
each such Interest Payment Date. Prior to ______, 2002, interest will accrue on
each Interest Payment Date but will not be paid by the Company, unless the
Company elects to pay such interest in its sole discretion. Interest that is
accrued and not paid on any Interest Payment Date occurring prior to _______,
2002 will bear interest at a rate of 10% per annum from and after the applicable
Interest Payment Date and will become due and payable on ________, 2002. The
Company shall pay interest on overdue principal and on overdue installments of
interest, to the extent lawful, at a rate of 10% per annum.
(c) The principal of, premium, if any, and interest on the Securities
shall be payable in U.S. Legal Tender in immediately available funds, at the
office of _______________(located at _________________) in New York City or, at
the option of the Holder and subject to any fiscal or other laws and regulations
applicable thereto, at any other office or agency of the Company or any Paying
Agent outside New York City; provided, however, that payment of interest may, at
the option of the Company, be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register.
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<PAGE> 40
(d) The Securities shall be redeemable at the Company's option, in
whole or in part, at any time on or after ___________, 2002 as provided in the
form of Securities set forth in Sections 2.2 and 2.3 and Article XIII herein.
(e) The Securities shall be convertible as provided in Article XIV.
(f) The Securities shall be guaranteed by the Subsidiary Guarantors, on
an unsecured basis, as provided in Article XVI.
(g) The Securities shall be subordinated in right of payment to Senior
Debt and Guarantor Senior Debt of the Company and its Subsidiaries as provided
in Articles XV and XVII.
(h) The Securities shall be subject to repurchase by the Company as
provided in Section 12.11.
SECTION 3.2 DENOMINATIONS.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple of $1,000
in excess thereof.
SECTION 3.3 EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
(a) The Securities shall be executed on behalf of the Company by any
one of its Chairman of the Board, its Chief Executive Officer, its President, or
any one of its Vice Presidents, under a facsimile of its corporate seal
reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. Any such signature may be manual or facsimile.
(b) Securities bearing the manual or facsimile signature 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.
(c) 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 authenticate and make available for delivery such
Securities as provided in this Indenture and not otherwise.
(d) Each Security shall be dated the date of its authentication.
(e) 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
executed by the Trustee or the Authenticating Agent by manual signature of an
authorized signatory, and such certificate upon such Security shall be
conclusive evidence, and the only evidence, that such Security has been duly
authenticated and delivered hereunder.
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<PAGE> 41
SECTION 3.4 TEMPORARY SECURITIES.
(a) Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized 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.
(b) 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
3.5, 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 make available for delivery in exchange therefor a like
principal amount of definitive Securities 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 3.5 REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
(a) The Company shall maintain: (i) an office or agency where
Securities may be presented or surrendered for registration of transfer or for
exchange (the "Registrar"); (ii) an office or agency where Securities may be
presented or surrendered for payment (the "Paying Agent"); (iii) an office or
agency where Securities may be presented for conversion (the "Conversion
Agent"); and (iv) an office or agency where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be served. The
Registrar shall keep a register (the register maintained in such office and in
any other office or agency designated pursuant to this Section 3.5 being herein
sometimes collectively referred to as the "Security Register") of the Securities
and of their transfer and exchange.
(b) The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any Agent not a party to this Indenture.
If the Company fails to maintain a Registrar, Paying Agent, Conversion Agent or
agent for service of notices and demands, or fails to give the foregoing notice,
the Trustee shall act as such. The Company or any Affiliate of the Company may
act as Paying Agent, Registrar or Conversion Agent, except as otherwise
indicated in this Indenture.
(c) The Company initially appoints the Trustee as Registrar, Paying
Agent, Conversion Agent and agent for service of notices and demands in
connection with the Securities.
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SECTION 3.6 PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, or interest on, the Securities (whether such assets have been
distributed to it by the Company or any other obligor on the Securities), and
shall notify the Trustee of any Default by the Company (or any other obligor on
the Securities) in making any such payment. If the Company or a Subsidiary acts
as Paying Agent, it shall segregate such assets and hold them as a separate
trust fund. The Company at any time may require a Paying Agent to distribute all
assets held by it to the Trustee and account for any assets disbursed and the
Trustee may at any time during the continuance of any payment Default, upon
written request to a Paying Agent, require such Paying Agent to distribute all
assets held by it to the Trustee and to account for any assets distributed. Upon
distribution to the Trustee of all assets that shall have been delivered by the
Company to the Paying Agent, the Paying Agent shall have no further liability
for such assets.
SECTION 3.7 REGISTRATION OF TRANSFER AND EXCHANGE.
(a) Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 3.5 for such
purpose, the Company shall execute, and the Trustee shall authenticate and make
available for delivery, in the name of the designated transferee or transferees,
one or more new Securities of any authorized denominations and of a like
aggregate principal amount.
(b) At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, the Securities which the Holder making the exchange is entitled to
receive.
(c) All Securities issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
(d) Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed, by the Holder
thereof or his attorney duly authorized in writing.
(e) No service charge shall be made to a Holder for any registration of
transfer or exchange of Securities, but the Company or the Registrar 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 3.4 or 14.2 not involving
any transfer, and subject to Section 14.9.
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SECTION 3.8 MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES.
(a) If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and make available for
delivery in exchange therefor a new Security of like tenor and principal amount
and bearing a number not contemporaneously outstanding.
(b) 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 make
available for delivery, 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.
(c) 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.
(d) A Holder shall bear the cost to the Company of replacing a
mutilated, destroyed, stolen or lost Security. Upon the issuance of any new
Security under this Section, the Company also 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.
(e) 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, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
(f) 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 3.9 PAYMENT OF INTEREST, INTEREST RIGHTS PRESERVED.
(a) 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.
(b) 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 (i) or (ii) below:
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(i) 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 of Securities at
such Holder's address as it appears in the Security Register, not 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 (ii).
(ii) 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 provisions of Section 3.7 and this Section 3.9,
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.
(c) Any Security surrendered for conversion during a Record Date Period
(except Securities called for redemption on a Redemption Date or to be
repurchased on a Change of Control Payment Date during, in each case, such
period) must be accompanied by payment of an amount equal to the interest
payable on the Interest Payment Date relating to such Record Date Period on the
principal amount of such Securities being surrendered for conversion, and the
interest payable in respect of such Security on such Interest Payment Date shall
be paid to the Holder of such Security as of the Regular Record Date relating to
such Record Date Period. The interest payable on such Interest Payment Date with
respect to any Security which has been called for redemption on a Redemption
Date or is repurchaseable on a Change of Control Payment Date occurring, in each
case, during such Record Date Period, which Security is surrendered for
conversion during such Record Date Period, shall be paid to the Holder of such
Security being converted in an amount equal to the interest that would have been
payable on such
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<PAGE> 45
Security if such Security had been converted as of the close of business on such
Interest Payment Date. Interest payable in respect of any Security surrendered
for conversion on or after an Interest Payment Date shall be paid to the Holder
of such Security as of the next preceding Regular Record Date, notwithstanding
the exercise of the right of conversion.
SECTION 3.10 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 shall 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 (subject to
Sections 3.7 and 3.9) interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
SECTION 3.11 CANCELLATION.
All Securities surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee. All Securities so
delivered shall be canceled promptly by the Trustee. The Company, at any time,
may 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 3.11, except as expressly
permitted by this Indenture. All canceled Securities and any certificates in
connection therewith shall be held by the Trustee in accordance with its
customary practices until destroyed by the Trustee; provided, however, that the
Trustee shall not be required to destroy such Securities. The Company may not
issue new Securities to replace Securities it has paid in full or delivered to
the Trustee for cancellation.
SECTION 3.12 COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
SECTION 3.13 CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" and "CINS"
numbers (if then generally in use), and the Trustee shall use CUSIP numbers or
CINS numbers, as the case may be, in notices of redemption, repurchase or
exchange as a convenience to the Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of redemption,
repurchase or exchange and that reliance may be placed only on the other
identification numbers printed on the Securities.
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ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 SATISFACTION AND DISCHARGE OF INDENTURE.
(a) Upon Company Request, this Indenture shall cease to be of further
effect (except as to any surviving rights of conversion, or replacement of
Securities herein expressly provided for and any right to receive the payment of
principal of, premium, if any, or interest on such Securities under the
respective paragraphs on the reverse of the form of Securities set forth in
Section 2.3), and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when:
(i) either
(A) all Securities theretofore authenticated and
delivered (other than (x) Securities which have been
destroyed, lost or stolen and which have been replaced or paid
as provided in Section 3.8 and (y) 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) have been
delivered to the Trustee for cancellation;
or
(B) all such Securities not theretofore delivered to
the Trustee for cancellation (other than Securities referred
to in clauses (x) and (y) of clause (i)(A) above):
(x) have become due and payable; or
(y) will have become due and payable at
their Stated Maturity within one year; or
(z) 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;
and the Company, in the case of clause (x), (y) or (z) of this
clause (B), has deposited or caused to be deposited with the Trustee as
trust funds (immediately available to the Holders in the case of clause
(B)(x)) in trust for the purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal, 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;
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(ii) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(iii) 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, and that any
consents required under any document evidencing and/or securing Senior
Debt have been obtained and are in full force and effect.
(b) Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 6.7 and, if the
Company deposited or caused to be deposited money with the Trustee pursuant to
clause (a)(i)(B) of this Section 4.1, the obligations of the Trustee under
Section 4.2 shall survive. Funds held in trust pursuant to this Section are not
subject to the provisions of Article XV.
SECTION 4.2 APPLICATION OF TRUST MONEY.
(a) Subject to the provisions of Section 7.6, all money deposited with
the Trustee pursuant to Section 4.1 shall be held in trust and applied by it, in
accordance with the provisions of the Securities and this Indenture, to the
payment, either 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 interest for whose payment such money has
been deposited with the Trustee.
(b) All moneys deposited with the Trustee pursuant to Section 4.1 (and
held by it or any Paying Agent) for the payment of Securities subsequently
converted shall be returned to the Company upon Company Request.
ARTICLE V
REMEDIES
SECTION 5.1 EVENTS OF DEFAULT.
An "Event of Default" occurs under this Indenture if:
(a) the Company defaults in the payment of interest on any
Security when the same becomes due and payable, and the Default
continues for a period of 30 days;
(b) the Company defaults in the payment of the principal of
any Security when the same becomes due and payable, at Maturity, upon
acceleration, redemption or otherwise (including the failure to
purchase Securities tendered pursuant to the requirements of Section
12.11);
(c) the Company or any Subsidiary Guarantor fails to comply
with any other agreement or covenant contained in the Securities or
this Indenture, and the Default
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continues for 30 days after notice given by the Trustee or the Holders
of at least 25% in principal amount of Outstanding Securities;
(d) there shall be a default under the Company's Existing
Notes or any other bond, debenture, or other evidence of Indebtedness
of the Company or any Subsidiary or under the Company's Existing
Indenture or any other mortgage, indenture or other instrument under
which there may be issued or by which there may be secured or evidenced
any such Indebtedness, whether such Indebtedness now exists or shall
hereafter be created, if both (i) such default results in the
acceleration of such Indebtedness prior to its stated maturity or
results from the failure to pay any of such Indebtedness at final
maturity and (ii) the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness the maturity
of which has been so accelerated or which has not been paid at
maturity, aggregates $5 million or more at any one time;
(e) any Subsidiary Guarantor defaults on, or repudiates its
obligations under, its Guarantee of the Securities or if a final
judicial determination is made that such Guarantee is not enforceable
against any Subsidiary Guarantor in accordance with its terms;
(f) the Company or any Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(i) admits in writing its inability to pay its debts
generally as they become due;
(ii) commences a voluntary case or proceeding;
(iii) consents to the entry of a judgment, decree or
order for relief against it in an involuntary case or
proceeding;
(iv) consents to the appointment of a Custodian of it
or for all or substantially all of its property;
(v) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it;
(vi) makes a general assignment for the benefit of
its creditors; or
(vii) takes any corporate action to authorize or
effect any of the foregoing;
(g) a court of competent jurisdiction enters a judgment,
decree or order under any Bankruptcy Law that is for relief against the
Company or any Subsidiary, in an involuntary case or proceeding which
shall (i) approve a petition seeking reorganization, arrangement,
adjustment or composition in respect of the Company or any Subsidiary,
(ii) appoint a Custodian of the Company or any Subsidiary, or for
substantially all of its
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property, or (iii) order the winding-up or liquidation of its affairs,
and in each case the judgment, order or decree remains unstayed and in
effect for 60 days; or
(h) any warrant of attachment is issued against any property
of the Company or any Subsidiary having a value of at least $5 million,
which warrant is not released, stayed or bonded against within 60 days
after service of process with respect thereto, or final judgments not
covered by insurance for the payment of money which in the aggregate at
any one time exceeds $5 million shall be rendered against the Company
or any Subsidiary by a court of competent jurisdiction and shall remain
undischarged for 60 days after judgment becomes final and
nonappealable.
A Default under clause (c) above (other than any Default under
Sections 9.1 and 12.11 hereof, which Defaults shall be Events of
Default with the notice specified in this paragraph but without the
passage of time specified in this paragraph) is not an Event of Default
until the Trustee notifies the Company (or the Holders of at least 25%
in principal amount of the Outstanding Securities notify the Company
and Trustee) of the Default, and the Company does not cure the Default
within 30 days after receipt of the notice. The notice must specify the
Default, demand that it be remedied and state that the notice is a
"Notice of Default." Such notice shall be given by the Trustee if so
requested by the Holders of at least 25% in principal amount of the
Outstanding Securities. When a Default is cured, it ceases.
SECTION 5.2 ACCELERATION.
(a) If an Event of Default (other than an Event of Default specified in
Section 5.1(g) or (h) with respect to the Company) occurs and is continuing, the
Trustee may, by notice to the Company (or the Holders of at least 25% in
principal amount of the Outstanding Securities may, by written notice to the
Company and the Trustee, and the Trustee shall, upon the request of such
Holders) declare the aggregate principal amount of the Outstanding Securities,
together with accrued interest thereon to the date of payment, to be due and
payable and, upon any such declaration, the same shall become and be due and
payable; provided, however, that if any Indebtedness or Obligation is
outstanding pursuant to the Senior Credit Facility, upon a declaration of
acceleration by the Holders or the Trustee, all principal and interest under
this Indenture shall be due and payable upon the earlier of (i) the day which is
five Business Days after the Company and the Senior Credit Representative
receives written notice of such acceleration and (ii) the date of the
acceleration of any Indebtedness under the Senior Credit Facility. If an Event
of Default specified in Section 5.1(g) or (h) occurs with respect to the
Company, all unpaid principal and accrued interest on the Outstanding 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 Securityholder. Upon
payment of said principal amount, interest, and premium, if any, all of the
Company's obligations under the Securities and this Indenture (other than
obligations under Section 6.7) shall terminate.
(b) The Holders of a majority in principal amount of the Outstanding
Securities by notice to the Trustee may rescind an acceleration and its
consequences if: (i) all existing Events of Default, other than the non-payment
of the principal of the Securities which has become due
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solely by such declaration of acceleration, have been cured or waived; (ii) to
the extent the payment of such interest is lawful, interest on overdue
installments of interest and overdue principal, which has become due otherwise
than by such declaration of acceleration, has been paid; and (iii) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction.
SECTION 5.3 OTHER REMEDIES.
(a) If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
(b) The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 5.4 WAIVER OF PAST DEFAULTS.
Subject to Sections 5.7 and 10.2, the Holders of a majority in
principal amount of the Outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
Default (i) in the payment of principal of or interest on any Security as
specified in clauses (a) and (b) of Section 5.1; or (ii) in respect of a
covenant or provision hereof which under Article X cannot be modified or amended
without the consent of the Holders of each Outstanding Security affected. When a
Default or Event of Default is waived, it is cured and ceases.
SECTION 5.5 CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the Outstanding
Securities may 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 it. Subject to Section 6.1, however, the Trustee may refuse to
follow any direction that conflicts with any law or this Indenture, that the
Trustee reasonably determines, in its sole discretion and in the absence of
negligence or willful misconduct, may be prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; provided
that the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
SECTION 5.6 LIMITATION ON SUITS.
A Holder may not pursue any remedy with respect to this Indenture or
the Securities unless:
(a) the Holder gives to the Trustee notice of a continuing
Event of Default;
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(b) the Holder or Holders of at least 25% in principal amount
of the Outstanding Securities make a written request to the Trustee to
pursue the remedy;
(c) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense to
be incurred in compliance with such request;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(e) during such 60-day period the Holder or Holders or a
majority in principal amount of the Outstanding Securities do not give
the Trustee a direction which, in the opinion of the Trustee, is
inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 5.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO CONVERT.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, and to convert such
Security in accordance with Article XIV (and to bring suit for the enforcement
of any such payment and right to convert) shall not be impaired or affected
without the consent of the Holder.
SECTION 5.8 COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of principal or interest specified in
clause (a) or (b) of Section 5.1 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of principal
and accrued interest remaining unpaid, together with interest on overdue
principal and, to the extent that payment of such interest is lawful, interest
on overdue installments of interest in each case at the rate per annum borne by
the Securities and 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, its agents and counsel.
SECTION 5.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursement,
and advances of the Trustee, its agents and counsel) and the Holders allowed in
any judicial proceedings relating to the Company or any other obligor upon the
Securities, any of their respective creditors or any of their respective
property and shall be entitled and empowered to collect and receive any monies
or other property payable or deliverable on any such claims and to distribute
the same, and any Custodian in any
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<PAGE> 52
such judicial proceedings 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 directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agent and counsel, and any other amounts due the
Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize
the Trustee to consent to or authorize 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 Securityholder in any such
proceeding.
SECTION 5.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article V, it shall
pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 6.7.
SECOND: to Holders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
THIRD: subject to Articles XV and XVII, to the Company or
relevant Subsidiary Guarantor.
The Trustee, upon prior notice to the Company, may fix a Record Date
and payment date for any payment to Holders pursuant to this Section 5.10.
SECTION 5.11 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 or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 5.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 5.7, or a suit by a Holder or Holders of more than 10% in
principal amount of the Outstanding Securities.
SECTION 5.12 EVENT OF DEFAULT FROM WILLFUL ACTION.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Securities pursuant to
Article XIII hereof, an equivalent premium shall also become and be immediately
due and payable to the extent permitted by law. If an Event of Default occurs
prior to _________, 2002 by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of
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the Securities prior to ____________, 2002 pursuant to Article XIII hereof, then
the premium payable for purposes of this paragraph for each of the years
beginning on _________ of the years set forth below shall be as set forth in the
following table expressed as a percentage of the amount that would otherwise be
due but for the provisions of this sentence, plus accrued interest, if any, to
the date of payment:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1999............................... %
---------
2000............................... %
---------
2001............................... %
---------
</TABLE>
ARTICLE VI
THE TRUSTEE
SECTION 6.1 CERTAIN DUTIES AND RESPONSIBILITIES.
(a) If 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 their exercise as a prudent Person would
exercise or use under the circumstances in the conduct of such Person's own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such certificates or opinions
which by any provision 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 to the requirements of this
Indenture.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(i) this paragraph (c) shall not be construed to limit the
effect of paragraph (b) of this Section 6.1;
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(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable 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 a majority in principal amount of
the Outstanding Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture; and
(iv) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability 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 indemnity
satisfactory to it against such risk or liability is not assured to it.
(d) 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 6.1.
SECTION 6.2 NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall give to all Holders of Securities, in the manner provided in
Section 1.5, notice of such Default hereunder actually known to a Responsible
Officer of the Trustee, unless such Default shall have been cured or waived;
provided, however, that in the case of any Default of the character specified in
Section 5.1(c), no such notice to Holders of Securities shall be given until at
least 30 days after the occurrence of such Default.
SECTION 6.3 CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 6.1:
(a) the Trustee may conclusively rely and shall be protected in acting
or refraining from acting upon any resolution, Officers' Certificate, other
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 of the Company shall 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
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absence of bad faith on its part, conclusively rely upon an Officers'
Certificate or an Opinion of Counsel;
(d) the Trustee may consult with counsel, and the 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 of Securities pursuant to this Indenture, unless such Holders
shall have offered to the Trustee 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;
(f) 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
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent, attorney, custodian or
nominee appointed with due care by it hereunder.
SECTION 6.4 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities (except the
Trustee's certificates of authentication) shall be taken as the statements of
the Company, and the Trustee assumes 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 shall not be accountable for the use
or application by the Company of Securities or the proceeds thereof.
SECTION 6.5 MAY HOLD SECURITIES, ACT AS TRUSTEE UNDER OTHER INDENTURES.
(a) The Trustee, any Authenticating Agent, any Paying Agent, any
Conversion Agent or any other agent of the Company or the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Securities
and may otherwise deal with the Company with the same rights it would have if it
were not Trustee, Authenticating Agent, Paying Agent, Conversion Agent or such
other agent.
(b) The Trustee may become and act as trustee under other indentures
under which other securities, or certificates of interest or participation in
other Securities, of the Company are outstanding in the same manner as if it
were not Trustee hereunder.
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SECTION 6.6 MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company in writing.
SECTION 6.7 COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR CLAIMS.
(a) The Company agrees:
(i) to pay to the Trustee from time to time such compensation
as the Company and the Trustee shall from time to time agree in writing
for all services rendered by it hereunder (which compensation shall not
be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(ii) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(iii) to indemnify the Trustee (and its directors, officers,
employees and agents) for, and to hold it harmless against, any and all
loss, damage, claim, liability or expense, including taxes (other than
taxes based on the income of the Trustee), incurred without negligence
or bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the reasonable
costs, expenses and reasonable attorneys' fees of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
(b) When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 5.1(f) or Section 5.1(g), the
expenses (including the reasonable charges of its counsel) and the compensation
for the services are intended to constitute expenses of the administration under
any applicable Federal or State bankruptcy, insolvency or other similar law.
(c) The Trustee shall have a Lien prior to the Securities as to all
property and funds held by it hereunder for any amount owing it or any
predecessor Trustee pursuant to this Section 6.7, except with respect to funds
held in trust for the benefit of the Holders of particular Securities.
(d) The provisions of this Section 6.7 shall survive the termination of
this Indenture or the earlier resignation or removal of the Trustee.
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SECTION 6.8 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
corporation 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 exercise corporate trust powers, having (or if the Trustee is a
subsidiary of a bank holding company, its parent company shall have (and such
parent company shall guarantee the obligations of the Trustee hereunder)) a
combined capital and surplus of at least $100,000,000, subject to supervision or
examination by Federal or State authority, in good standing and having an office
or agency in New York City. If such corporation 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 corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. The
Company, the Subsidiary Guarantors and their respective Affiliates shall not
serve as Trustee under this Indenture. If at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section 6.8, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article VI.
SECTION 6.9 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 VI shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.10.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If the instrument of acceptance by a successor Trustee required
by this Section 6.9 shall not have been delivered to the Trustee within 30 days
after the giving of such notice 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 the Company.
(d) If at any time (i) the Trustee shall cease to be eligible under
Section 6.8 and shall fail to resign after written request therefor by the
Company or by any Holder of a Security who has been a bona fide Holder of a
Security for at least six months, or (ii) 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 (A) the
Company by a Board Resolution may remove the Trustee, or (B) subject to Section
5.11, any Holder of a Security 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,
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shall promptly appoint a successor Trustee and shall comply with the applicable
requirements of this Section 6.9 and Section 6.10 below. 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 6.10, 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 of Securities
and accepted appointment in the manner required by this Section 6.9 and Section
6.10 below, any Holder of a Security 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.
(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 of
Securities in the manner provided in Section 1.5. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
(g) Notwithstanding the replacement of the Trustee pursuant to this
Section 6.9, the Company's obligations under Section 6.7 shall continue for the
benefit of the retiring Trustee.
(h) The retiring Trustee shall not be liable for the acts or omissions
of any successor Trustee hereunder.
SECTION 6.10 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) 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 the 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.
(b) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be eligible under this
Article VI.
SECTION 6.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to
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which the Trustee shall be a party, or any corporation succeeding to all or
substantially all of the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation shall be otherwise
eligible under this Article VI, 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 6.12 AUTHENTICATING AGENT.
(a) The Trustee may appoint an Authenticating Agent or Agents
acceptable to the Company with respect to the Securities which shall be
authorized to act on behalf of the Trustee to authenticate Securities issued
upon exchange or substitution pursuant to this Indenture. 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, and every reference in this Indenture to the authentication and
delivery of Securities by the Trustee or the Trustee's certificate of
authentication 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 at all times be a corporation organized and doing
business under the laws of the United States of America or any State thereof and
authorized under such laws to act as Authenticating Agent, having (or if such
Authenticating Agent is a subsidiary of a bank holding company, its parent
company shall have (and such parent company shall guarantee the obligations of
such Authenticating Agent hereunder)) a combined capital and surplus of not less
than $51,779,000 or its equivalent in another currency or composite currencies
and subject to supervision or examination by government 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 6.12, 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 6.12, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section 6.12.
(b) Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section 6.12, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
(c) 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
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any time such Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section 6.12, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company. Any successor
Authenticating Agent upon acceptance of its appointment hereunder 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 under the provisions of
this Section 6.12.
(d) If an Authenticating Agent is appointed with respect to the
Securities pursuant to this Section 6.12, the Securities may have endorsed
thereon, in addition to or in lieu of the Trustee's certification of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities referred to in the within-mentioned
Indenture.
DATED: _________________________
as Trustee
By:_____________________________________
Authenticating Agent
By:_____________________________________
Authorized Signatory
SECTION 6.13 DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the TIA, 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 TIA and this Indenture.
SECTION 6.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
-----------------------------------------------------
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 7.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at its option and at any time, elect to have either
Section 7.2 or 7.3 hereof be applied to all Outstanding Securities upon
compliance with the conditions set forth below in this Article VII.
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SECTION 7.2 LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 7.1 hereof of the option
applicable to this Section 7.2, the Company shall, subject to the satisfaction
of the conditions set forth in Section 7.4 hereof, be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
Outstanding Securities, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 7.5 and the other Sections of this Indenture
referred to in (i) and (ii) of this Section 7.2, and to have satisfied all its
other Obligations under such Securities and this Indenture (and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (i) the rights of Holders of
such Outstanding Securities to receive, solely from the trust fund described in
Section 7.5, payments in respect of the principal of, premium, if any, and
interest on such Securities when such payments are due, (ii) the Company's
obligations with respect to the Securities under Article III hereof, (iii) the
Company's obligations with respect to Holders' rights of conversion under
Article XIV hereof, (iv) the rights, powers, trust duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (v) this
Article VII. Subject to compliance with this Article VII, the Company may
exercise its option under this Section 7.2 notwithstanding the prior exercise of
its option under Section 7.3 hereof.
SECTION 7.3 COVENANT DEFEASANCE.
Upon the Company's exercise under Section 7.1 hereof of the option
applicable to this Section 7.3, the Company shall, subject to the satisfaction
of the conditions set forth in Section 7.4 hereof, be released from its
obligations under the covenants contained in Section 12.11 and Article IX hereof
with respect to the Outstanding Securities on and after the date the conditions
set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the
Securities shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Securities shall not be deemed outstanding for accounting
purposes). For this purpose, such Covenant Defeasance means that, with respect
to the Outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute an Event of Default under Section 5.1,
but, except as specified above, the remainder of this Indenture and such
Securities shall be unaffected thereby. In addition, upon the Company's exercise
under Section 7.1 hereof of the option applicable to this Section 7.3, subject
to the satisfaction of the conditions set forth in Section 7.4 hereof, Sections
5.1(d) and 5.1(h) shall not constitute Events of Default.
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SECTION 7.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 7.2 or 7.3 hereof to the Outstanding Securities:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the Trustee or
Paying Agent, in trust, for the benefit of the Holders, U.S. Legal
Tender, U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest on the Securities on the Stated
Maturity thereof or on the applicable redemption date or repurchase
date, as the case may be, of such principal or installment of principal
of, premium, if any, or interest on the Securities;
(b) in the case of an election under Section 7.2 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in
the United States reasonably acceptable to the Trustee confirming that
(i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (ii) since the date of this
Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that the Holders of the Securities will not
recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 7.3 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in
the United States reasonably acceptable to the trustee confirming that
the Holders of the Securities will not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(d) no Event of Default shall have occurred and be continuing
on the date of such deposit (other than an Event of Default resulting
from the incurrence of Indebtedness all or a portion of the proceeds of
which will be used to defease the Securities pursuant to this Article
VII concurrently with such incurrence) or insofar as Sections 5.1(f)
and 5.1(g) hereof are concerned, at any time in the period ending on
the 91st day after the date of such deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any
material agreement or instrument (other than this Indenture) to which
the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound;
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(f) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company; and
(g) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with.
SECTION 7.5 DEPOSITED U.S. LEGAL TENDER AND U.S. GOVERNMENT OBLIGATIONS TO
BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
(a) Subject to Section 7.6 hereof, all U.S. Legal Tender and U.S.
Government Obligations (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
7.5, the "Trustee") pursuant to Section 7.4 hereof in respect of the Outstanding
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as Paying
Agent), as the Trustee may determine, to the Holders of such Securities of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such U.S. Legal Tender and U.S. Government Obligations need not be
segregated from other funds except to the extent required by law.
(b) The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the U.S. Legal Tender or U.S.
Government Obligations deposited pursuant to Section 7.4 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Outstanding
Securities.
(c) Anything in this Article VII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the Company's
request any U.S. Legal Tender or U.S. Government Obligations held by it as
provided in Section 7.4 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 7.4(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 7.6 REPAYMENT TO THE COMPANY.
Any U.S. Legal Tender or U.S. Government Obligations deposited with the
Trustee or any Paying Agent, or then held by the Company, in trust for the
payment of the principal of, 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 its request
or (if then held by the Company) shall be discharged from such trust. The Holder
of such Security shall thereafter, as an unsecured general creditor, look only
to the
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Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, 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 The New York Times and The
Wall Street Journal (national edition), 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 notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 7.7 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender
or U.S. Government Obligations in accordance with Section 7.2 or 7.3 hereof, as
the case may be, 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 Section 7.2
or 7.3 hereof until such time as the Trustee or Paying Agent is permitted to
apply all such U.S. Legal Tender and U.S. Government Obligations in accordance
with Section 7.2 or 7.3 hereof, as the case may be; provided, however, that, if
the Company makes any payment of principal of, premium, if any, or interest on
any Security following the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the U.S. Legal Tender and U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE VIII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 8.1 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 the Regular
Record Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders of Securities as of
such Regular Record Date, and
(b) at such other times as the Trustee may reasonably 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;
excluding from any such list names and addresses received by the
Trustee in its capacity as Registrar.
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SECTION 8.2 PRESERVATION OF INFORMATION; COMMUNICATIONS 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 8.1 and the names and
addresses of Holders received by the Trustee in its capacity as Registrar. The
Trustee may destroy any list furnished to it pursuant to Section 8.1 upon
receipt of a new list so furnished.
(b) Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities. The
Company, the Subsidiary Guarantors, the Trustee and any other Person shall have
the protection of TIA Section 312(c).
SECTION 8.3 REPORTS BY THE COMPANY.
(a) The Company shall file with the Trustee, within 15 days after the
Company is required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and regulations
prescribe) which the Company is required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act.
(b) The Company shall file with the Trustee such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants provided for in this Indenture as may be
requested from time to time by the Trustee.
SECTION 8.4 REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall, to the extent that any of the
events described in TIA Section 313(a) occurred within the previous twelve
months, but not otherwise, mail to each Holder a brief report dated as of such
May 15 that complies with TIA Section 313(a). The Trustee also shall comply with
TIA Sections 313(b), 313(c) and 313(d).
ARTICLE IX
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 9.1 COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other Person
or, directly or indirectly, convey, transfer, sell or lease or otherwise dispose
of all or substantially all of its properties and assets to any Person (other
than a wholly owned Subsidiary of the Company), and the Company shall not permit
any Person (other than a wholly owned Subsidiary of the Company) to consolidate
with or merge into the Company or convey, transfer, sell or lease all or
substantially all of its properties and assets to the Company, unless:
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(a) in case the Company shall consolidate with or merge into
another Person or convey, transfer, sell 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, transfer or sale, or which leases, all or
substantially all of the properties and assets of the Company shall (i)
be a corporation, limited liability company, partnership or trust, (ii)
be organized and validly existing under the laws of the United States
of America, any State thereof or the District of Columbia and (iii)
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, the due and punctual payment of the principal
of, premium, if any, and interest on all of the Securities, as
applicable, 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 Article
XIV;
(b) immediately after giving effect to such transaction, no
Default or Event of Default, and no event which, after notice or lapse
of time or both, would become an Event of Default, shall have occurred
and be continuing; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer, sale or lease and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with this Article IX and that all
conditions precedent herein provided for relating to such transaction
have been complied with in all material respects.
SECTION 9.2 SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer, sale or lease of all or
substantially all of the properties and assets of the Company in accordance with
Section 9.1, 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 the predecessor
Person shall be relieved of all obligations and covenants under this Indenture
and the Securities.
ARTICLE X
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.1 WITHOUT CONSENT OF HOLDERS.
The Company and the Subsidiary Guarantors, when authorized by a Board
Resolution, and the Trustee, together, may amend or supplement this Indenture or
the Securities without notice to or consent of any Securityholder:
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(a) to cure any ambiguity, defect or inconsistency; provided
that such amendment or supplement does not adversely affect the legal
rights of any Holder,
(b) to comply with Article IX;
(c) to provide for uncertificated Securities in addition to or
in place of certificated Securities;
(d) to make any other change that would provide any additional
rights or benefits to the Holders of the Securities or that does not
adversely affect the legal rights under this Indenture of any such
Holder;
(e) to comply with any requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the
TIA; or
(f) to provide for additional Subsidiary Guarantors pursuant
to Section 12.10 or otherwise;
provided that the Company has delivered to the Trustee an Opinion or
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.1.
SECTION 10.2 WITH CONSENT OF HOLDERS.
(a) Subject to Section 5.7, the Company and each Subsidiary Guarantor,
when authorized by a Board Resolution, and the Trustee, together, with the
written consent of the Holder or Holders of at least a majority in aggregate
principal amount of the Outstanding Securities (including consents obtained in
connection with a tender offer or exchange offer for Securities), may amend or
supplement this Indenture or the Securities, without notice to any other
Securityholders. Subject to Section 5.7, the Holder or Holders of a majority in
aggregate principal amount of the outstanding Securities (including consents
obtained in connection with a tender offer or exchange offer for Securities) may
waive compliance by the Company with any provision of this Indenture or the
Securities without notice to any other Securityholder. Without the consent of
each Securityholder affected, however, no amendment, supplement or waiver,
including a waiver pursuant to Section 5.4, may (with respect to any Securities
held by a non-consenting Holder of Securities):
(i) reduce the principal amount of Securities whose Holders
must consent to an amendment, supplement or waiver of any provision of
this Indenture, the Securities or the Guarantees;
(ii) reduce the principal of or change the fixed maturity of
any Securities or alter the provisions with respect to the redemption
of Securities pursuant to Article XIII of this Indenture or reduce the
purchase price payable in connection with repurchases of the Securities
pursuant to Section 12.11 or otherwise;
(iii) reduce the rate of or change the time for payment of
interest on any Securities;
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(iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Securities or that
resulted from a failure to comply with Section 12.11 (except rescission
of acceleration of the Securities by the Holders of at least a majority
in aggregate principal amount of the Securities and a waiver of the
payment default that resulted from such acceleration);
(v) make the principal of, or the interest on, any Securities
payable in any manner other than that stated in this Indenture and the
Securities on the Issue Date;
(vi) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of
Securities to receive payments of principal of or interest on the
Securities:
(vii) waive a redemption payment with respect to any Security;
(viii) make any change to the conversion provisions of this
Indenture that adversely affect any Holder;
(ix) make any change to the subordination provisions of this
Indenture that adversely affect any Holder;
(x) make any change in the foregoing amendment and waiver
provisions.
(b) It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
(c) After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
(d) In connection with any amendment, supplement or waiver under this
Article X, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
In addition, the Holders hereof shall be entitled to participate in any
consideration paid to the holders of the Existing Notes in exchange for such
holders' (i) consent to any amendment or supplement to the Company's Existing
Indenture or (ii) waiver of any default or event of default under the Existing
Indenture (or in exchange for a waiver of the holders' rights to declare an
event of acceleration in accordance with the terms of the Existing Indenture).
Notwithstanding the fact that the Holders hereof are entitled to consent or
waiver fees in accordance with the preceding sentence, the Holders of the
Securities shall have no right or privilege to approve or disapprove of any
decision by the holders of the Existing Notes to consent to any amendment or
supplement or to waive a default or an event of default under the Existing
Indenture.
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SECTION 10.3 COMPLIANCE WITH TIA.
From the date on which this Indenture is qualified under the TIA, every
amendment, supplement or waiver of this Indenture or the Securities shall comply
with the TIA as then in effect.
SECTION 10.4 REVOCATION AND EFFECT OF CONSENTS.
(a) Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to its Security or portion of its Security by notice to the
Trustee or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount of Securities have consented (and not theretofore revoked such consent)
to the amendment, supplement or waiver.
(b) The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
(c) After an amendment, supplement or waiver becomes effective, it
shall bind every Securityholder, unless it makes a change described in any of
clauses (i) through (ix) of Section 10.2, in which case, the amendment,
supplement or waiver shall bind only each Holder of a Security who has consented
to it and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security; provided that any
such waiver shall not impair or affect the right of any Holder to receive
payment of principal of and interest on a Security, on or after the respective
due dates expressed in such Securities, or to bring suit for the enforcement of
any such payment on or after such respective dates without the consent of such
Holder.
SECTION 10.5 NOTATION ON OR EXCHANGE OF NOTES.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
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SECTION 10.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article X; provided that the Trustee may, but shall
not be obligated to, execute any such amendment, supplement or waiver which
affects the Trustee's own rights, duties or immunities under this Indenture. The
Trustee shall be entitled to receive, and shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of any amendment,
supplement or waiver authorized pursuant to this Article X is authorized or
permitted by this Indenture.
ARTICLE XI
MEETINGS OF HOLDERS OF SECURITIES
SECTION 11.1 PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of Securities may be called at any time and from
time to time pursuant to this Article XI to make, give or take any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be made, given or taken by Holders of Securities.
SECTION 11.2 CALL, NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders of Securities
for any purpose specified in Section 11.1, to be held at such time and at such
place in New York City as the Trustee shall determine. Notice of every meeting
of Holders of Securities, setting forth the time and the place of such meeting
and in general terms the action proposed to be taken at such meeting, shall be
given, in the manner provided in Section 1.5, not less than 21 nor more than 180
days prior to the date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution, or
the Holders of at least 10% in aggregate principal amount of the Outstanding
Securities shall have requested the Trustee to call a meeting of the Holders of
Securities for any purpose specified in Section 11.1, by written request setting
forth in reasonable detail the action proposed to be taken at the meeting, and
the Trustee shall not have made the first publication of the notice of such
meeting within 21 days after receipt of such request or shall not thereafter
proceed to cause the meeting to be held as provided herein, then the Company or
the Holders of Securities in the amount specified, as the case may be, may
determine the time and the place in New York City for such meeting and may call
such meeting for such purposes by giving notice thereof as provided in paragraph
(a) of this Section.
SECTION 11.3 PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of Securities, a
Person shall be (a) a Holder of one or more Outstanding Securities, or (b) a
Person appointed by an instrument in writing as proxy for a Holder or Holders of
one or more Outstanding Securities by such Holder or Holders. The only Persons
who shall be entitled to be present or to speak at any meeting of Holders shall
be the Persons entitled to vote at such meeting and their counsel, any
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representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 11.4 QUORUM; ACTION.
(a) The Persons entitled to vote a majority in principal amount of the
Outstanding Securities shall constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of Holders of Securities, be dissolved. In any other
case, the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
adjourned meeting (subject to repeated applications of this sentence). Notice of
the reconvening of any adjourned meeting shall be given as provided in Section
11.2, except that such notice need be given only once not less than five days
prior to the date on which the meeting is scheduled to be reconvened. Notice of
the reconvening of an adjourned meeting shall state expressly the percentage of
the principal amount of the Outstanding Securities which shall constitute a
quorum.
(b) Subject to the foregoing, at the reconvening of any meeting
adjourned for a lack of a quorum, the Persons entitled to vote 25% in aggregate
principal amount of the Outstanding Securities at the time shall constitute a
quorum for the taking of any action set forth in the notice of the original
meeting.
(c) At a meeting or an adjourned meeting duly reconvened and at which a
quorum is present as aforesaid, any resolution and all matters (except as
limited by the proviso to Section 10.2) shall be effectively passed and decided
if passed or decided by the Persons entitled to vote not less than a majority in
aggregate principal amount of the Outstanding Securities represented and voting
at such meeting,
(d) Any resolution passed or decisions taken at any meeting of Holders
of Securities duly held in accordance with this Section shall be binding on all
the Holders of Securities, whether or not present or represented at the meeting.
SECTION 11.5 TERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF MEETINGS.
(a) Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities in regard to proof of the holding of Securities and of the
appointment of proxies and in regard to the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates and other
evidence of the right to vote, and such other matters concerning the conduct of
the meeting as it shall deem appropriate. Except as otherwise permitted or
required by any such regulations, the holding of Securities shall be proved in
the manner specified in Section 11.3 and the appointment of any proxy shall be
proved in the manner specified in Section 11.3. Such regulations may provide
that written instruments appointing proxies, regular
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on their face, may be presumed valid and genuine without the proof specified in
Section 11.3 or other proof.
(b) The Trustee shall, by an instrument in writing, appoint a temporary
chairman (which may be the Trustee) of the meeting, unless the meeting shall
have been called by the Company or by Holders of Securities as provided in
Section 11.2(b), in which case the Company or the Holders of Securities calling
the meeting, as the case may be, shall in like manner appoint a temporary
chairman. A permanent chairman and a permanent secretary of the meeting shall be
elected by vote of the Persons entitled to vote a majority in principal amount
of the Outstanding Securities represented at the meeting.
(c) At any meeting, each Holder of a Security or proxy shall be
entitled to one vote for each $1,000 principal amount of Securities held or
represented by the Holder; provided, however, that no vote shall be cast or
counted at any meeting in respect of any Security challenged as not Outstanding
and ruled by the chairman of the meeting to be not Outstanding. The chairman of
the meeting shall have no right to vote, except as a Holder of a Security or
proxy.
(d) Any meeting of Holders of Securities duly called pursuant to
Section 11.2 at which a quorum is present may be adjourned from time to time by
Persons entitled to vote a majority in principal amount of the Outstanding
Securities represented at the meeting, and the meeting may be held as so
adjourned without further notice.
SECTION 11.6 COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of Holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy and
the principal amounts and serial numbers of the Outstanding Securities held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the Secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record, at least in duplicate, of the proceedings of each meeting of Holders of
Securities shall be prepared by the secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more Persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 11.2 and, if
applicable, Section 11.4. Each copy shall be signed and verified by the
affidavits of the permanent Chairman and Secretary of the meeting and one such
copy shall be delivered to the Company and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
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ARTICLE XII
COVENANTS
SECTION 12.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay the principal of and interest
on the Securities in accordance with the terms of the Securities and this
Indenture.
SECTION 12.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain the office or agency required under Section
3.5 hereof. The Company shall give prior written notice to the Trustee of the
location, and any change in the location, of 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 written notice of the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 1.5(a)(i).
SECTION 12.3 CORPORATE EXISTENCE.
Except as otherwise permitted by Article IX, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate, partnership or other existence
of each of its Subsidiaries in accordance with the respective organizational
documents of each such Subsidiary and the rights (charter and statutory),
licenses and franchises of the Company and each of its Subsidiaries; provided,
however, that the Company shall not be required to preserve, with respect to
itself, any right, license or franchise, and with respect to any of its
Subsidiaries, any such right, license or franchise, or the corporate,
partnership or other existence of such Subsidiaries, if the Board of Directors
of the Company shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders.
SECTION 12.4 PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon it or any of its Subsidiaries or
properties of it or any of its Subsidiaries and (b) all lawful claims for labor,
materials and supplies that, if unpaid, might by law become a Lien upon the
property of it or any of its Subsidiaries; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim if either (i) the amount, applicability or
validity thereof is being contested in good faith by appropriate proceedings and
an adequate reserve has been established therefor to the extent required by GAAP
or (ii) the failure to make such payment or effect such discharge (together with
all other such failures) would not have a material adverse effect on the
financial condition or results or operations of the Company and its Subsidiaries
taken as a whole.
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SECTION 12.5 MAINTENANCE OF PROPERTIES AND INSURANCE.
(a) The Company shall cause all properties used or useful to the
conduct of its business or the business of any of its Subsidiaries to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterment, and improvements thereof, all as in its
judgment may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times unless the
failure to so maintain such properties (together with all other such failures)
would not have a material adverse effect on the financial condition or results
of operations of the Company and its Subsidiaries taken as a whole; provided,
however, that nothing in this Section 12.5 shall prevent the Company or any
Subsidiary from discontinuing the operation or maintenance of any of such
properties, or disposing of any of them, if such discontinuance or disposal is
either (i) in the ordinary course of business, (ii) in the good faith judgment
of the Board of Directors of the Company or the Subsidiary concerned, or of the
senior officers of the Company or such Subsidiary, as the case may be, desirable
in the conduct of the business of the Company or such Subsidiary, as the case
may be, or (iii) is otherwise permitted by this Indenture.
(b) The Company shall provide or cause to be provided, for itself and
each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith opinion
of the Company are adequate and appropriate for the conduct of the business of
the Company and such Subsidiaries in a prudent manner, with reputable insurers
or with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be either (i) consistent with past practices of the Company or
the applicable Subsidiary or (ii) customary, in the reasonable, good faith
opinion of the Company, for corporations similarly situated in the industry,
unless the failure to provide such insurance (together with all other such
failures) would not have a material adverse effect on the financial condition or
results of operations of the Company and its Subsidiaries, taken as a whole. The
Trustee shall have no duty to monitor the sufficiency of the Company's
insurance.
SECTION 12.6 COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee within 120 days after the
end of the Company's fiscal year an Officers' Certificate stating that a review
of its activities and the activities of its Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers with a
view to determining whether each has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, that to the best of his knowledge (after due inquiry)
the Company and all of its Subsidiaries during such preceding fiscal year has
kept, observed, performed and fulfilled each and every such covenant and no
event of default in respect of any payment obligation under the Senior Credit
Facility or Event of Default under this Indenture occurred during such year or,
if such signers do know of such an event of default under the Senior Credit
Facility or Event of Default under this Indenture, the certificate shall
describe the event of default under the Senior Credit Facility or Event of
Default under this Indenture and its status with particularity. The
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Officers' Certificate shall also notify the Trustee should the Company elect to
change the manner in which it fixes its fiscal year end.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the Company shall deliver to
the Trustee within 120 days after the end of each fiscal year a written
statement by the Company's independent certified public accountants stating (i)
that their audit examination has included a review of the terms of this
Indenture and the Securities as they relate to accounting matters, and (ii)
whether, in connection with their audit examination, any Event of Default has
come to their attention and if such an Event of Default has come to their
attention, specifying the nature and period of existence thereof.
(c) The Company and each of the Subsidiary Guarantors shall deliver to
the Trustee, forthwith upon becoming aware, and in any event within 5 days after
the occurrence, of (i) any Event of Default in the performance of any covenant,
agreement or condition contained in this Indenture; or (ii) any event of default
in respect of any payment obligation under the Senior Credit Facility or any
event of default under any other bond, debenture, note or other evidence of
Indebtedness of the Company or any of its Subsidiaries, or under any mortgage,
indenture or other instrument if such event of default related to Indebtedness
at any time in an aggregate principal amount exceeds $5 million.
SECTION 12.7 COMPLIANCE WITH LAWS.
The Company and each of the Subsidiary Guarantors shall comply, and
shall cause each of their respective subsidiaries to comply, with all applicable
statutes, rules, regulations, orders and restrictions of the United States of
America, all states and municipalities thereof, and of any governmental
department, commission, board, regulatory authority, bureau, agency and
instrumentality of the foregoing, in respect of the conduct of their respective
businesses and the ownership of their respective properties, except such as are
being contested in good faith and by appropriate proceedings and except for such
noncompliance as would not in the aggregate have a material adverse effect on
the financial condition or results of operations of the Company and its
Subsidiaries taken as a whole.
SECTION 12.8 COMMISSION REPORTS.
(a) Whether or not required by the rules and regulations of the
Commission, so long as any Securities are Outstanding, the Company will furnish
to the Holders of Securities all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants. In addition, whether or not
required by the rules and regulation of the Commission, the Company will file a
copy of all such information with the Commission for public availability and
make such information available to Holders who request it in writing.
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(b) The Company shall file with the Trustee, within 5 days after it
files the same with the Commission, copies of the quarterly and annual reports
and the information, documents, and other reports (or copies of such portions of
any of the foregoing as the Commission may by rules and regulations prescribe)
so filed with the Commission. The Company shall also comply with the other
provisions of Section 314(a) of the TIA.
SECTION 12.9 WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 12.3 to 12.5, inclusive, if before
the time for such compliance the Holders of at least a majority in principal
amount of the Outstanding Securities (or such lesser amount as shall have acted
at a meeting pursuant to the provisions of this Indenture) shall 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.
SECTION 12.10 GUARANTEES BY SUBSIDIARIES.
The Company will cause each Person (other than an Unrestricted
Subsidiary) that shall become a Subsidiary on or after the Issue Date to execute
and deliver a supplement to this Indenture pursuant to which such Person will
become a Subsidiary Guarantor under this Indenture and guarantee the payment of
the Securities on the same terms and conditions as are provided for in the
Guarantees by the other Subsidiary Guarantors. Neither the Company nor any
Subsidiary Guarantor shall be required to make a notation on the Securities to
reflect any such subsequent Guarantee. Notwithstanding the foregoing, (a) no
Foreign Subsidiary shall be required to become a Subsidiary Guarantor pursuant
to this Section 12.10, unless such Foreign Subsidiary guarantees any
Indebtedness of the Company or any other Subsidiary that is not a Foreign
Subsidiary; and (b) no Permitted Joint Venture shall be required to become a
Subsidiary Guarantor unless such Permitted Joint Venture guarantees all other
Indebtedness of the Company or any Subsidiary.
SECTION 12.11 LIMITATION ON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company will be
required to make an offer (the "Change of Control Offer") to repurchase all or
any part (equal to $1,000 principal amount or an integral multiple thereof) of a
Holder's Securities at a purchase price equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, to the date of purchase
(the "Change of Control Payment"). Within 30 days following any Change of
Control, the Company shall mail by First Class mail a notice to each Holder with
a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer, stating:
(i) that the Change of Control Offer is being made pursuant to
this Section 12.11 and that all Securities tendered will be accepted
for payment;
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(ii) the Change of Control Payment and the purchase date,
which shall be no earlier than 30 days nor later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date");
(iii) that any Security not tendered will continue to accrue
interest;
(iv) that, unless the Company defaults in the payment of the
Change of Control Payment, all Securities accepted for payment pursuant
to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(v) that Holders electing to have any Securities purchased
pursuant to a Change of Control Offer will be required to surrender the
Securities, with the form entitled "Option of Holder to Elect Purchase
" on the reverse of the Securities completed, to the Paying Agent at
the address specified in the notice prior to the close of business on
the third Business Day preceding the Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of Securities delivered for
purchase, and a statement that such Holder is withdrawing his election
to have such Securities purchased; and
(vii) that Holders whose Securities are being purchased only
in part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered, which unpurchased
portion must be equal to $1,000 principal amount or an integral
multiple thereof.
(b) The Company will comply with the requirements of Rule 13e-4 and
Rule 14e-l under the Exchange Act, will file a Schedule 13E-4 or any successor
or similar schedule required thereunder and will otherwise comply with any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Securities
in connection with a Change of Control Offer.
(c) On the Change of Control Payment Date, the Company will (i) accept
for payment Securities or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent by 10:00 A.M. Eastern Standard
Time an amount equal to the Change of Control Payment in respect of all
Securities or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof tendered to the Company.
The Paying Agent shall promptly mail to each Holder of Securities so accepted
payment in an amount equal to the Change of Control Payment for such Securities,
and the Trustee shall promptly authenticate and mail to each Holder a new
Security equal in principal amount to the unpurchased portion of the Securities
surrendered, if any; provided that each new Security shall be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the
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Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date. For purposes of this Section 12.11, the Trustee shall act as the
Paying Agent.
ARTICLE XIII
REDEMPTION OF SECURITIES
SECTION 13.1 RIGHT OF REDEMPTION.
The Securities shall be redeemable at the Company's option, in whole or
in part, under the circumstances and at the Redemption Prices specified in the
form of Securities set forth in Sections 2.2 and 2.3 of this Indenture.
SECTION 13.2 APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company, as permitted
or required by any provision of the Securities or this Indenture, shall be made
in accordance with such provision and this Article XIII.
SECTION 13.3 ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be evidenced
by a Board Resolution. In the case of any redemption at the election of the
Company of all of the Securities, the Company shall, at least 30 but not more
than 60 days prior to the Redemption Date fixed by the Company (unless a shorter
notice shall be satisfactory to the Trustee), notify the Trustee in writing of
such Redemption Date. If the Securities are to be redeemed pursuant to an
election of the Company which is subject to a condition specified in the forms
of Securities set forth in Sections 2.2 and 2.3, the Company shall furnish the
Trustee with (a) an Officers' Certificate stating that the Company is entitled
to effect such redemption and setting forth a statement of facts demonstrating
the same, including a statement that there is no default or event of default in
respect of Senior Debt that would prohibit such redemption under Section 15.2,
and (b) an Opinion of Counsel as contemplated by Section 1.2.
SECTION 13.4 SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
(a) If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected by the Trustee within three Business
Days after it receives the notice described in Section 13.3, from the
Outstanding Securities not previously called for redemption, by such method as
the Trustee may deem fair and appropriate.
(b) If any registered 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 may be treated by the Trustee as Outstanding for the purpose of such
selection.
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(c) The Trustee shall promptly notify the Company and each Registrar in
writing of the securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount and certificate
numbers thereof to be redeemed.
(d) 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 13.5 NOTICE OF REDEMPTION.
(a) Notice of redemption shall be given in the manner provided in
Section 1.5 to the Holders of Securities to be redeemed. Notice shall be given
at least once not less than 30 nor more than 60 days prior to the Redemption
Date.
(b) All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price, and the amount of accrued and
unpaid interest, if any, and the amount of interest on such accrued and
unpaid interest, if any;
(iii) if less than all Outstanding Securities are to be
redeemed, the aggregate principal amount of the Securities to be
redeemed;
(iv) that on the Redemption Date, the Redemption Price, and
any accrued and unpaid interest, including interest on such accrued and
unpaid interest, will become due and payable upon each Security to be
redeemed, and that interest thereon shall cease to accrue on and after
said date;
(v) the Conversion Rate, the date on which the right to
convert the Securities will terminate and the places where the
Securities may be surrendered for conversion; and
(vi) the place or places where the Securities are to be
surrendered for payment of the Redemption Price and any accrued and
unpaid interest, including interest on such accrued and unpaid
interest.
(c) 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, by
the Trustee in the name of and at the expense of the Company, and such notice,
when given to the Holders, shall be irrevocable.
SECTION 13.6 DEPOSIT OF REDEMPTION ON PRICE.
(a) Not less than one Business Day prior to any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent an amount of money
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 which
are to be redeemed on that date other than any
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Securities called for redemption on that date which have been converted prior to
the date of such deposit.
(b) If any Security called for redemption is converted, any money
deposited with the Trustee or with a 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 3.9) be paid to the Company on Company
Request or, if then held by the Company, shall be discharged from such trust.
SECTION 13.7 SECURITIES PAYABLE ON REDEMPTION DATE.
(a) 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 herein 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, the Holder of such
Security shall be paid the Redemption Price, together with accrued and unpaid
interest to the Redemption Date, including interest on such accrued and unpaid
interest; provided, however, that installments of interest whose Stated 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 3.9.
(b) If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal of, premium, if any, and, to the
extent permitted by applicable law, accrued interest on such Security shall,
until paid, bear interest from the Redemption Date at the rate of interest borne
by the Security and such Security shall remain convertible until the principal
of such Security (or portion thereof, as the case may be) shall have been paid
or duly provided for.
ARTICLE XIV
CONVERSION OF SECURITIES
SECTION 14.1 CONVERSION PRIVILEGE AND CONVERSION RATE.
(a) Subject to and upon compliance with the provisions of this Article
XIV, at the option of the Holder thereof, any Security or any portion of the
principal amount thereof which is $1,000 or any integral multiple of $1,000 in
excess thereof, may be converted at any time at the principal amount thereof, or
of such portion thereof, into fully paid and nonassessable Common Stock of the
Company (calculated as to each conversion to the nearest 1/100 of a share) at
the Conversion Rate, determined as hereinafter provided, in effect at the time
of conversion. Such conversion right shall expire at the close of business on
___________, 2004.
(b) In case a Security or portion thereof is called for redemption at
the election of the Company, such conversion right shall terminate at the close
of business on the Redemption Date
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for such Security (unless the Company shall default in making the redemption
payment when due, in which case the conversion right shall terminate at the
close of business on the date such default is cured and such Security is
redeemed); provided, further, that, if the Holder of a Security presents such
Security for redemption prior to the close of business on the Redemption Date
for such Security, the right of conversion shall terminate upon presentation of
the Security to the Trustee (unless the Company shall default in making the
redemption payment when due, in which case the conversion right shall terminate
at the close of business on the date such default is cured and such Security is
redeemed).
(c) A Security in respect of which a Holder has delivered an Option of
Holder to Elect Purchase form pursuant to Section 12.11 accepting the offer of
the Company to repurchase the Securities may be converted only if such Option of
Holder to Elect Purchase form is withdrawn by a written notice of withdrawal
delivered to the Paying Agent no later than the close of business on the second
Business Day preceding the Change of Control Payment Date in accordance with
Section 12.11 (a)(vi).
(d) The rate at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Rate") shall be initially
______________ shares of Common Stock for each $1,000 principal amount of
Securities. The Conversion Rate shall be adjusted in certain instances as
provided in this Article XIV. The price at which shares of Common Stock shall be
delivered upon conversion (herein called the "Conversion Price") shall at any
time be equal to $1,000 divided by the then applicable Conversion Rate (and
rounded to the nearest cent).
SECTION 14.2 EXERCISE OF CONVERSION PRIVILEGE.
(a) In order to exercise the conversion privilege with respect to any
Security or portion thereof, the Holder of any Security to be converted or any
other Person acting on its behalf shall surrender such Security, duly endorsed
or assigned to the Company or in blank at any office or agency of the Company
maintained for that purpose pursuant to Section 3.5, accompanied by a duly
signed conversion notice substantially in the form set forth in Exhibit A hereto
stating 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.
(b) Except as otherwise provided in this Indenture, accrued interest
shall not be paid on converted Securities. If any holder surrenders a Security
for conversion between the Record Date for the payment of an installment of
interest and the related Interest Payment Date, then, notwithstanding such
conversion, the interest payable on such Interest Payment Date will be paid to
the holder on such record date. However, in such event, such Security, when
surrendered for conversion, must be accompanied by delivery by the converting
Holder of a check or draft payable in an amount equal to the interest payable on
such Interest Payment Date on the portion so converted.
(c) Notwithstanding the foregoing paragraph (b), (i) if the Company
elects not to pay interest on any Interest Payment Date occurring prior to
________, 2002 and any holder surrenders a Debenture for conversion prior to
_________, 2002, unpaid interest accrued to such Interest Payment Date, together
with interest at a rate of 10% per annum thereon from such
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Interest Payment Date to the conversion date (collectively, the "Accrued
Interest Payment"), shall be paid to the person who surrenders the Security for
conversion by one of the following methods selected by the Company: (A) in cash
on the conversion date or (B) in cash on ________, 2002, together with interest
accrued on such Accrued Interest Payment at a rate of 10% per annum from the
conversion date through ________, 2002, and (ii) if any Security is called for
redemption on or prior to [_____________, 2002] [the first date upon which
Securities can be redeemed or, if such first redemption date is not an Interest
Payment Date, the Interest Payment Date immediately succeeding such date] and
such Security is surrendered for conversion at any time during the ten (10)
business days immediately preceding the date fixed for redemption, interest
shall accrue on such Security through, but not including, the earlier of (A)
_________, 2002 and (B) the date fixed for redemption and shall be payable on
such redemption date to the person who surrenders such Security for conversion
and the conversion date of such Security will be deemed to be the redemption
date.
(d) Except as otherwise provided in this Indenture, Holders that
surrender Securities for conversion on a date that is not an Interest Payment
Date will not receive any interest for the period from the Interest Payment Date
next preceding the date of conversion to the date of conversion or for any later
period, even if the Securities are surrendered after a notice of redemption
(except for the payment of interest on Securities called for redemption on a
Redemption Date or to be repurchased on a Change of Control Payment Date between
a Regular Record Date and the Interest Payment Date to which it relates). No
other payment or adjustment for interest, or for any dividends or distributions
in respect of Common Stock, will be made upon conversion. Holders of shares of
Common Stock issued upon conversion will not be entitled to receive any
dividends payable to holders of shares of Common Stock as of any record time
before the close of business on the conversion date.
(e) 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 as the record holder or holders of such Common Stock
at such time. As promptly as practicable on or after the conversion date, the
Company shall issue and deliver, out of its authorized but previously unissued
shares of Common Stock, at the office of such Conversion Agent a certificate or
certificates for the number of full shares of newly issued Common Stock issuable
upon conversion, together with payment in lieu of any fraction of a share, as
provided in Section 14.3.
(f) 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 an aggregate principal amount equal to
the unconverted portion of the principal amount of such Security. A Security may
be converted in part, but only if the principal amount of such Security to be
converted is any integral multiple of $1,000 and the principal amount of such
security to remain outstanding after such conversion is equal to $1,000 or any
integral multiple of $1,000 in excess thereof.
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(g) If shares of Common Stock to be issued upon conversion of a
Security, or Securities to be issued upon conversion of a Security in part only,
are to be registered in a name other than that of the Holder of such Security,
the Registrar shall, prior to the conversion of such Security, record in the
Security Register the transfer of that portion of the Security to be so
converted in the name of the Person in whose name such Common Stock or
Securities are to be registered.
SECTION 14.3 FRACTIONS OF SHARES OF COMMON STOCK.
No fractional shares of Common Stock or scrip certificates in respect
thereof shall be issued upon conversion of any Security or 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 be computed on the basis of the aggregate principal amount of the
Securities so surrendered. Instead of any fractional shares of Common Stock
which would otherwise be issuable upon conversion of any Security or Securities,
the Company shall pay a cash adjustment in respect of such fraction (calculated
to the nearest 1/100 of a share) in an amount in Dollars equal to the same
fraction of the current market price per Common Share (calculated in accordance
with Section 14.4(h) below) at the close of business on the day of conversion,
or at the Company's option, the Company shall round up the conversion
transaction to the next higher whole share.
SECTION 14.4 ADJUSTMENT OF CONVERSION RATE.
The Conversion Rate shall be subject to adjustments from time to time
as follows:
(a) In case at any time after the date hereof, the Company
pays or makes a dividend or other distribution on any class of Capital
Stock of the Company in shares of Common Stock, the Conversion Rate 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 increased by dividing such Conversion
Rate by a fraction of which (i) 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 (ii) the denominator shall be the sum
of such number of shares and the total number of shares constituting
such dividend or other distribution, such increase to become effective
immediately after the opening of business on the day following the date
fixed for such determination. If, after any such date fixed for
determination, any dividend or distribution is not in fact paid, the
Conversion Rate shall be immediately readjusted, effective as of the
date the Board of Directors determines not to pay such dividend or
distribution, to the Conversion Rate that would have been in effect if
such determination date had not been fixed. For the purposes 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 but shall include shares issuable in respect of scrip
certificates, if any, issued in lieu of fractions of shares of Common
Stock. The Company will not pay any dividend or make any distribution
on shares of Common Stock held in the treasury of the Company.
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(b) In case at any time after the date hereof, the Company
issues rights, warrants or options to all or substantially all of the
holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common Stock) at
a price per share less than the current market price per share
(determined as provided in paragraph (h) of this Section 14.4) of the
Common Stock on the date fixed for the determination of shareholders
entitled to receive such rights, warrants or options, the Conversion
Rate in effect at the opening of business on the day following the date
fixed for such determination shall be increased by dividing such
Conversion Rate by a fraction of which (i) 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 (ii) 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 increase 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 but will include shares issuable in
respect of scrip certificates, if any, issued in lieu of fractions of
shares of Common Stock. The Company will not issue any rights or
warrants in respect of shares of Common Stock held in the treasury of
the Company.
(c) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Rate in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately increased, and, conversely in case outstanding
shares of Common Stock shall each be combined into a smaller number of
shares of Common Stock, the Conversion Rate in effect at the opening of
business on the day following the day upon which such combination
becomes effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately after
the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(d) In case the Company, by dividend or otherwise, distributes
to all or substantially all of the holders of its Common Stock
evidences of its indebtedness, shares of capital stock, or assets
(including securities, but excluding any rights, warrants or options
referred to in paragraph (b) of this Section 14.4, any dividend or
distribution paid exclusively in cash, any dividend or distribution
referred to in paragraph (a) of this Section 14.4 and any merger or
consolidation to which Section 14.11 applies), the Conversion Rate
shall be adjusted so that the same shall equal the rate determined by
dividing the Conversion Rate in effect immediately prior to the close
of business on the date fixed for the determination of shareholders
entitled to receive such distribution by a fraction of which (i) the
numerator shall be the current market price per share (determined as
provided in paragraph (h) of this Section 14.4) of the Common Stock on
the date fixed for such determination less the then fair market value
(as determined by the Board of
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Directors, whose determination shall be conclusive and described in a
Board Resolution filed with the Trustee) of the portion of the assets,
shares or evidences of indebtedness so distributed applicable to one
share of Common Stock and (ii) the denominator shall be such current
market price per share of Common Stock, such adjustment to become
effective immediately prior to the opening of business on the day
following the date fixed for the determination of shareholders entitled
to receive such distribution.
(e) In case the Company, by dividend or otherwise, makes a
distribution to all or substantially all holders of its Common Stock
consisting exclusively of cash (excluding any cash that is distributed
upon a merger or consolidation or a sale or transfer of all or
substantially all of the assets of the Company to which Section 14.11
applies or as part of a distribution referred to in paragraph (d) of
this Section 14.4) in an aggregate amount that, combined together with
(i) the aggregate amount of any other distributions to all or
substantially all holders of its Common Stock made exclusively in cash
within the 12 months preceding the date of payment of such distribution
and in respect of which no adjustment pursuant to this paragraph (e)
has been made 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 filed with the
Trustee) of consideration payable in respect of any tender offer by the
Company or any of its Subsidiaries for all or any portion of the Common
Stock concluded within the 12 months preceding the date of payment of
such distribution and in respect of which no adjustment pursuant to
paragraph (f) of this Section 14.4 has been made, exceeds an amount
equal to 12.5% of the product of the current market price per share of
the Common Stock on the date for the determination of holders of shares
of Common Stock entitled to receive such distribution times the number
of shares of Common Stock outstanding on such date (the "aggregate
current market price"), then, and in each such case, immediately after
the close of business on such date for determination, the Conversion
Rate shall be increased so that the same shall equal the rate
determined by dividing the Conversion Rate in effect immediately prior
to the close of business on the date fixed for determination of the
shareholders entitled to receive such distribution by a fraction (A)
the numerator of which shall be equal to the current market price per
share (determined as provided in paragraph (h) of this Section 14.4) of
the Common Stock on the date fixed for such determination less an
amount equal to the quotient of (x) the excess of such combined cash
tender amount over such aggregate current market price divided by (y)
the number of shares of Common Stock outstanding on such date for
determination and (B) the denominator of which shall be equal to the
current market price per share (determined as provided in paragraph (h)
of this Section 14.4) of the Common Stock on such date for
determination.
(f) In case a tender or exchange offer made by the Company or
any Subsidiary for all or any portion of the Common Stock shall expire
and such tender or exchange offer (as amended upon the expiration
thereof) shall require the payment to shareholders (based on the
acceptance (up to any maximum specified in the terms of the tender
offer) of Purchased Shares (as defined below)) of 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 filed with the Trustee) that combined
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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
of such tender or exchange offer, of consideration payable in respect
of any other tender or exchange offer, by the Company or any Subsidiary
for all or any portion of the Common Stock expiring within the 12
months preceding the expiration of such tender or exchange offer and in
respect of which no adjustment, pursuant to this paragraph (f) has been
made and (ii) the aggregate amount of any distributions to all holders
of the Company's Common Stock within 12 months preceding the expiration
of such tender or exchange offer and in respect of which no adjustment
pursuant to paragraph (e) of this Section 14.4 has been made (the
"combined tender and cash amount") exceeds 12.5% of the product of the
current market price per share of the Common Stock (determined as
provided in paragraph (h) of this Section 14.4) as of the last time
(the "Expiration Time") tenders or exchanges could have been made
pursuant to such tender or exchange offer (as it may be amended) times
the number of shares of Common Stock outstanding (including any
tendered or exchanged shares) on the Expiration Time, then, and in each
such case, immediately prior to the opening of business on the day
after the date of the Expiration Time, the Conversion Rate shall be
adjusted so that the same shall equal the rate determined by dividing
the Conversion Rate immediately prior to the close of business on the
date of the Expiration Time by a fraction (A) the numerator of which
shall be equal to (x) the product of (I) the current market price per
share of Common Stock (determined as provided in paragraph (h) of this
Section 14.4) on the date of the Expiration Time multiplied by (II) the
number of shares of Common Stock outstanding (including any tendered or
exchanged shares) on the date of the Expiration Time less (y) the
combined tender and cash amount, and (B) the denominator of which shall
be equal to (x) the product of (I) the current market price per share
of the Common Stock (determined as provided in paragraph (h) of this
Section 14.4) as of the Expiration Time multiplied by (II) the number
of shares of Common Stock outstanding (including any tendered or
exchanged shares) as of the Expiration Time less (y) the number of all
shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted up to any such maximum,
being referred to as the "Purchased Shares").
(g) The reclassification of Common Stock into securities other
than Common Stock (other than any reclassification upon a consolidation
or merger to which Section 14.11 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 receive such distribution"
and "the date fixed for such determination" within the meaning of
paragraph (d) of this Section 14.4), 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
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be, and "the day upon which such subdivision or combination becomes
effective" within the meaning of paragraph (c) of this Section 14.4).
(h) For the purpose of any computation under paragraphs (b),
(d), (e) or (f) of this Section 14.4, the current market price per
share of Common Stock on any date shall be deemed to be the average of
the daily Closing Prices Per Share for the five consecutive Trading
Days selected by the Company commencing not more than 10 Trading Days
before, and ending not later than, the earlier of the day in question
and the day before the "ex" date with respect to the issuance or
distribution requiring such computation. For purposes of this
paragraph, the term "'ex' date," when used with respect to any issuance
or distribution, means the first date on which the Common Stock trades
regular way on the applicable securities exchange or in the applicable
securities market without the right to receive such issuance or
distribution.
(i) No adjustment in the Conversion Rate shall be required
unless such adjustment (plus any adjustments not previously made by
reason of this paragraph (i)) would require an increase or decrease of
at least one percent in such rate; provided, however, that any
adjustments which by reason of this paragraph (i) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Article XIV shall be
made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
(j) The Company may make such increases in the Conversion
Rate, for the remaining term of the Securities or any shorter term, in
addition to those required by paragraphs (a) through (f) of this
Section 14.4, as it considers to be advisable in order to avoid or
diminish any income tax to any holders of shares of Common Stock
resulting from any dividend or distribution of stock or issuance of
rights or warrants to purchase or subscribe for stock or from any event
treated as such for United States federal income tax purposes or for
any other reasons. The Company shall have the power to resolve any
ambiguity or correct any error in this paragraph (j) and its actions in
so doing, absent manifest error, shall be final and conclusive.
(k) To the extent permitted by applicable law, the Company
from time to time may increase the Conversion Rate by any amount for
any period of time if the period is at least twenty (20) days, the
increase is irrevocable during such period, and the Board of Directors
shall have made a determination that such increase would be in the best
interests of the Company, which determination shall be conclusive.
Whenever the Conversion Rate is increased pursuant to the preceding
sentence, the Company shall give notice of the increased Conversion
Rate to the Holders in the manner provided in Section 1.5 at least
fifteen (15) days prior to the date the increased Conversion Rate takes
effect, and such notice shall state the increased Conversion Rate and
the period during which it will be in effect.
SECTION 14.5 NOTICE OF ADJUSTMENTS OF CONVERSION RATE.
(a) Whenever the Conversion Rate is adjusted as herein provided:
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(i) the Company shall compute the adjusted Conversion Rate in
accordance with Section 14.4 and shall prepare a certificate signed by
the Chief Financial Officer of the Company setting forth the adjusted
Conversion Rate and showing in reasonable detail the facts upon which
such adjustment is based, and such certificate shall forthwith promptly
be filed with the Trustee and with each Conversion Agent; and
(ii) a notice stating that the Conversion Rate has been
adjusted and setting forth the adjusted Conversion Rate shall forthwith
be prepared, and as soon as practicable after it is prepared, such
notice shall be provided by the Company to all Holders in accordance
with Section 1.5.
(b) Neither the Trustee nor any Conversion Agent shall be under any
duty or responsibility with respect to any such certificate or the information
and calculations contained therein, except to exhibit the same to any Holder of
Securities desiring inspection thereof at its office during normal business
hours. Unless and until a Responsible Officer of the Trustee shall have received
such certificate, the Trustee shall not be deemed to have knowledge of any
adjustment of the Conversion Rate and may assume without inquiry that the last
Conversion Rate of which it has knowledge remains in effect.
SECTION 14.6 NOTICE OF CERTAIN CORPORATE ACTION.
(a) In case:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (A) otherwise than
exclusively in cash or (B) exclusively in cash in an amount that would
require an adjustment pursuant to Section 14.4; or
(ii) the Company shall authorize the granting to the holders
of its Common Stock of rights, options or warrants to subscribe for or
purchase any shares of Capital Stock of any class or of any other
rights; or
(iii) of any reclassification of the Common Stock of the
Company, 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 conveyance, transfer, sale or lease of
all or substantially all of the assets of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Securities pursuant to Section 3.5,
and shall cause to be provided to all Holders in accordance with Section 1.5, at
least 20 days (or 10 days in any case specified in clause (i) or (ii) above)
prior to the applicable record or effective date hereinafter specified, a notice
stating (A) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights, options or warrants, or, if a record is not to
be taken, the effective date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution, rights, options or warrants are
to be determined, or (B) the date on which such reclassification,
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consolidation, merger, share exchange, conveyance, transfer, sale, lease,
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 Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, share exchange,
conveyance, transfer, sale, lease, dissolution, liquidation or winding up.
Neither the failure to give such notice or the notice referred to in the
following paragraph nor any defect therein shall affect the legality or validity
of the proceedings described in clauses (i) through (iv) of this Section 14.6.
If at the time the Trustee shall not be the Conversion Agent, a copy of such
notice and any notice referred to in the following paragraph shall also
forthwith be filed by the Company with the Trustee.
(b) The Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Securities pursuant to Section 3.5,
and shall cause to be provided to all Holders in accordance with Section 1.5,
notice of any tender offer by the Company or any Subsidiary for all or any
portion of the Common Stock at or about the time that such notice of tender
offer is provided to the public generally.
SECTION 14.7 COMPANY TO RESERVE COMMON STOCK.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but previously unissued Common Stock,
for the purpose of effecting the conversion of Securities, the full number of
shares of Common Stock then issuable upon the conversion of all such Outstanding
Securities.
SECTION 14.8 TAXES ON CONVERSIONS.
Except as provided in the next sentence, the Company will pay any and
all transfer, stamp, documentary and other similar taxes and duties that may be
payable in respect of the issue or delivery of shares of Common Stock on
conversion of Securities pursuant hereto. A Holder delivering a Security for
conversion will be required to pay any tax or duty 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 duty or has established to the satisfaction of the Company that such tax or
duty has been paid.
SECTION 14.9 COVENANT AS TO COMMON STOCK.
The Company covenants that all shares of Common Stock which may be
delivered upon conversion of Securities will be newly issued shares, upon such
delivery, will have been duly authorized and validly issued and will be fully
paid and nonassessable and, except as provided in Section 14.8, the Company will
pay all taxes, liens and charges with respect to the issue thereof.
SECTION 14.10 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 3.11.
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SECTION 14.11 PROVISION IN CASE OF CONSOLIDATION,
MERGER OR CONVEYANCE OF ASSETS.
(a) 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 of the Company)
or any conveyance, sale, transfer or lease 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 executed in accordance with
Article X providing that the Holder of such Security then Outstanding shall have
the right thereafter, during the period such Security shall be convertible as
specified in Section 14.1, to convert such Security only into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale, transfer or lease by a holder of the number of
shares of Common Stock of the Company into which such Security might have been
converted immediately prior to such consolidation, merger, sale or transfer,
assuming such holder of Common Stock of the Company (i) is not a Person with
which the Company consolidated or merged with or which merged into or with the
Company or to which such conveyance, sale, transfer or lease was made, as the
case may be ("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, conveyance, sale, transfer or lease (provided that if the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, conveyance, sale, transfer or lease is not the same for each share of
Common Stock of the Company held immediately prior to such consolidation,
merger, conveyance, sale, transfer or lease by other than a Constituent Person
or an Affiliate thereof and in respect of which such rights of election shall
not have been exercised ("Non-Electing Share"), then for the purpose of this
Section 14.11 the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by the holders of
each Non-Electing Share shall be deemed to be the kind and amount so receivable
per share by a plurality of the Non-Electing 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 XIV. The
above provisions of this Section 14.11 shall similarly apply to successive
consolidations, mergers, conveyances, sales, transfers or leases. Notice of the
execution of such a supplemental indenture shall be given by the Company to the
Holder of each Security as provided in Section 1.5 promptly upon such execution.
(b) Neither the Trustee, any Paying Agent nor any Conversion Agent
shall be under any responsibility to determine the correctness of any provisions
contained in any such supplemental indenture relating either to the kind or
amount of shares of stock or other securities or property or cash receivable by
Holders of Securities upon the conversion of their Securities after any such
consolidation, merger, conveyance, sale, transfer or lease or to any such
adjustment, but may accept as conclusive evidence of the correctness of any such
provisions, and shall be protected in relying upon, an Opinion of Counsel with
respect thereto, which the Company shall cause to be furnished to the Trustee
upon request.
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SECTION 14.12 RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS.
The Trustee, subject to the provisions of Section 6.1, and any
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder of Securities to determine whether any facts exist which may require
any adjustment of the Conversion Rate, or with respect to the nature, extent or
amount of any such adjustment when made, or with respect to the method employed,
or herein or in any supplemental indenture provided to be employed, in making
the same, or whether a supplemental indenture need be entered into. Neither the
Trustee, subject to the provisions of Section 6.1, nor any Conversion Agent
shall be accountable with respect to the validity or value (or the kind or
amount) of any shares of Common Stock, or of any other securities or property or
cash, which may at any time be issued or delivered upon the conversion of any
Security; and it or they do not make any representation with respect thereto.
Neither the Trustee, subject to the provisions of Section 6.1, nor any
Conversion Agent shall be responsible for any failure of the Company to make any
cash payment or to issue, transfer or deliver any shares of Common Stock or
share certificates or other securities or property or cash upon the surrender of
any Security for the purpose of conversion; and the Trustee, subject to the
provisions of Section 6.1, and any Conversion Agent shall not be responsible for
any failure of the Company to comply with any of the covenants of the Company
contained in this Article XIV.
ARTICLE XV
SUBORDINATION OF THE SECURITIES
SECTION 15.1 SUBORDINATED OBLIGATIONS SUBORDINATED TO SENIOR DEBT.
(a) Notwithstanding any provision of this Indenture to the contrary,
the Company agrees, and the Trustee and each holder by accepting a Security
likewise covenant and agree, that any payments of the principal of, premium, if
any, and interest on the Securities by the Company and any and all other
Obligations in respect of the Securities or on account of any Claim
(collectively, the "Subordinated Obligations") shall be (i) subordinated, to the
extent set forth in this Article XV, to the prior payment in full in cash of all
Senior Debt whether outstanding on the date of the Indenture or thereafter
incurred and (ii) pari passu with the Company's Existing Notes.
(b) This Article XV shall constitute a continuing offer to all Persons
who become holders of, or continue to hold, Senior Debt, and such provisions are
made for the benefit of the holders of Senior Debt and such holders are made
obligees hereunder and any one or more of them may enforce such provisions.
Holders of Senior Debt need not prove reliance on the subordination provisions
hereof.
(c) For purposes of this Article XV, a distribution may consist of
cash, securities or other property, by set-off or otherwise. For purposes of
this Article XV, the words "cash, securities or other property" shall not be
deemed to include any payment or distribution of Permitted Junior Securities.
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SECTION 15.2 NO PAYMENT ON SUBORDINATED OBLIGATIONS IN CERTAIN CIRCUMSTANCES.
(a) No direct or indirect payment or distribution shall be made by or
on behalf of the Company in respect of the Subordinated Obligations or to
acquire, repurchase, redeem, retire or defease any of the Securities, on account
of the redemption provisions of the Securities (collectively, "pay the
Subordinated Obligations" or "payment of Subordinated Obligations"), (i) upon
the maturity of any Senior Debt by lapse of time, acceleration or otherwise,
unless and until all principal thereof and all interest and other Obligations
owing with respect to such Senior Debt shall first be paid in full in cash, or
(ii) upon the happening of any default in payment of any principal of or
interest on any Senior Debt or any other Obligations owing from time to time
under or in respect of Senior Debt when the same becomes due and payable, beyond
any applicable period of grace, unless and until such default shall have been
cured or waived in writing in accordance with the instruments governing such
Senior Debt or such default shall have ceased to exist; provided, however, that
the Company may make such payment or distribution in respect of the Securities
without regard to the foregoing if the Company and the Trustee receive written
notice from the Senior Credit Representative and each other Representative of
the holders of Designated Senior Debt approving such payment or distribution.
(b) No direct or indirect payment of Subordinated Obligations shall be
made if any default (other than a default specified in Section 15.2(a)(ii)
above) occurs and is continuing with respect to Designated Senior Debt that
permits holders of such Designated Senior Debt as to which such default relates
to accelerate its maturity (a "Non-Payment Default") and the Trustee receives a
notice of such Non-Payment Default (a "Payment Blockage Notice") from the Senior
Credit Representative or the Representative of other holders of Designated
Senior Debt (which notice shall be binding on the Trustee and the Holders as to
the occurrence of any such default), except as provided in the immediately
following sentence. Any and all required payments of Subordinated Obligations,
including any missed payments, may and shall be resumed or made upon the
earliest of (i) the date on which such Non-Payment Default is cured or waived in
writing in accordance with the instruments governing such Designated Senior
Debt; (ii) 179 days after the date on which the applicable Payment Blockage
Notice is received or (iii) the date on which the Trustee receives written
notice from the Senior Credit Representative or the Representative of other
holders of Designated Senior Debt, as the case may be, terminating the payment
blockage period or otherwise consenting to any proposed distribution or payment.
During any consecutive 360-day period, the aggregate of all periods of payment
blockage shall not exceed 179 days and there shall be a period of at least 181
consecutive days in each consecutive 360-day period when no payment blockage is
in effect. No Non-Payment Default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived in writing in accordance with the instruments governing
such Senior Debt for a period of not less than 90 days. Any Payment Blockage
Notice given under this Section 15.2 shall also constitute a Guarantor Payment
Blockage Notice for purposes of Section 17.2 of this Indenture with respect to
all Subsidiary Guarantors.
(c) In furtherance of the provisions of Section 15.1, if,
notwithstanding the foregoing provisions of this Section 15.2, any direct or
indirect payment in respect of the Subordinated
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Obligations shall be made by or on behalf of the Company and received by the
Trustee, by any Holder or by any Paying Agent (or, if the Company or any
Subsidiary or Affiliate of the Company is acting as Paying Agent, money for any
such payment shall be segregated and held in trust), at a time when such payment
of the Subordinated Obligations was prohibited by the provisions of this Section
15.2, then, unless and until such payment of the Subordinated Obligations is no
longer prohibited by this Section 15.2, such payment of the Subordinated
Obligations (subject to the provisions of Sections 15.6 and 15.7) shall be
received, segregated from other funds, and held in trust by the Trustee or such
Holder or Paying Agent, as the case may be, for the benefit of, and shall be
immediately paid over to, the holders of Senior Debt or their Representative,
ratably according to the respective amounts of such Senior Debt held or
represented by each, to the extent necessary to make payment in full in cash of
such Senior Debt remaining unpaid, after giving effect to all concurrent
payments and distributions to or for the holders of Senior Debt.
SECTION 15.3 SUBORDINATED OBLIGATIONS SUBORDINATED TO PRIOR PAYMENT OF
ALL SENIOR DEBT ON DISSOLUTION, LIQUIDATION OR REORGANIZATION
OF THE COMPANY.
Upon any payment or distribution of assets or securities of the Company
of any kind or character, whether in cash, property or securities upon any
dissolution, winding up, total or partial liquidation or total or partial
reorganization of the Company and whether voluntary or involuntary (including,
without limitation, in any Insolvency or Liquidation Proceeding):
(a) the holders of all Senior Debt shall first be entitled to
receive cash payments in full of all Obligations due or to become due
with respect to the Senior Debt (including, without limitation,
Post-Petition Interest) before any payment is made on account of the
Subordinated Obligations by or on behalf of the Company or any other
payment or distribution of assets or securities by or on behalf of the
Company;
(b) any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or
securities (other than Permitted Junior Securities), to which the
Holders or the Trustee on behalf of the Holders would be entitled
except for the provisions of this Article XV, including any such
payment or distribution that is payable or deliverable by reason of the
payment of any other Indebtedness of the Company being subordinated to
the payment of the Subordinated Obligations, shall be paid by the
liquidating trustee or agent or other Person making such a payment or
distribution, directly to the holders of Senior Debt or their
Representative, ratably according to the respective amounts of such
Senior Debt held or represented by each, until all such Senior Debt
remaining unpaid shall have been paid in full in cash, after giving
effect to all concurrent payments and distributions to or for the
holders of such Senior Debt;
(c) in the event that, notwithstanding the foregoing, any
payment or distribution of assets or securities of the Company of any
kind or character, whether in cash, property or securities (other than
Permitted Junior Securities), shall be received by the Trustee or the
Holders or any Paying Agent (or, if the Company or any Subsidiary or
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Affiliate of the Company is acting as Paying Agent, money, assets or
securities of any kind or character, for any such payment or
distribution shall be segregated or held in trust) in respect of
payment of the Subordinated Obligations before all Senior Debt is paid
in full in cash, such payment or distribution (subject to the
provisions of Sections 15.6 and 15.7) shall be received, segregated
from other funds, and held in trust by the Trustee or such Holder or
Paying Agent for the benefit of, and shall immediately be paid over to,
the holders of such Senior Debt or their Representative, ratably
according to the respective amounts of such Senior Debt held or
represented by each, until all such Senior Debt remaining unpaid shall
have been paid in full in cash, after giving effect to all concurrent
payments and distributions to or for the holders of such Senior Debt.
Notwithstanding anything to the contrary contained herein, in the
absence of its gross negligence or willful misconduct, the Trustee
shall have no duty to collect or retrieve monies previously paid by it
in good faith; provided that this sentence shall not affect the
obligation of any other party receiving such payment to hold such
payment for the benefit of, and to pay such payment over to, the
holders of such Senior Debt or their representative.
The Company shall give prompt notice to the Trustee of any dissolution,
winding up, total or partial liquidation or total or partial reorganization of
it or any assignment for the benefit of its creditors.
SECTION 15.4 HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR DEBT.
Subject to the prior cash payment in full of all Senior Debt, the
Holders shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of assets, cash, property or securities of the
Company applicable to the Senior Debt until all amounts owing on the principal
of and interest on the Securities and any other Subordinated Obligations shall
be paid in full; and, for the purposes of such subrogation, (a) no such payments
or distributions to the holders of the Senior Debt of any cash, property or
securities to which the Holders of the Securities or the Trustee on their behalf
would be entitled except for the provisions of this Article XV, and no payment
over pursuant to the provisions of this Article XV to the holders of Senior Debt
by Holders of the Securities or the Trustee on their behalf shall, as between
the Company, its creditors other than holders of Senior Debt, and the Holders of
the Securities, be deemed to be a payment by the Company to or on account of the
Senior Debt, and (b) no payment or distributions of cash, property or securities
to or for the benefit of the Holders of the Securities pursuant to the
subrogation provision of this Article XV which would otherwise have been paid to
the holders of Senior Debt shall be deemed to be a payment by the Company to or
for the account of the Securities. It is understood that the provisions of this
Article XV 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 the Senior
Debt, on the other hand.
SECTION 15.5 OBLIGATIONS OF COMPANY UNCONDITIONAL.
Nothing contained in this Article XV or elsewhere in this Indenture or
in the Guarantee is intended to or shall impair, as between the Company and the
Holders, the absolute and
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unconditional obligation of the Company to pay the Holders all amounts due and
payable under the Securities and the Indenture, and any other Subordinated
Obligations, as and when the same shall become due and payable in accordance
with their terms. Furthermore, nothing contained in this Article XV is intended
to or shall affect the relative rights of the Holders and creditors of the
Company other than the holders of the Senior Debt, or shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article XV, of the holders of Senior Debt in respect
of cash, property or securities of the Company received upon the exercise of any
such remedy. Upon any payment or distribution of assets or securities of the
Company referred to in this Article XV, the Trustee and the Holders shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which any dissolution, winding up, liquidation or reorganization
proceedings are pending, or a certificate of the receiver, trustee in
bankruptcy, liquidating trustee or agent or other Person making any payment or
distribution to the Trustee or to the Holders for the purpose of ascertaining
the Persons entitled to participate in such payment or distribution, the holders
of Senior Debt 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 XV. Nothing in this Section 15.5
shall apply to the claims of, or payments to, the Trustee under or pursuant to
Section 6.7.
SECTION 15.6 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN ABSENCE
OF NOTICE.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts that would prohibit the making of any payment to or by
the Trustee unless and until the Trustee or any Paying Agent shall have received
notice thereof from the Company or from one or more holders of Senior Debt or
from any Representative therefor and, prior to the receipt of any such notice,
the Trustee, subject to the provisions of Sections 6.1 and 6.3, shall be
entitled in all respects conclusively to assume that no such fact exists.
SECTION 15.7 APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT.
U.S. Legal Tender or U.S. Government Obligations deposited in trust
with the Trustee pursuant to and in accordance with Section 7.4 (including,
without limitation, clause (a) thereof) shall be for the sole benefit of Holders
and, to the extent allocated for the payment of Securities, shall not be subject
to the subordination provisions of this Article XV. Otherwise, any deposit of
assets or securities by or on behalf of the Company with the Trustee or any
Paying Agent (whether or not in trust) for payment of the Securities shall be
subject to the provisions of this Article XV; provided that if prior to the
second Business Day preceding the date on which by the terms of this Indenture
any such assets may become distributable for any purpose (including, without
limitation, the payment of either principal of or interest on any Security) the
Trustee or such Paying Agent shall not have received with respect to such assets
the notice provided for in Section 15.6, then the Trustee or such Paying Agent
shall have full power and authority to receive such assets and to apply the same
to the purpose for which they were received, and shall not be affected by any
notice to the contrary received by it on or after such date. The foregoing shall
not apply to the Paying Agent if the Company or any Subsidiary or Affiliate of
the Company is acting as Paying Agent.
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SECTION 15.8 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE
COMPANY OR HOLDERS OF SENIOR DEBT.
No right of any present or future holders of any Senior Debt to enforce
the subordination provisions contained in this Article XV 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 of this Indenture,
regardless of any knowledge thereof with which any such holder may have or be
otherwise charged. Without in any way limiting the generality of the foregoing,
the holders of Senior Debt, or any of them, may, at any time and from time to
time, without the consent of or notice to the Holders, without incurring any
liabilities to any Holder and without impairing or releasing the subordination
and other benefits provided in this Indenture or the obligations of the Holders
to the holders of Senior Debt, even if any right of reimbursement or subrogation
or other right or remedy of any Holder is affected, impaired or extinguished
thereby, do any one or more of the following:
(a) change the manner, place or terms of payment or change or
extend the time of payment of, or renew, exchange, amend, increase or
alter the terms of any Senior Debt, any security therefor or guaranty
thereof or any liability of any obligor thereon (including any
guarantor) to such holder of Senior Debt, or any liability incurred
directly or indirectly in respect thereof or otherwise amend, renew,
exchange, extend, modify, increase or supplement in any manner any
Senior Debt or any instrument evidencing or guaranteeing or securing
the same or any agreement under which Senior Debt is outstanding;
(b) sell, exchange, release, surrender, realize upon, enforce
or otherwise deal with in any manner and in any order any property
pledged, mortgaged or otherwise securing Senior Debt or any liability
of any obligor thereon, to such holder of Senior Debt, or any liability
incurred directly or indirectly in respect thereof;
(c) settle or compromise any Senior Debt or any other
liability of any obligor of the Senior Debt to such holder of Senior
Debt or any security therefor or any liability incurred directly or
indirectly in respect thereof and apply any sums by whomsoever paid and
however realized to any liability (including, without litigation,
Senior Debt) in any manner or order; and
(d) fail to take or to record or otherwise perfect, for any
reason or for no reason, any Lien or security interest securing Senior
Debt by whomsoever granted, exercise or delay in or refrain from
exercising any right or remedy against any obligor or any guarantor or
any other Person, elect any remedy and otherwise deal freely with any
obligor and any security for the Senior Debt or any liability of any
obligor to such holder of Senior Debt or any liability incurred
directly or indirectly in respect thereof.
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SECTION 15.9 HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION
OF SECURITIES.
Each Holder of the Securities by the acceptance thereof authorizes and
expressly directs the Trustee on the Holder's behalf to take such action as may
be necessary or appropriate to effect the subordination provisions contained in
this Article XV, and appoints the Trustee as attorney-in-fact for such purpose,
including, in the event of any Insolvency or Liquidation Proceeding tending
toward liquidation or reorganization of the business and assets of such
Subsidiary Guarantor, the immediate filing of a claim for the unpaid balance
under the Holder's Securities, or with respect to any other Subordinated
Obligations, in the form required in said proceedings and cause said claim to be
approved. If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of the Senior Debt or their
Representative is hereby authorized to file an appropriate claim for and on
behalf of the Holders of said Securities. Nothing herein contained shall be
deemed to authorize the Trustee or the holders of Senior Debt or their
Representative to authorize, consent to, accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or any other Subordinated Obligations or the rights of any Holder
thereof, or to authorize the Trustee or the holders of Senior Debt or their
Representative to vote in respect of the claim of any Holder of Securities or
any other Subordinated Obligations in any such proceeding.
SECTION 15.10 ARTICLE XV NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment in respect of the Securities or any other
Subordinated Obligation by reason of any provision of this Article XV shall not
be construed as preventing the occurrence of an Event of Default under Section
5.1.
SECTION 15.11 NO FIDUCIARY DUTY OF TRUSTEE TO HOLDERS OF SENIOR DEBT.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders (other than
for its willful misconduct or gross negligence) if it shall in good faith
mistakenly pay over or deliver to the holders of Subordinated Obligations or the
Company or any other Person, money or assets to which any holders of Senior Debt
shall be entitled by virtue of this Article XV or otherwise. Nothing in this
Section 15.11 shall affect the obligation of any Person other than the Trustee
to hold such payment for the benefit of, and to pay such payment over to, the
holders of Senior Debt or their Representative.
ARTICLE XVI
SENIOR SUBORDINATED GUARANTEE OF SECURITIES
SECTION 16.1 UNCONDITIONAL GUARANTEE.
Subject to the provisions of this Article XVI, each Subsidiary
Guarantor hereby unconditionally, jointly and severally, guarantees to each
Holder of a Security authenticated and
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delivered by the Trustee and to the Trustee and its successors and assigns, the
Securities or the obligations of the Company hereunder or thereunder, that: (a)
the principal of and interest on the Securities will be promptly paid in full
when due, subject to any applicable grace period, whether at maturity, by
acceleration or otherwise and interest on the overdue principal, if any, and
interest on any interest to the extent lawful, of the Securities and all other
obligations of the Company to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Securities or of any such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, subject to any applicable grace period, whether at Stated
Maturity, by acceleration or otherwise, subject, however, in the case of clauses
(a) and (b) above, to the limitations set forth in Section 16.4. Each Subsidiary
Guarantor hereby agrees that its obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the Securities or
this Indenture, the absence of any action to enforce the same, any waiver or
consent by any Holder of the Securities with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action to enforce
the same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each Subsidiary Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities, this Indenture and
in the Guarantee. If any Holder or the Trustee is required by any court or
otherwise to return to the Company, any Subsidiary Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to the Company
or any Subsidiary Guarantor, any amount paid by the Company or any Subsidiary
Guarantor to the Trustee or such Holder, this Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor,
on the one hand, and the Holders and the Trustee, on the other hand, (i) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article V for the purposes of this Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (ii) in the event of any acceleration of such
obligations as provided in Article V, such obligations (whether or not due and
payable) shall forthwith become due and payable by each Subsidiary Guarantor for
the purpose of the Guarantee.
SECTION 16.2 SEVERABILITY.
In case any provision of this Guarantee 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.
SECTION 16.3 RELEASE OF A SUBSIDIARY GUARANTOR.
Upon the sale or disposition of all of the Capital Stock of any
Subsidiary Guarantor or the sale or disposition of all or substantially all of
the assets of any Subsidiary Guarantor to an entity which is not a Subsidiary of
the Company, in each case, and which is otherwise in compliance
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with the terms of this Indenture, such Subsidiary Guarantor shall be deemed
released from all its obligations under this Article XVI and its Guarantee
without any further action required on the part of the Trustee or any Holder,
provided, however, that any such termination shall occur only to the extent that
all Obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure,
Indebtedness of the Company under the Senior Credit Facility or other Senior
Debt, related documents and future refinancings thereof shall also have been
terminated or released upon such release, sale or transfer. The Trustee shall
deliver an instrument evidencing such release, substantially in the form of
Exhibit B attached hereto, upon receipt of a request by the Company accompanied
by an Officers' Certificate certifying as to the compliance with this Section
16.3. Any Subsidiary Guarantor not so released remains liable for the full
amount of principal of and interest on the Securities as provided in this
Article XVI.
SECTION 16.4 LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY.
Each Subsidiary Guarantor and by its acceptance hereof each Holder
confirms that it is the intention of all such parties that the guarantee by such
Subsidiary Guarantor pursuant to its Guarantee will not constitute a fraudulent
transfer or conveyance for purposes of the Bankruptcy Law, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
federal or state law. To effectuate the foregoing intention, the Holders and
such Subsidiary Guarantor hereby irrevocably agree that the obligations of such
Subsidiary Guarantor under the Guarantee shall be limited to the maximum amount
as will, after giving effect to all other contingent and fixed liabilities
(including, but not limited to, Guarantor Senior Debt of such Subsidiary
Guarantor) of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Guarantee or pursuant to Section 16.6, result in the obligations of such
Subsidiary Guarantor under the Guarantee not to constitute such fraudulent
transfer or conveyance.
SECTION 16.5 SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
(a) Nothing contained in this Indenture or in any of the Securities
shall prevent any consolidation or merger of a Subsidiary Guarantor with or into
the Company or another Subsidiary Guarantor or shall prevent any sale or
conveyance of all or substantially all the property of a Subsidiary Guarantor to
the Company or another Subsidiary Guarantor. Upon any such consolidation,
merger, sale or conveyance, the Guarantee given by such Subsidiary Guarantor
shall no longer have any force or effect.
(b) Except as set forth in Article XII hereof, nothing contained
in this Indenture or in any of the Securities shall prevent any consolidation or
merger of a Subsidiary Guarantor with or into a corporation or corporations
other than the Company or another Subsidiary Guarantor (whether or not
affiliated with the Subsidiary Guarantor), or successive consolidations or
mergers in which a Subsidiary Guarantor or its successor(s) shall be a party or
parties, or shall prevent any sale or conveyance of all or substantially all the
property of a Subsidiary Guarantor, to a corporation other than the Company or
another Subsidiary Guarantor (whether or not affiliated
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with the Subsidiary Guarantor); provided, however, that, subject to Sections
16.3 and 16.5(a): (i) such transaction does not violate any covenants set forth
in Article XII hereof; (ii) immediately after such transaction, and giving
effect thereto, no Default or Event of Default shall have occurred as a result
of such transaction and be continuing; and (iii) each Subsidiary Guarantor
hereby covenants and agrees that, upon any such consolidation, merger, sale or
conveyance, the Guarantee set forth in this Article XVI, and the due and
punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed by such Subsidiary Guarantor, shall be expressly
assumed (in the event that the Subsidiary Guarantor is not the surviving
corporation in the merger), by supplemental indenture satisfactory in form to
the Trustee, executed and delivered to the Trustee, by the corporation formed by
such consolidation, or into which the Subsidiary Guarantor shall have merged, or
by the corporation that shall have acquired such property. In the case of any
such consolidation, merger, sale or conveyance and upon the assumption by the
successor corporation, by supplemental indenture executed and delivered to the
Trustee and satisfactory in form to the Trustee of the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Subsidiary Guarantor, such successor corporation shall succeed
to and be substituted for the Subsidiary Guarantor with the same effect as if it
had been named herein as a Subsidiary Guarantor.
SECTION 16.6 CONTRIBUTION.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under the Guarantee, such Funding Guarantor shall be
entitled to a contribution from all other Subsidiary Guarantors in a pro rata
amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including
the Funding Guarantor) for all payments, damages and expenses incurred by that
Funding Guarantor in discharging the Company's Obligations with respect to the
Securities or any other Subsidiary Guarantor's Obligations with respect to the
Guarantee.
SECTION 16.7 WAIVER OF SUBROGATION.
Each Subsidiary Guarantor hereby irrevocably waives any claim or other
rights which it may now or hereafter acquire against the Company that arise from
the existence, payment, performance or enforcement of such Subsidiary
Guarantor's Obligations under the Guarantee and this Indenture, including,
without limitation, any right of subrogation, reimbursement, exoneration,
indemnification, and any right to participate in any claim or remedy of any
Holder of Securities against the Company, whether or not such claim, remedy or
right arises in equity, or under contract, statute or common law, including,
without limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Subsidiary Guarantor in violation of the preceding sentence
and the Securities shall not have been paid in full, such amount shall have been
deemed to have been paid to such Subsidiary Guarantor for the benefit of, and
held in trust for the benefit of, the Holders of the Securities, and shall
forthwith be paid to the Trustee for the benefit of such Holders to be credited
and applied upon the Securities, whether matured or unmatured, in accordance
with the
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terms of this Indenture. Each Subsidiary Guarantor acknowledges that it will
receive direct and indirect benefits from the financing arrangements
contemplated by this Indenture and that the waiver set forth in this Section
16.7 is knowingly made in contemplation of such benefits.
SECTION 16.8 EXECUTION OF GUARANTEE.
To evidence their guarantee to the Holder specified in Section 16.1,
the Subsidiary Guarantors hereby agree to execute the Guarantee in substantially
the form of Exhibit C recited to be endorsed on each Security ordered to be
authenticated and delivered by the Trustee. Each Subsidiary Guarantor hereby
agrees that its Guarantee set forth in Section 16.1 shall remain in full force
and effect notwithstanding any failure to endorse on each Security a notation of
such Guarantee. Each such Guarantee shall be signed on behalf of each Subsidiary
Guarantor by two Officers, or an Officer and an Assistant Secretary or one
Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to such Guarantee prior to the authentication of the
Security on which it is endorsed, and the delivery of such Security by the
Trustee, after the authentication thereof hereunder, shall constitute due
delivery of such Guarantee on behalf of such Subsidiary Guarantor. Such
signatures upon the Guarantee may be by manual or facsimile signature of such
officers and may be imprinted or otherwise reproduced on the Guarantee, and in
case any such officer who shall have signed the Guarantee shall cease to be such
officer before the Security on which such Guarantee is endorsed shall have been
authenticated and delivered by the Trustee or disposed of by the Company, such
Security nevertheless may be authenticated and delivered or disposed of as
though the Person who signed the Guarantee had not ceased to be such officer of
the Subsidiary Guarantor.
ARTICLE XVII
SUBORDINATION OF THE GUARANTEES
SECTION 17.1 GUARANTOR SUBORDINATED OBLIGATIONS SUBORDINATED TO GUARANTOR
SENIOR DEBT.
(a) Notwithstanding any provision of this Indenture to the contrary,
each Subsidiary Guarantor agrees, the Trustee acknowledges and each Holder (by
accepting the Guarantees) likewise covenants and agrees that any payments in
respect of Guarantees by any Subsidiary Guarantor and any and all other
Obligations of such Subsidiary Guarantor in respect of any Guarantee or on
account of any Claim (collectively, the "Guarantor Subordinated Obligations")
shall be subordinated, to the extent set forth in this Article XVII, to the
prior payment in full in cash of all Guarantor Senior Debt.
(b) This Article XVII shall constitute a continuing offer to all
Persons who become holders of, or continue to hold, Guarantor Senior Debt, and
such provisions are made for the benefit of the holders of Guarantor Senior Debt
and such holders are made obligees hereunder and any one or more of them may
enforce such provisions. Holders of Guarantor Senior Debt need not prove
reliance on the subordination provisions hereof.
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(c) For purposes of this Article XVII, a distribution may consist of
cash, securities or other property, by set-off or otherwise. For purposes of
this Article XVII, the words "cash, securities or other property" shall not be
deemed to include any payment or distribution of Permitted Junior Securities.
SECTION 17.2 NO PAYMENT ON GUARANTOR SUBORDINATED OBLIGATIONS IN CERTAIN
CIRCUMSTANCES.
(a) No direct or indirect payment or distribution shall be made by or
on behalf of any Subsidiary Guarantor in respect of the Guarantor Subordinated
Obligations ("pay the Guarantor Subordinated Obligations" or "payment of
Guarantor Subordinated Obligations") (i) upon the maturity of any Guarantor
Senior Debt by lapse of time, acceleration or otherwise, unless and until all
principal thereof and all interest and other Obligations owing with respect to
such Guarantor Senior Debt shall first be paid in full in cash, or (ii) upon the
happening of any default in payment of any principal of or interest on any
Guarantor Senior Debt or any other Obligations owing from time to time under or
in respect of Guarantor Senior Debt when the same becomes due and payable,
beyond any applicable period of grace, unless and until such default shall have
been cured or waived in writing in accordance with the instruments governing
such Guarantor Senior Debt or such default shall have ceased to exist; provided,
however, that any Subsidiary Guarantor may make such payment of Guarantor
Subordinated Obligations without regard to the foregoing if such Subsidiary
Guarantor and the Trustee receive written notice from the Senior Credit
Representative and each other Representative of the holders of Designated Senior
Debt approving such payment or distribution.
(b) No direct or indirect payment of Guarantor Subordinated Obligations
shall be made if any default (other than a default specified in Section
17.2(a)(ii) above) occurs and is continuing with respect to Designated Senior
Debt that permits holders of such Designated Senior Debt as to which such
default relates to accelerate its maturity (a "Guarantor Non-Payment Default")
and the Trustee receives a notice of such Non-Payment Default (a "Guarantor
Payment Blockage Notice") from the Senior Credit Representative or the
Representative of other holders of Designated Senior Debt (which notice shall be
binding on the Trustee and the Holders as to the occurrence of any such
default), except as provided in the immediately following sentence. Any and all
required payments of Guarantor Subordinated Obligations, including any missed
payments, may and shall be resumed or may upon the earliest of (i) the date on
which such Guarantor Non-Payment Default is cured or waived in writing in
accordance with the instruments governing such Designated Senior Debt; (ii) 179
days after the date on which the applicable Guarantor Payment Blockage Notice is
received; or (iii) the date on which the Trustee receives written notice from
the Senior Credit Representative or the Representative of other holders of
Designated Senior Debt, as the case may be, terminate the payment blockage
period or otherwise consenting to any proposed distribution or payment. During
any consecutive 360-day period, the aggregate of all periods of payment blockage
shall not exceed 179 days and there shall be a period of at least 181
consecutive days in each consecutive 360-day period when no payment blockage is
in effect. No Guarantor Non-Payment Default that existed or was continuing on
the date of delivery of any Guarantor Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Guarantor Payment Blockage
Notice unless such default shall have been cured or waived in writing in
accordance with the instruments governing
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such Guarantor Senior Debt for a period of not less than 90 days. Any Guarantor
Payment Blockage Notice given under this Section 17.2 shall also constitute a
Payment Blockage Notice for purposes of Section 15.2 of this Indenture and shall
be deemed to have been given with respect to all Subsidiary Guarantors
simultaneously.
(c) In furtherance of the provisions of Section 17.1, if,
notwithstanding the foregoing provisions of this Section 17.2, any direct or
indirect payment in respect of the Guarantor Subordinated Obligations shall be
made by or on behalf of any Subsidiary Guarantor and received by the Trustee, by
any Holder or by any Paying Agent (or, if the Company or any Subsidiary or
Affiliate of the Company is acting as Paying Agent, money for any such payment
shall be segregated and held in trust), at a time when such payment of the
Guarantor Subordinated Obligations was prohibited by the provisions of this
Section 17.2, then, unless and until such payment of the Guarantor Subordinated
Obligations is no longer prohibited by this Section 17.2, such payment of the
Guarantor Subordinated Obligations (subject to the provisions of Sections 17.6
and 17.7) shall be received, segregated from other funds, and held in trust by
the Trustee or such Holder or Paying Agent, as the case may be, for the benefit
of, and shall be paid over to, the holders of Guarantor Senior Debt or their
Representative, ratably according to the respective amounts of such Guarantor
Senior Debt held or represented by each, to the extent necessary to make payment
in full in cash of such Guarantor Senior Debt remaining unpaid, after giving
effect to all concurrent payments and distributions to or for the holders of
Guarantor Senior Debt.
SECTION 17.3 GUARANTOR SUBORDINATED OBLIGATIONS SUBORDINATED TO PRIOR PAYMENT
OF ALL GUARANTOR SENIOR DEBT ON DISSOLUTION, LIQUIDATION OR
REORGANIZATION OF ANY SUBSIDIARY GUARANTOR.
Upon any payment or distribution of assets or securities of any
Subsidiary Guarantor of any kind or character, whether in cash, property or
securities upon any dissolution, winding up, total or partial liquidation or
total or partial reorganization of such Subsidiary Guarantor and whether
voluntary or involuntary (including, without limitation, in any Insolvency or
Liquidation Proceeding):
(a) the holders of all Guarantor Senior Debt shall first be
entitled to receive cash payments in full of all Obligations due or to
become due with respect to the Guarantor Senior Debt (including,
without limitation, Post-Petition Interest) before any payment is made
on account of the Guarantor Subordinated Obligations by or on behalf of
any Subsidiary Guarantor or any other payment or distribution of assets
or securities by or on behalf of such Subsidiary Guarantor;
(b) any payment or distribution of assets or securities of
such Subsidiary Guarantor of any kind or character, whether in cash,
property or securities (other than Permitted Junior Securities), to
which the Holders or the Trustee on behalf of the Holders would be
entitled except for the provisions of this Article XVII, including any
such payment or distribution that is payable or deliverable by reason
of the payment of any other Indebtedness of such Subsidiary Guarantor
being subordinated to the payment of
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the Guarantor Subordinated Obligations, shall be paid by the
liquidating trustee or agent or other Person making such a payment or
distribution, directly to the holders of Guarantor Senior Debt or their
Representative, ratably according to the respective amounts of such
Guarantor Senior Debt held or represented by each, until all such
Guarantor Senior Debt remaining unpaid shall have been paid in full in
cash, after giving effect to all concurrent payments and distributions
to or for the holders of such Guarantor Senior Debt;
(c) in the event that, notwithstanding the foregoing, any
payment or distribution of assets or securities of such Subsidiary
Guarantor of any kind or character, whether in cash, property or
securities (other than Permitted Junior Securities), shall be received
by the Trustee or the Holders or any Paying Agent (or, if the Company
or any Subsidiary or Affiliate of the Company is acting as Paying
Agent, money, assets or securities of any kind or character, for any
such payment or distribution shall be segregated or held in trust) in
respect of payment of the Guarantor Subordinated Obligations before all
Guarantor Senior Debt is paid in full in cash, such payment or
distribution (subject to the provisions of Sections 17.6 and 17.7)
shall be received, segregated from other funds, and held in trust by
the Trustee or such Holder or Paying Agent for the benefit of, and
shall promptly be paid over to, the holders of such Guarantor Senior
Debt or their Representative, ratably according to the respective
amounts of such Guarantor Senior Debt held or represented by each,
until all such Guarantor Senior Debt remaining unpaid shall have been
paid in full in cash, after giving effect to all concurrent payments
and distributions to or for the holders of such Guarantor Senior Debt.
Notwithstanding anything to the contrary contained herein, in the
absence of its negligence or willful misconduct, the Trustee shall have
no duty to collect or retrieve monies previously paid by it in good
faith; provided that this sentence shall not affect the obligation of
any other party receiving such payment to hold such payment for the
benefit of, and to pay such payment over to, the holders of such
Guarantor Senior Debt or their Representative.
Each Subsidiary Guarantor will give prompt notice to the Trustee of any
dissolution, winding up, total or partial liquidation or total or partial
reorganization of it or any assignment for the benefit of its creditors.
SECTION 17.4 HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF GUARANTOR
SENIOR DEBT.
Subject to the prior cash payment in full of all Guarantor Senior Debt,
the Holders shall be subrogated to the rights of the holders of Guarantor Senior
Debt to receive payments or distributions of assets, cash, property or
securities of each Subsidiary Guarantor applicable to the Guarantor Senior Debt
until all amounts owing on the Guarantees and any other Guarantor Subordinated
Obligations shall be paid in full; and, for the purposes of such subrogation,
(a) no such payments or distributions to the holders of the Guarantor Senior
Debt of any cash, property or securities to which the Holders or the Trustee on
their behalf would be entitled except for the provisions of this Article XVII,
and no payment over pursuant to the provisions of this Article XVII to the
holders of Guarantor Senior Debt by Holders or the Trustee on their behalf
shall, as
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between any Subsidiary Guarantor, its creditors other than holders of Guarantor
Senior Debt, and the Holders, be deemed to be a payment by any Subsidiary
Guarantor to or on account of the Guarantor Senior Debt, and (b) no payment or
distributions of cash, property or securities to or for the benefit of the
Holders pursuant to the subrogation provision of this Article XVII which would
otherwise have been paid to the holders of Guarantor Senior Debt shall be deemed
to be a payment by the Company to or for the account of the Guarantees. It is
understood that the provisions of this Article XVII are intended solely for the
purpose of defining the relative rights of the Holders, on the one hand, and the
holders of the Guarantor Senior Debt, on the other hand.
SECTION 17.5 OBLIGATIONS OF SUBSIDIARY GUARANTORS UNCONDITIONAL.
Nothing contained in this Article XVII or elsewhere in this Indenture
or in the Guarantee is intended to or shall impair, as between the Subsidiary
Guarantors and the Holders, the absolute and unconditional obligation of the
Subsidiary Guarantors to pay to the Holders all amounts due and payable under
the Guarantees and the Indenture, and any other Guarantor Subordinated
Obligations, as and when the same shall become due and payable in accordance
with the terms, or is intended to or shall affect the relative rights of the
Holders and creditors of any Subsidiary Guarantor other than the holders of the
Guarantor Senior Debt, nor shall anything herein or therein prevent the Trustee
or any Holder from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article XVII, of the holders of Guarantor Senior Debt in respect of cash,
property or securities of any Subsidiary Guarantor received upon the exercise of
any such remedy. Upon any payment or distribution of assets or securities of any
Subsidiary Guarantor referred to in this Article XVII, the Trustee, subject to
the provisions of Sections 6.1 and 6.3, and the Holders shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which any dissolution, winding up, liquidation or reorganization proceedings are
pending, or a certificate of the receiver, trustee in bankruptcy, liquidating
trustee or agent or other Person making any payment or distribution to the
Trustee or to the Holders for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of Guarantor Senior
Debt and other Indebtedness of the Subsidiary Guarantors, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XVII. Nothing in this Section 17.5
shall apply to the claims of, or payments to, the Trustee under or pursuant to
Section 6.7.
SECTION 17.6 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN ABSENCE
OF NOTICE.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts that would prohibit the making of any payment to or by
the Trustee unless and until the Trustee or any Paying Agent shall have received
actual, written notice thereof from any Subsidiary Guarantor or from one or more
holders of Guarantor Senior Debt or from any Representative therefor and, prior
to the receipt of any such notice, the Trustee, subject to the provisions of
Sections 6.1 and 6.3, shall be entitled in all respects conclusively to assume
that no such fact exists.
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SECTION 17.7 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE
SUBSIDIARY GUARANTORS OR HOLDERS OF GUARANTOR SENIOR DEBT.
No right of any present or future holders of any Guarantor Senior Debt
to enforce the subordination provisions contained in this Article XVII shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of any Subsidiary Guarantor or by any act or failure to act, in good
faith, by any such holder, or by any noncompliance by the any Subsidiary
Guarantor with the terms of this Indenture, regardless of any knowledge thereof
with which any such holder may have or be otherwise charged. Without in any way
limiting the generality of the foregoing, the holders of Guarantor Senior Debt,
or any of them, may, at any time and from time to time, without the consent of
or notice to the Holders, without incurring any liabilities to any Holder and
without impairing or releasing the subordination and other benefits provided in
this Indenture or the obligations of the Holders to the holders of Guarantor
Senior Debt, even if any right of reimbursement or subrogation or other right or
remedy of any Holder is affected, impaired or extinguished thereby, do any one
or more of the following:
(a) change the manner, place or terms of payment or change or
extend the time of payment of, or renew, exchange, amend increase or
alter, the terms of any Guarantor Senior Debt, any security therefor or
guaranty thereof or any liability of any obligor thereon (including any
guarantor) to such holder of Guarantor Senior Debt, or any liability
incurred directly or indirectly in respect thereof or otherwise amend,
renew, exchange, extend, modify, increase or supplement in any manner
any Guarantor Senior Debt or any instrument evidencing or guaranteeing
or securing the same or any agreement under which Guarantor Senior Debt
is outstanding;
(b) sell, exchange, release, surrender, realize upon, enforce
or otherwise deal with in any manner and in any order any property
pledged, mortgaged or otherwise securing Guarantor Senior Debt or any
liability of any obligor thereon, to such holder of Guarantor Senior
Debt, or any liability incurred directly or indirectly in respect
thereof;
(c) settle or compromise any Guarantor Senior Debt or any
other liability of any obligor of the Guarantor Senior Debt to such
holder of Guarantor Senior Debt or any security therefor or any
liability incurred directly or indirectly in respect thereof and apply
any sums by whomsoever paid and however realized to any liability
(including, without limitation, Guarantor Senior Debt) in any manner or
order; and
(d) fail to take or to record or otherwise perfect, for any
reason or for no reason, any Lien or security interest securing
Guarantor Senior Debt by whomsoever granted, exercise or delay in or
refrain from exercising any right or remedy against any obligor or any
guarantor or any other Person, elect any remedy and otherwise deal
freely with any obligor and any security for the Guarantor Senior Debt
or any liability of any obligor to such holder of Guarantor Senior Debt
or any liability incurred directly or indirectly in respect thereof.
96
<PAGE> 107
SECTION 17.8 HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF
GUARANTEES.
Each Holder by the acceptance thereof authorizes and expressly directs
the Trustee on its behalf to take such action as may be necessary or appropriate
to effect the subordination provisions contained in this Article XVII, and
appoints the Trustee as attorney-in-fact for such purpose, including, in the
event of any Insolvency or Liquidation Proceeding tending toward liquidation or
reorganization of the business and assets of such Subsidiary Guarantor, the
immediate filing of a claim for the unpaid balance under such Subsidiary
Guarantor's Guarantee, or with respect to any other Guarantor Subordinated
Obligations, in the form required in said proceedings and cause said claim to be
approved. If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of the Guarantor Senior Debt
or their Representative is hereby authorized to file an appropriate claim for
and on behalf of the Holders. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Guarantor Senior Debt or their
Representative to authorize, consent to, accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Guarantees or any other Guarantor Subordinated Obligations or the rights of any
Holder thereof, or to authorize the Trustee or the holders of Guarantor Senior
Debt or their Representative to vote in respect of the claim of any Holder or
any other Guarantor Subordinated Obligations in any such proceeding.
SECTION 17.9 ARTICLE XVII NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment in respect of the Guarantees or any other
Guarantor Subordinated Obligation by reason of any provision of this Article
XVII shall not be construed as preventing the occurrence of an Event of Default
under Section 5.1.
SECTION 17.10 NO FIDUCIARY DUTY OF TRUSTEE TO HOLDERS OF GUARANTOR
SENIOR DEBT.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Debt, and shall not be liable to any such holders
(other than for its willful misconduct or gross negligence) if it shall in good
faith mistakenly pay over or deliver to the holders of Guarantor Subordinated
Obligations or any Subsidiary Guarantor or any other Person, money or assets to
which any holders of Guarantor Senior Debt shall be entitled by virtue of this
Article XVII or otherwise. Nothing in this Section 17.10 shall affect the
obligation of any Person other than the Trustee to hold such payment for the
benefit of, and to pay such payment over to, the holders of Guarantor Senior
Debt or their Representative.
97
<PAGE> 108
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.
APRIA HEALTHCARE GROUP INC.
[SEAL] By: __________________________________
Name:
Title:
------------------------------------
[SEAL] By: __________________________________
Name:
Title:
-------------------------------------
[SEAL] By: __________________________________
Name:
Title:
98
<PAGE> 109
STATE OF _______________ )
): ss.:
COUNTY OF ______________ )
On the ___th day of ____________, 1998, before me Personally came
______________, to me known, who, being by me duly sworn, did depose and say
that he/she is ______________ of Apria Healthcare Group, Inc., one of the
corporations described in and which executed the foregoing instrument; that
he/she 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/she signed his name thereto
by like authority.
--------------------------------
Notary Public
99
<PAGE> 110
STATE OF ________________ )
): ss.:
COUNTY OF _______________ )
On the ___th day of ______________, 1998, before me Personally came
_________________, to me known, who, being by me duly sworn, did depose and say
that he is ___________________ of ___________________________ described in and
which executed the foregoing instrument; that he knows the seal of said
association; 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
association; and that he signed his name thereto by like authority.
---------------------------------
Notary Public
[SEAL]
100
<PAGE> 111
STATE OF _________________ )
): ss.:
COUNTY OF ________________ )
On the ___th day of ______________, 1998, before me Personally came
__________________, to me known, who, being by me duly sworn, did depose and say
that he is __________________________ described in and which executed the
foregoing instrument; that he knows the seal of said association; 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 association; and that he signed his
name thereto by like authority.
------------------------------------
Notary Public
[SEAL]
101
<PAGE> 112
EXHIBIT A
FORM OF CONVERSION NOTICE
- ----------------------,
as Conversion Agent
- ----------------------
Re: APRIA HEALTHCARE GROUP INC.
10% Convertible Subordinated Debentures
due , 2004 (the "Securities")
Reference is hereby made to the Indenture, dated as of ___________,
1998 (the "Indenture"), between Apria Healthcare Group Inc., the Subsidiary
Guarantors parties thereto, and ________________, as Trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
This letter relates to the Securities specified below, which are
registered in the name of the undersigned (the "Holder"). The Holder hereby
irrevocably exercises its right to convert such Securities, or the portion
thereof, if any, specified below, into shares of Common Stock and, except to the
extent specified or required as described below, directs that certificates
representing such Shares of Common Stock, together with any check in payment for
a fractional share and any Security representing any unconverted principal
amount, be issued and delivered through the facilities of a depositary, unless
otherwise specified, for credit to the account(s) of the Person(s) indicated
below.
The Holder acknowledges and agrees that no shares of Common Stock will
be delivered on conversion until any amount payable by the Holder on account of
interest is paid, any certificates evidencing specified Securities not held in
book-entry form are duly endorsed or assigned to the Company or in blank and
surrendered and any taxes or other charges or documents required in connection
with a transfer on conversion, and any other required items, are delivered to
the Conversion Agent.
Conversion of the specified Securities is subject to the requirements
established by the Company. The specified Securities will be deemed to have been
converted as of the close of business on the first day on which this conversion
notice and all other required items have been delivered to the Conversion Agent
as provided above and, upon such conversion, shall cease to accrue interest or
be Outstanding (subject to the Holder's right to receive the Conversion
Securities as provided in the Indenture). Prior to such conversion, the Holder
will have no rights in the Conversion Securities.
A-1
<PAGE> 113
Please provide the information requested below, as applicable.
1. PLEASE SPECIFY THE SECURITIES HELD AND THE PORTION THEREOF TO BE
CONVERTED:
Principal amount held: $ _____________
CUSIP number(s):
Depositary account where held, if applicable:
Principal amount being converted (if less than all): $ ____________
2. UNLESS AND TO THE EXTENT OTHERWISE SPECIFIED BELOW, all Securities
(together with any unconverted Securities) will be delivered in book-entry form
to the Depositary account specified in Item 1 above.
3. IF OTHER ARRANGEMENTS ARE DESIRED, please specify the type, number
and form of securities to be delivered on conversion and the names(s) of the
account holder(s) or registered owner(s), by checking the appropriate boxes and
providing the information requested:
[ ] Common Shares
[ ] Book-Entry
Number of shares of Common Stock:
Depositary Account:
[ ] Certificates
Number of shares of Common Stock:
Registered Owner:
[ ] Unconverted Securities
[ ] Certificates
Principal Amount: $ ___________
Registered Owner:
[ ] Book-Entry
Principal Amount: $ ___________
Depositary Account:
Please sign and date this notice in the space provided below.
A-2
<PAGE> 114
DATE: _________________________
Name of Holder: _______________________
Signature(s) of Holder:___________________
Title(s):
(If the Holder is a
corporation, partnership or
fiduciary, the title of the
Person signing on behalf of
the Holder must be stated.)
If shares of Common Stock or unconverted Securities are to be delivered
other than to and in the name of the registered owner, any signature must be
guaranteed by an "Eligible Institution" (banks, stock brokers, savings and loan
associations and credit unions) with membership in an approved signature
guarantee medallion program pursuant to Securities and Exchange Commission Rule
17Ad-15.
- -------------------------------
Signature Guarantee
A-3
<PAGE> 115
EXHIBIT B
RELEASE OF SUBSIDIARY GUARANTOR
Reference is made to that certain Indenture, dated as of ___________,
1998 (the "Indenture") by and among Apria Healthcare Group Inc. (the "Company"),
the subsidiary guarantors parties thereto (each, a "Subsidiary Guarantor") and
_______________, as trustee (the "Trustee"). All capitalized terms not otherwise
defined herein shall have the meanings ascribed to such terms in the Indenture.
The Trustee hereby acknowledges receipt of a request by the Company
dated ___________________ for the release of _____________________ from all its
obligations under Article XVI of the Indenture and its Guarantee. Such request
was accompanied by an Officers' Certificate dated certifying as to the
compliance with Section 16.3 of the Indenture.
Pursuant to Section 16.3 of the Indenture, _______________________ is
hereby released as of ______________ from all its obligations under Article XVI
of the Indenture and its Guarantee.
Date:____________________ ____________________, as Trustee
By: ________________________________
Name
Title
B-1
<PAGE> 116
EXHIBIT C
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
Reference is made to that certain Indenture, dated as of ___________,
1998 (the "Indenture") by and among Apria Healthcare Group Inc. (the "Company"),
the subsidiary guarantors parties thereto (each, a "Subsidiary Guarantor") and
_____________, as trustee (the "Trustee"). All capitalized terms not otherwise
defined herein shall have the meanings ascribed to such terms in the Indenture.
The Subsidiary Guarantors, which term include any successor Person
under the Indenture, referred to in the Security upon which this notation is
endorsed, have, jointly and severally, unconditionally guaranteed on a
subordinated unsecured basis, (such guarantee by each Subsidiary Guarantor being
referred to herein as the "Guarantee") (i) the due and punctual payment of the
principal of and interest on the Securities, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and interest, if any, on Securities, to the extent lawful, and
the due and punctual performance of all other obligations of the Company to the
Holders of Securities or the Trustee all in accordance with the terms set forth
in Article XVI of the Indenture and (ii) in case of any extension of time of
payment or renewal of any Securities or any of such other obligations, in
accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration or otherwise.
The obligations of each Subsidiary Guarantor to the Holders of
Securities and to the Trustee pursuant to the Guarantee and the Indenture are
expressly set forth, and are subordinated unsecured obligations of each such
Subsidiary Guarantor to the extent and in the manner provided, in Article XVI of
the Indenture and may be released under certain circumstances. Reference is
hereby made to such Indenture for the precise terms of the Guarantee therein
made.
No stockholder, officer, director or incorporator, as such, past,
present or future, of any Subsidiary Guarantor shall have any liability under
the Guarantee by reason of his, her or its status as such stockholder, officer,
director or incorporator.
The Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Securities upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
C-1
<PAGE> 117
SUBSIDIARY GUARANTORS:
-------------------------------------
By: __________________________________
Name:
Title:
------------------------------------
By: __________________________________
Name:
Title:
-------------------------------------
By: __________________________________
Name:
Title:
C-2
<PAGE> 1
EXHIBIT 4.9
APRIA HEALTHCARE GROUP INC.
SUBSCRIPTION WARRANT FOR RIGHTS OFFERING FOR
HOLDERS OF RECORD ON , 1988
<TABLE>
<S> <C>
------------------------------------
SUBSCRIPTION WARRANT NUMBER
------------------------------------ ------------------------------------
SHARES ELIGIBLE TO SUBSCRIBE RIGHTS
<CAPTION>
<S> <C>
------------------------------------ ------------------------------------
SUBSCRIPTION WARRANT NUMBER CUSIP NUMBER
------------------------------------ ------------------------------------
SHARES ELIGIBLE TO SUBSCRIBE RECORD DATE SHARES
</TABLE>
Apria Healthcare Group, Inc. (the "Company") is conducting a rights offering
(the "Rights Offering") which entitles the holders of shares of the Company's
common stock, $.001 par value per share (the "Common Stock"), as of the close of
business on , 1998 (the "Record Date") to receive one (1) transferable
right (each, a "Right") for each share of the Common Stock held of record on the
Record Date. One thousand (1000) whole Rights entitles the holder thereof to
subscribe for and purchase $1000 principal amount of Convertible Subordinated
Debentures (the "Basic Subscription Privilege") at a Subscription Price of $1000
per $1000 principal amount of Debentures. If any Debentures are not purchased by
holders of Rights pursuant to the Basic Subscription Privilege (the "Excess
Debentures"), any holder exercising in full the Basic Subscription Privilege may
subscribe for an additional principal amount of the Excess Debentures (the
"Oversubscription Privilege") if so specified herein, subject to proration. No
Debentures not equal in principal amount to $1000 or an integral multiple of
$1000 will be issued. Set forth above is the number of shares of the Common
Stock held by such holder, and the principal amount of Debentures to which each
holder is entitled to subscribe pursuant to the Basic Subscription Privilege.
FOR A MORE COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE RIGHTS
OFFERING, PLEASE REFER TO THE PROSPECTUS DATED , 1998 (THE
"PROSPECTUS"), WHICH IS INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM (TOLL FREE (800)
). CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE
RESPECTIVE MEANINGS ASCRIBED TO SUCH TERMS IN THE PROSPECTUS.
THIS SUBSCRIPTION WARRANT (OR A
NOTICE OF GUARANTEED DELIVERY) MUST BE
RECEIVED BY WITH PAYMENT IN
FULL BY 5:00 P.M., NEW YORK CITY TIME,
ON , 1999 (UNLESS EXTENDED
IN THE SOLE DISCRETION OF THE COMPANY)
(AS IT MAY BE EXTENDED, THE
"EXPIRATION DATE"). ANY RIGHTS NOT
EXERCISED PRIOR TO THE EXPIRATION DATE
WILL BE NULL AND VOID. ANY
SUBSCRIPTION FOR DEBENTURES IN THE
RIGHTS OFFERING MADE HEREBY IS
IRREVOCABLE.
The Rights represented by this
Subscription Warrant may be exercised
by duly completing Form 1; and may be
transferred, assigned, exercised or
sold through a bank or broker by duly
completing Form 2; and may be sold
through the Subscription Agent by duly
completing Form 3; Rights holders are
advised to review the Prospectus and
Instructions, copies of which are
available from before
exercise or selling their Rights.
SUBSCRIPTION PRICE: $1000 per $1000
principal amount of Debentures
The registered owner whose name is
inscribed hereon, or assigns, is
entitled to subscribe for Debentures
upon the terms and subject to the
conditions set forth in the Prospectus
and Instructions relating to the use
hereof.
THE SUBSCRIPTION WARRANT IS
TRANSFERABLE, AND MAY BE COMBINED OR
DIVIDED (BUT ONLY INTO SUBSCRIPTION
WARRANTS EVIDENCING FULL RIGHTS) AT
THE OFFICE OF .
RIGHTS HOLDERS SHOULD BE AWARE
THAT IF THEY CHOOSE TO EXERCISE OR
TRANSFER ONLY PART OF THEIR RIGHTS,
THEY MAY NOT RECEIVE A NEW
SUBSCRIPTION WARRANT IN SUFFICIENT
TIME TO EXERCISE THE REMAINING RIGHTS
EVIDENCED THEREBY.
<PAGE> 2
FORM 1
EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably exercises 1,000 or
more Rights to subscribe for Debentures as indicated below, on the terms and
subject to the conditions specified in the Prospectus, receipt of which is
hereby acknowledged.
(a) Principal Amount of Debentures subscribed for pursuant to the Basic
Subscription Privilege: $ ,000. (One thousand whole Rights needed
to subscribe for $1000 principal amount of Debentures.)
(b) Principal Amount of Debentures subscribed for pursuant to the
Oversubscription Privilege: $ ,000.
(c) Total Subscription (sum of principal amount of Debentures on lines (a)
and (b)) = $ payment.
METHOD OF PAYMENT (CHECK AND COMPLETE APPROPRIATE BOX(ES)):
[ ] Check, bank draft, or money order payable to " , as
Subscription Agent": or
[ ] Wire transfer directed to Attention:
(d) If the Rights being executed pursuant to the Basic Subscription
Privilege do not account for all of the Rights represented by the
Subscription Warrants (check only one):
[ ] Deliver to the undersigned a new Subscription Warrant evidencing the
remaining Rights to which the undersigned is entitled.
[ ] Deliver a new Subscription Warrant in accordance with the undersigned's
Form 2 instructions (which include any required signature guarantees).
[ ] Sell the remaining unexercised Rights in accordance with the
undersigned's Form 3 instructions.
[ ] Do not deliver any new Subscription Warrants to me.
[ ] Check here if Rights are being exercised pursuant to the Notice of
Guaranteed Delivery delivered to the Subscription Agent prior to the
date hereof and complete the following:
Name(s) of Registered Holder(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution Which Guaranteed Delivery
* If the aggregate Subscription Price enclosed or transmitted is
insufficient to purchase the total principal amount of Debentures included
in lines (a) and (b), or if the principal amount of Debentures being
subscribed for is not specified, the Rights Holder exercising the
Subscription Warrant shall be deemed to have subscribed for the maximum
principal amount of Debentures that could be subscribed for upon payment
of such amount. If the principal amount of debentures to be subscribed for
pursuant to the Oversubscription Privilege is not specified and the amount
enclosed or transmitted exceeds the aggregate Subscription Price for the
Debentures represented by this Subscription Warrant (the "Subscription
Excess"), the Rights holder exercising this Subscription Warrant shall be
deemed to have exercised the Oversubscription Privilege to purchase, to
the extent available, that principal amount of Debentures equal to the
quotient obtained by dividing the Subscription Excess by the Subscription
Price, subject to proration, as described in the Prospectus. To the extent
any portion of the aggregate Subscription Price enclosed or transmitted
remains after the foregoing procedures, such funds shall be mailed to the
subscriber without interest or deduction as soon as practicable.
<TABLE>
<S> <C>
Subscriber's Signature Telephone No. (___)
</TABLE>
<PAGE> 3
FORM 2
TO TRANSFER YOUR RIGHTS CERTIFICATE OR SOME OR ALL OF YOUR RIGHTS, OR TO
EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER: For value received,
Rights represented by this Subscription Warrant are hereby assigned to (please
print name and address and Taxpayer Identification Number or Social Security
Number of transferee in full):
Name:
Address:
Signature(s) of Transferor(s)
Signatures Guaranteed by:
Proceeds from the sale of Rights may be subject to withholding of U.S. taxes,
unless the Seller's certified U.S. taxpayer identification number (or
certificate regarding foreign status) is on file with the Subscription Agent and
the seller is not otherwise subject to
U.S. backup withholding.
FORM 3
TO SELL SOME OR ALL OF YOUR UNEXERCISED RIGHTS THROUGH THE SUBSCRIPTION AGENT:
The undersigned hereby authorizes the Subscription Agent to sell Rights
represented by this Subscription Warrant but not exercised hereby and to deliver
to the undersigned a check for the proceeds, if any, from the sale thereof, less
any applicable brokerage commissions, taxes or other direct expenses of sale.
The Subscription Agent's obligation to execute orders is subject to its ability
to find buyers for the Rights.
- ---------------------------------------------------------
Seller's Signature
In order to sell Rights through the Subscription Agent, you must complete and
sign the substitute Form W-9 as provided in Section 8 of the instructions.
FORM 4
DELIVERY INSTRUCTIONS: Address for mailing of stock certificates or new
Subscription Warrant or any cash payment in accordance with the Prospectus if
other than shown on the reverse hereof.
Name:
Address:
<PAGE> 1
EXHIBIT 12.1
APRIA HEALTHCARE GROUP INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
PROFORMA
(AMOUNTS IN THOUSANDS EXCEPT RATIO) 1993 1994 1995 1996 1997 1997
- ----------------------------------- ------- ------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
(Loss)income before taxes and
extraordinary charge... $55,540 $62,720 $(90,419) $52,028 $(236,058) $(236,058)
Net interest expense savings on
refinancing........ 1,970
Plus: fixed charges... 24,868 44,599 51,302 58,517 59,013 57,043
------- ------- -------- ------- --------- ---------
Total earnings... 80,408 107,319 (39,117) 110,545 (177,045) (177,045)
Fixed Charges:
Interest expense..... 18,266 37,155 42,942 49,249 49,393 49,393
Net interest expense savings on
refinancing........ (1,970)
Interest imputed on operating
lease payments..... 6,602 7,444 8,360 9,268 9,620 9,620
------- ------- -------- ------- --------- ---------
Total fixed charges... 24,868 44,599 51,302 58,517 59,013 57,043
Ratio of Earnings to Fixed
Charges............ 3.2 2.4 (0.8) 1.9 (3.0) (3.1)
Amount inadequate to cover fixed
charges............ 90,419 236,058 234,088
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
PROFORMA
(AMOUNTS IN THOUSANDS EXCEPT RATIO) 1997 1998 1998
- ----------------------------------- -------- --------- ---------
<S> <C> <C> <C>
Earnings:
(Loss)income before taxes and
extraordinary charge... $(24,539) $(207,764) $(207,764)
Net interest expense savings on
refinancing........ 1,477
Plus: fixed charges... 44,994 43,238 41,761
-------- --------- ---------
Total earnings... 20,455 (164,526) (164,526)
Fixed Charges:
Interest expense..... 37,779 35,870 35,870
Net interest expense savings on
refinancing........ (1,477)
Interest imputed on operating
lease payments..... 7,215 7,368 7,368
-------- --------- ---------
Total fixed charges... 44,994 43,238 41,761
Ratio of Earnings to Fixed
Charges............ 0.5 (3.8) (3.9)
Amount inadequate to cover fixed
charges............ 207,764 206,287
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Apria Healthcare
Group Inc. for the registration of $51,779,000 of 10% Convertible Subordinated
Debentures due 2004 and to the incorporation by reference therein of our report
dated March 11, 1998 (except for Notes 5, 12 and 14, as to which the dates are
April 2, 1998, April 9, 1998 and April 3, 1998 and Note 1, as to which the date
is November 13, 1998), with respect to the consolidated financial statements and
schedule of Apria Healthcare Group Inc. included in its Annual Report
(Form 10-K/A Amendment No. 3) for the year ended December 31, 1997, filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Orange County, California
November 25, 1998
<PAGE> 1
EXHIBIT 99.1
INSTRUCTIONS AS TO USE OF APRIA HEALTHCARE GROUP INC.
SUBSCRIPTION WARRANTS
------------------------
CONSULT [SUBSCRIPTION AGENT], YOUR BANK OR BROKER AS
TO ANY QUESTIONS
The following instructions relate to a rights offering (the "Rights
Offering") by Apria Healthcare Group Inc., a Delaware corporation (the
"Company"), to the holders of its Common Stock, par value $.00l per share (the
"Common Stock"), as described in the Company's Prospectus dated ,
1998 (the "Prospectus"). Holders of record of shares of the Common Stock at the
close of business on , 1998 (the "Record Date") are receiving one
transferable subscription right (collectively, the "Rights") for each share of
the Common Stock held as of the Record Date. An aggregate of approximately
51,779,000 Rights exercisable to purchase, in the aggregate, a maximum of
$51,779,000 principal amount of 10% Convertible Subordinated Debentures due 2004
(the "Debentures") are being distributed in connection with the Rights Offering.
One thousand (1,000) whole Rights are exercisable, upon payment of $1,000 in
cash (the "Subscription Price"), to purchase $1,000 principal amount of
Debentures (the "Basic Subscription Privilege"). In addition, subject to
proration, as described below, each holder of Rights who fully exercises the
Basic Subscription Privilege also has the right to subscribe at the Subscription
Price for additional Debentures (the "Oversubscription Privilege"). Debentures
will be available for purchase pursuant to the Oversubscription Privilege only
to the extent that all the Debentures are not subscribed for through the
exercise of the Basic Subscription Privilege by the Expiration Date. If the
Debentures so available (the "Excess Debentures") are not sufficient to satisfy
all subscriptions pursuant to the Oversubscription Privilege, the available
Debentures will be allocated pro rata among those holders who have exercised the
Oversubscription Privilege in proportion to the principal amount of Debentures a
holder has subscribed for pursuant to the Basic Subscription Privilege.
The Rights will expire at 5:00 p.m., New York City time, on
, 1998, unless extended (the "Expiration Date"). The Rights will
trade on the New York Stock Exchange under the symbol "AHG Rt."
The number of Rights to which you are entitled is printed on the face of
your subscription warrants. You should indicate your wishes with regard to the
exercise or sale of your Rights by completing the appropriate form or forms on
your Subscription Warrant and returning the certificate to the Subscription
Agent in the envelope provided.
YOUR SUBSCRIPTION WARRANT MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, OR
GUARANTEED DELIVERY REQUIREMENTS WITH RESPECT TO YOUR SUBSCRIPTION WARRANTS MUST
BE COMPLIED WITH, AND PAYMENT OF THE SUBSCRIPTION PRICE, INCLUDING FINAL
CLEARANCE OF ANY CHECKS, MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, ON OR
BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. YOU MAY NOT REVOKE
ANY EXERCISE OF A RIGHT.
1. SUBSCRIPTION PRIVILEGE.
To exercise Rights, complete Form I and send your properly completed and
executed Subscription Warrant, together with payments in full of the
Subscription Price for each $1,000 principal amount of Debentures subscribed for
pursuant to the Basic Subscription Privilege and the Oversubscription Privilege,
to the Subscription Agent. Payment of the Subscription Price must be made in
U.S. dollars for the full amount of Debentures being subscribed for by (a) check
or bank draft drawn upon a U.S. bank or postal, telegraphic or express money
order payable to , as Subscription Agent, or (b) wire transfer of
same day funds to the account maintained by the Subscription Agent for such
purpose at (Apria
<PAGE> 2
Healthcare Group Inc.). The Subscription Price will be deemed to have been
received by the Subscription Agent only upon (i) the clearance of any
uncertified check, (ii) the receipt by the Subscription Agent of any certified
check or bank draft drawn upon a U.S. bank or any postal, telegraphic or express
money order or (iii) the receipt of good funds in the Subscription Agent's
account designated above. If paying by uncertified personal check, please note
that the funds paid thereby may take at least five business days to clear.
Accordingly, holders of the Rights who wish to pay the Subscription Price by
means of uncertified personal check are urged to make payment sufficiently in
advance of the Expiration Date to ensure that such payment is received and
clears by such date and are urged to consider payment by means of certified or
cashier's check, money order or wire transfer of funds. You may also transfer
your Subscription Warrant to your bank or broker in accordance with the
procedures specified in Section 3(a) below, make arrangements for the delivery
of funds on your behalf and request such bank or broker to exercise the
Subscription Warrant on your behalf. Alternatively, you may cause a written
guarantee substantially in the form of Exhibit A to these instructions (the
"Notice of Guaranteed Delivery") from a commercial bank, trust company,
securities broker or dealer, credit union, savings association or other eligible
guarantor institution which is a member of or a participant in a signature
guarantee program acceptable to the Subscription Agent (each of the foregoing
being an "Eligible Institution"), to be received by the Subscription Agent at or
prior to the Expiration Date together with payment in full of the applicable
Subscription Price. Such Notice of Guaranteed Delivery must state your name, the
number of Rights represented by your Subscription Warrant and the number of
Rights being exercised pursuant to the Basic Subscription Privilege and the
amount of Debentures, if any, being subscribed for pursuant to the
Oversubscription Privilege, and guarantee the delivery to the Subscription Agent
of your properly completed and executed Subscription Warrant within three New
York Stock Exchange trading days following the date of the Notice of Guaranteed
Delivery. If this procedure is followed, your Subscription Warrant must be
received by the Subscription Agent within three New York Stock Exchange trading
days of the Notice of Guaranteed Delivery. Additional copies of the Notice of
Guaranteed Delivery may be obtained upon request from , at the
address, or by calling the telephone number, indicated below.
Banks, brokers or other nominee holders of the Rights who exercise the
Rights and the Oversubscription Privilege on behalf of beneficial owners of
Rights will be required to certify to the Subscription Agent and the Company, in
connection with the exercise of the Oversubscription Privilege, as to the
aggregate number of Rights that have been exercised, and the amount of
Debentures that are being subscribed for pursuant to the Oversubscription
Privilege, by each beneficial owner of Rights on whose behalf such nominee
holder is acting. If more Debentures are subscribed for pursuant to the
Oversubscription Privilege than are available for sale, such Debentures will be
allocated, as described above, among persons exercising the Oversubscription
Privilege in proportion to such persons' exercise of Rights pursuant to the
Basic Subscription Privilege.
The address and telecopier numbers of the Subscription Agent are as
follows:
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission By Hand:
(eligible institutions only):
To confirm receipt of facsimile only:
If by Overnight Courier:
</TABLE>
2
<PAGE> 3
THE ADDRESS, TELEPHONE AND TELECOPIER NUMBERS OF , FOR
INQUIRIES, INFORMATION OR REQUESTS FOR ADDITIONAL DOCUMENTATION IS AS FOLLOWS:
(banks and brokers call collect)
CALL TOLL-FREE
If you exercise less than all of the Rights evidenced by your Subscription
Warrant by so indicating in Form 1 of your Subscription Warrant, the
Subscription Agent will issue to you a new Subscription Warrant evidencing the
unexercised Rights. However, if you choose to have a new Subscription Warrant
sent to you, you may not receive any such new Subscription Warrant in sufficient
time to permit you to sell or exercise the Rights evidenced thereby. If you have
not indicated the number of Rights being exercised, or if you have not forwarded
full payment of the Subscription Price for the number of Rights that you have
indicated are being exercised, you will be deemed to have exercised the Basic
Subscription Privilege with respect to the maximum number of whole Rights which
may be exercised for the Subscription Price payment delivered by you and to the
extent that the Subscription Price payment delivered by you exceeds the product
of the Subscription Price multiplied by the number of Rights evidenced by the
Subscription Warrant delivered by you (such excess being the "Subscription
Excess"), you will be deemed to have exercised your Oversubscription Privilege
to purchase, to the extent available, that amount of whole Debentures equal to
the quotient obtained by dividing the Subscription Excess by the Subscription
Price.
2. DELIVERY OF DEBENTURES.
The following deliveries and payments will be made to the address shown on
the face of your Subscription Warrant unless you provide instructions to the
contrary on Form 4.
(a) Basic Subscription Privilege. As soon as practicable after the
Expiration Date, the Subscription Agent will mail to each Rights holder who
validly exercises the Basic Subscription Privilege certificates representing
Debentures purchased pursuant to the Basic Subscription Privilege.
(b) Oversubscription Privilege. As soon as practicable after the Expiration
Date, the Subscription Agent will mail to each Rights holder who validly
exercises the Oversubscription Privilege certificates representing the
Debentures allocated to such Rights holder pursuant to the Oversubscription
Privilege. See "The Rights Offering -- Subscription
Privileges -- Oversubscription Privilege" in the Prospectus.
(c) Cash Payments. As soon as practicable after the Expiration Date, the
Subscription Agent will mail to each Rights holder who exercises the
Oversubscription Privilege any excess funds, without interest, received in
payment of the Exercise Price for each share that is subscribed for by such
Rights holder but not allocated to such Rights holder pursuant to the
Oversubscription Privilege.
3. TO SELL OR TRANSFER RIGHTS.
(a) Sale of Rights through a Bank or Broker. To sell all the Rights
evidenced by a Subscription Warrant through your bank or broker, so indicate on
Form 2 and deliver your properly completed and executed Subscription Warrant to
your bank or broker. Your Subscription Warrant should be delivered to your bank
or broker in ample time for it to be exercised. If Form 2 is completed without
designating a transferee, the Subscription Agent may thereafter treat the bearer
of the Subscription Warrant as the absolute owner of all of the Rights evidenced
by such Subscription Warrant for all purposes, and the Subscription Agent shall
not be affected by any notice to the contrary. Because your bank or broker
cannot issue Subscription Warrants,
3
<PAGE> 4
if you wish to sell less than all of the Rights evidenced by a Subscription
Warrant, either you or your bank or broker must instruct the Subscription Agent
as to the action to be taken with respect to the Rights not sold, or you or your
bank or broker must first have your Subscription Warrant divided into
Subscription Warrants of appropriate denominations by following the instructions
in paragraph 4 of these instructions. The Subscription Warrants evidencing the
number of Rights you intend to sell can then be transferred by your bank or
broker in accordance with the instructions in this paragraph 3(a).
(b) Transfer of Rights to a Designated Transferee. To transfer all of your
Rights to a transferee other than a bank or broker, you must complete Form 2 in
its entirety, execute the Subscription Warrant and have your signature
guaranteed by an Eligible Institution. A Subscription Warrant that has been
properly transferred in its entirety may be exercised by a new holder without
having a new Subscription Warrant issued. Because only the Subscription Agent
can issue Subscription Warrants, if you wish to transfer less than all of the
Rights evidenced by your Subscription Warrant to a designated transferee, you
must instruct the Subscription Agent as to the action to be taken with respect
to the Rights not sold or transferred, or you must divide your Subscription
Warrant into Subscription Warrants of appropriate smaller denominations by
following the instructions in paragraph 4 below. The Subscription Warrant
evidencing the number of Rights you intend to transfer can then be transferred
by following the instructions in this paragraph 3(b).
(c) Sale of Rights Through the Subscription Agent. To sell all Rights
evidenced by a Subscription Warrant through the Subscription Agent, so indicate
on Form 3 and deliver your properly completed and exercised Subscription Warrant
to the Subscription Agent. If you wish to sell less than all of the Rights
evidenced by a Subscription Warrant, you must instruct the Subscription Agent as
to the action to be taken with respect to the Rights not sold, or you may have
your Subscription Warrant divided into Subscription Warrants of appropriate
denominations by following the instructions in paragraph 4 of these
instructions. The Subscription Warrant evidencing the number of Rights you
intend to transfer can then be transferred by following the instructions in this
paragraph 3(c). Promptly following the Expiration Date, the Subscription Agent
will send the holder a check for the net proceeds from the sale of any rights
sold. Orders to sell Rights must be received by the Subscription Agent on or
before 11:00 a.m., New York City time on . No assurance can be
given that a market will develop for the Rights or that the Subscription Agent
will be able to sell any Rights.
4. TO HAVE A SUBSCRIPTION WARRANT DIVIDED INTO SMALLER DENOMINATIONS.
Send your Subscription Warrant, together with complete separate
instructions (including specification of the denominations into which you wish
your Rights to be divided) signed by you, to the Subscription Agent, allowing a
sufficient amount of time for new Subscription Warrants to be issued and
returned so that they can be used prior to the Expiration Date. Alternatively,
you may ask a bank or broker to effect such actions on your behalf. Your
signature must be guaranteed by an Eligible Institution if any of the new
Subscription Warrants are to be issued in a name other than that in which the
old Subscription Warrant was issued. Subscription Warrants may not be divided
into fractional Rights, and any instruction to do so will be rejected. As a
result of delays in the mail, the time of the transmittal, the necessary
processing time and other factors, you or your transferee may not receive such
new Subscription Warrants in time to enable the Rights holder to complete a sale
or exercise by the Expiration Date. Neither the Company nor the Subscription
Agent will be liable to either a transferor or transferee for any such delays.
5. EXECUTION.
(a) Execution by Registered Holder. The signatures on the Subscription
Warrant must correspond with the name of the registered holder exactly as it
appears on the face of the Subscription Warrant without any alteration or change
whatsoever. Persons who sign the Subscription Warrant in a representative or
other fiduciary capacity must indicate their capacity when signing and, unless
waived by the Subscription Agent in its sole and absolute discretion, must
present to the Subscription Agent satisfactory evidence of their authority to so
act.
4
<PAGE> 5
(b) Execution by Person Other than Registered Holder. If the Subscription
Warrant is executed by a person other than the holder named on the face of the
Subscription Warrant, proper evidence of authority of the person executing the
Subscription Warrant must accompany the same unless, for good cause, the
Subscription Agent dispenses with proof of authority.
(c) Signature Guarantees. Your signature must be guaranteed by an Eligible
Institution if you wish to transfer your Rights, as specified in 3(b) above, to
a transferee other than a bank or broker or the Subscription Agent, or if you
specify special payment or delivery instructions pursuant to Form 4.
6. METHOD OF DELIVERY.
The method of delivery of Subscription Warrants and payment of the Exercise
Price to the Subscription Agent will be at the election and risk of the Rights
holder, but, if sent by mail, it is recommended that they be sent by registered
mail, properly insured, with return receipt requested, and that a sufficient
number of days be allowed to ensure delivery to the Subscription Agent and the
clearance of any checks sent in payment of the Exercise Price prior to 5:00
p.m., New York City time, on the Expiration Date.
7. SUBSTITUTE FORM W-9.
Each Rights holder who elects to exercise the Rights and those foreign
stockholders who allow the Subscription Agent to sell such foreign holder's
Rights should provide the Subscription Agent with a correct Taxpayer
Identification Number ("TIN") on Substitute Form W-9, which is included as
[Exhibit B] hereto. Additional copies of Substitute Form W-9 may be obtained
upon request from the Subscription Agent at the address, or by calling the
telephone number, indicated above. Failure to provide the information on the
form may subject such holder to 31% federal income tax withholding with respect
to (i) dividends that may be paid by the Company on shares of Common Stock
converted from Debentures purchased upon the exercise of Rights (for those
holders exercising Rights), or (ii) funds to be remitted to Rights holders in
respect of Rights sold by the Subscription Agent (for those holders electing to
have the Subscription Agent sell their Rights).
5
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
SUBSCRIPTION WARRANTS
ISSUED BY
APRIA HEALTHCARE GROUP INC.
This form, or one substantially similar hereto, must be used to exercise
Rights pursuant to the Rights Offering described in the Prospectus dated
, 1998 (the "Prospectus") of Apria Healthcare Group Inc., a
Delaware corporation (the "Company"), if a holder of Rights cannot deliver the
Subscription Warrant(s) evidencing such Rights to the Subscription Agent at or
prior to 5:00 p.m. New York City time on , 1999 (the "Expiration
Date"). Such form must be delivered by hand or sent by facsimile transmission or
mail to the Subscription Agent, and must be received by the Subscription Agent
on or prior to 5:00 p.m. New York City time on the Expiration Date. See the
discussion set forth under "The Rights Offering -- Exercise of Rights" in the
Prospectus. Regardless of the manner of delivery of the Subscription Warrant,
payment of the Subscription Price of $1,000 per $1,000 principal amount of
Debentures subscribed for upon exercise of such Rights must be received by the
Subscription Agent in the manner specified in the Prospectus at or prior to 5:00
p.m. New York City time on the Expiration Date. All undefined capitalized terms
used herein have the definition ascribed to them in the Prospectus.
<TABLE>
<S> <C> <C>
The Subscription Agent is:
-------------------------------
By Mail: Facsimile Transmission By Hand:
(eligible institutions only):
</TABLE>
To confirm receipt of facsimile only:
If by Overnight Courier:
DELIVERY OF THIS FORM TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Gentlemen:
The undersigned hereby represents that he or she is the holder of
Subscription Warrant(s) representing Rights and that such Subscription
Warrant(s) cannot be delivered to the Subscription Agent at or before 5:00 p.m.
New York City time on the Expiration Date. Upon the terms and subject to the
conditions set forth in the Prospectus, receipt of which is hereby acknowledged,
the undersigned hereby elects to exercise (i) the Basic Subscription Privilege
with respect to ,000 Rights represented by such Subscription Warrant and
(ii) the Oversubscription Privilege relating to such Rights to subscribe, to the
extent that Excess Debentures are available, for an aggregate of up to
$ ,000 principal amount of Excess Debentures. The undersigned understands
that payment of the Subscription Price of $1,000 per $1,000 principal amount of
Debentures subscribed for pursuant to the Basic Subscription Privilege and
Oversubscription Privilege must be received by the Subscription Agent at or
before 5:00 p.m. New York City time on the Expiration Date and represents that
such payment, in the aggregate amount of $ , either (check appropriate
box):
[ ] is being delivered to the Subscription Agent herewith
or
[ ] has been delivered separately to the Subscription Agent;
and is being or was delivered in the manner set forth below (check appropriate
box and complete information relating thereto);
[ ] wire transfer of funds
-- name of transferor institution
-- date of transfer
-- confirmation number (if available)
[ ] uncertified check (Payment by uncertified check will not be deemed to
have been received by the Subscription Agent until such check has
cleared. Holders paying by such means are urged to make payment
sufficiently in advance of the Expiration Date to ensure that such
payment clears by such date.)
[ ] certified check
[ ] bank draft (cashier's check)
[ ] money order
-- name of maker
-- date of check, draft or money order number
-- bank on which check is drawn or issuer of money order
Signature(s)
Name(s)
(PLEASE TYPE OR PRINT)
Address(es)
(ZIP CODE)
Area Code and Tel. No(s).
Subscription Warrant No(s). (if available)
2
<PAGE> 3
GUARANTY OF DELIVERY
(Not to be used for Subscription Warrant signature guarantee)
The undersigned, a member firm of a registered national securities
exchange, member of the National Association of Securities Dealers, Inc.,
commercial bank or trust company having an office or correspondent in the United
States, or other eligible guarantor institution which is a member of or a
participant in a signature guarantee program acceptable to the Subscription
Agent, guarantees that the undersigned will deliver to the Subscription Agent
the Subscription Warrant(s) representing the Rights being exercised hereby, with
any required signature guarantees and any other required documents, all within
three New York Stock Exchange trading days after the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ADDRESS)
- --------------------------------------------------------------------------------
(AREA CODE AND TELEPHONE NUMBER)
Dated: , 199____
- --------------------------------------------------------------------------------
(NAME OF FIRM)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
The institution which completes this form must communicate the guarantee to
the Subscription Agent and must deliver the Subscription Warrant(s) to the
Subscription Agent within the time period shown herein. Failure to do so could
result in a financial loss to such institution.
3
<PAGE> 1
EXHIBIT 99.3
APRIA HEALTHCARE GROUP INC.
$51,779,000 10% CONVERTIBLE SUBORDINATED DEBENTURES
INITIALLY OFFERED PURSUANT TO RIGHTS
DISTRIBUTED TO STOCKHOLDERS OF
APRIA HEALTHCARE GROUP INC.
Dear Stockholders:
This letter is being distributed to all holders of Common Stock, par value
$.00l per share (the "Common Stock"), of record on , 1998 (the "Record
Date"), of Apria Healthcare Group Inc. (the "Company"), in connection with a
distribution of transferable rights ("Rights") to acquire $51,779,000 10%
Convertible Subordinated Debentures due 2004 at a subscription price of $1,000
per $1,000 principal amount of Debentures as described in the Prospectus dated
, 1998 (the "Prospectus").
Each beneficial owner of the Common Stock is entitled to receive one Right
for each share of the Common Stock owned as of the Record Date.
Enclosed are copies of the following documents:
1. The Prospectus;
2. The Subscription Warrant;
3. The "Instructions as to Use of Apria Healthcare Group Inc.
Subscription Warrant" (including Guidelines For Certification of Taxpayer
Identification Number on Substitute Form W-9);
4. A Notice of Guaranteed Delivery for Subscription Warrants issued by
Apria Healthcare Group Inc.; and
5. A return envelope addressed to , the Subscription
Agent.
Your prompt action is requested. The Rights will expire at 5:00 P.M., New
York City time, on , 1999, unless extended by the Company (the
"Expiration Date").
To exercise the Rights, a properly completed and executed Subscription
Warrant (unless the guaranteed delivery procedures are complied with) and
payment in full for all of the Rights exercised must be delivered to the
Subscription Agent, as indicated in the Prospectus, prior to 5:00 P.M., New York
City time, on the Expiration Date.
Additional copies of the enclosed materials may be obtained from
. Their toll-free telephone number is (800) .
Very truly yours,
APRIA HEALTHCARE GROUP INC.
<PAGE> 1
EXHIBIT 99.4
APRIA HEALTHCARE GROUP INC.
$51,779,000 10% CONVERTIBLE SUBORDINATED DEBENTURES
INITIALLY OFFERED PURSUANT TO RIGHTS
DISTRIBUTED TO STOCKHOLDERS OF
APRIA HEALTHCARE GROUP INC.
To Our Clients:
Enclosed for your consideration is a Prospectus, dated , 1998,
and the "Instructions as to Use of Apria Healthcare Group Inc. Subscription
Warrants" relating to the offer by Apria Healthcare Group Inc. (the "Company")
of, in the aggregate, $51,779,000 principal amount of 10% Convertible
Subordinated Debentures due 2004 (the "Debentures") at a subscription price of
$1,000 per $1,000 principal amount of Debentures (the "Subscription Price"), in
cash, pursuant to transferable subscription rights (the "Rights") initially
distributed to holders of record ("Record Owners") of shares of the Common Stock
as of the close of business on , 1998 (the "Record Date"). All
undefined capitalized terms used herein have the definition ascribed to them in
the accompanying Prospectus.
As described in the Prospectus, you will receive one transferable Right for
each share of Common Stock carried by us in your account as of the Record Date.
One thousand (1,000) whole Rights will entitle you to subscribe for $1,000
principal amount of the Debentures (the "Basic Subscription Privilege") at the
Subscription Price. You will also have the right (the "Oversubscription
Privilege"), subject to proration, to subscribe, at the Subscription Price, for
additional Debentures available after satisfaction of all subscriptions pursuant
to Basic Subscription Privileges ("Excess Debentures"), at the Subscription
Price. If there are insufficient Excess Debentures to satisfy all exercised
Oversubscription Privileges, Excess Debentures will be allocated pro rata among
all the holders of the Rights exercising Oversubscription Privileges, in
proportion to the number of Debentures each such holder has purchased pursuant
to his or her respective Basic Subscription Privilege. Your election to exercise
the Oversubscription Privilege must be made at the time you exercise the Basic
Subscription Privilege in full.
Rights are transferable and holders that wish to sell their Rights may do
so. The Rights will trade on the New York Stock Exchange (the "NYSE") up to and
including the close of business on the last trading day prior to the Expiration
Date.
THE MATERIALS ENCLOSED ARE BEING FORWARD TO YOU AS THE BENEFICIAL OWNER OF
SHARES OF THE COMMON STOCK CARRIED BY US IN YOUR ACCOUNT BUT NOT REGISTERED IN
YOUR NAME. EXERCISES AND SALES OF THE RIGHTS MAY BE MADE ONLY BY US AS THE
RECORD OWNER AND PURSUANT TO YOUR INSTRUCTIONS. Accordingly, we request
instructions as to whether you wish us to elect to subscribe for any Debentures,
or sell any Rights, to which you are entitled pursuant to the terms and subject
to the conditions set forth in the enclosed Prospectus and "Instructions as to
Use of Apria Healthcare Group Inc. Subscription Warrant." However, we urge you
to read these documents carefully before instructing us to exercise or sell the
Rights.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to exercise or sell Rights on your behalf in accordance with
the provisions of the offering. The offering will expire at 5:00 P.M., New York
City time, on , 199 , unless the offering is extended by the
Company. Once you have exercised a Right, such exercise may not be revoked.
If you wish to have us, on your behalf, exercise the Rights for any amount
of Debentures to which you are entitled, or sell such Rights, please so instruct
us by completing, executing and returning to us the instruction form on the
reverse side of this letter.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE OFFERING SHOULD BE
DIRECTED TO at .
<PAGE> 2
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
materials referred to therein relating to the offering of $51,779,000 10%
Convertible Subordinated Debentures due 2004 (the "Debentures") of Apria
Healthcare Group Inc. (the "Company").
This will instruct you whether to exercise or sell Rights to purchase the
Debentures distributed with respect to the Company's Common Stock held by you
for the account of the undersigned, pursuant to the terms and subject to the
conditions set forth in the Prospectus and the related "Instructions as to Use
of Apria Healthcare Group Inc. Subscription Warrant."
BOX 1. [ ] Please DO NOT EXERCISE RIGHTS for purchase of the Debentures.
BOX 2. [ ] Please EXERCISE RIGHTS for purchase of the Debentures as set
forth below:
<TABLE>
<CAPTION>
NUMBER OF SUBSCRIPTION
RIGHTS PRICE PAYMENT
--------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Basic Subscription Right: X ---$--------- = $----- (Line 1)
------
Oversubscription Right: X ---$--------- = $----- (Line 2)
-----
Total Payment Required = $----- (Sum of Lines 1 and 2;
must equal total of amounts
in Boxes 3 and 4)
</TABLE>
BOX 3. [ ] Please SELL RIGHTS for purchase of the Debentures.
BOX 4. [ ] Payment in the following amount is enclosed.
BOX 5. [ ] Please deduct payment from the following account maintained by
you as follows:
- ------------------------------------------------------
Type of Account
- ------------------------------------------------------
Account No.
Amount to be deducted: $
Date: , 1998
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Signature(s)
Please type or print name(s) below
- ------------------------------------------------------
- ------------------------------------------------------
2
<PAGE> 1
EXHIBIT 99.5
IMPORTANT ANNOUNCEMENT TO THE HOLDERS OF COMMON
STOCK OF APRIA HEALTHCARE GROUP INC.
This is to advise you that Apria Healthcare Group Inc. (the "Company")
intends to make a rights offering (the "Rights Offering") and has filed a
Registration Statement on Form S-3 (the "Registration Statement") in connection
therewith with the Securities and Exchange Commission. The Company proposes to
distribute to holders of its outstanding Common Stock transferable subscription
rights (the "Rights") to purchase the Company's 10% Convertible Subordinated
Debentures due 2004 in a public offering. It is proposed that holders of the
Common Stock will receive one Right for each share of Common Stock held by them
as of the close of business on the record date, which will be ,
1998 or such later date as the Registration Statement shall be declared
effective by the Securities and Exchange Commission. Additional information
regarding the Rights Offering, including the conversion ratio and the conversion
price of the Debentures and the expiration date will be communicated in a press
release on the record date.
As soon as practicable after the close of business on the record date, a
subscription warrant and a related set of instructions explaining the procedure
for exercising or selling the Rights, together with the Prospectus, will be
mailed to you. The terms of the Rights Offering will be more completely
described in the Prospectus. If these do not arrive within a reasonable time
after the record date, please notify at . The
Rights Offering has not yet commenced. Therefore, there is no action to take at
this time.
The Registration Statement relating to the Rights and the underlying
Debentures has not yet become effective. These securities may not be sold nor
may offers to buy be accepted prior to the time the Registration Statement
becomes effective. This notice shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of such Rights or
Debentures in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
Although you are not required to take any action at this time, you should
be prepared to act promptly or to have someone authorized to act for you when
you receive your subscription warrant. Whether you anticipate exercising or
selling your Rights, you should bear in mind that in order for an exercise to be
valid, the payment of the Subscription Price for Rights being exercised must be
received by the Subscription Agent and such payments by uncertified check must
have cleared before the Rights Offering expires.
Very truly yours,
APRIA HEALTHCARE GROUP INC.
<PAGE> 1
EXHIBIT 99.6
APRIA HEALTHCARE GROUP INC.
$51,779,000 10% CONVERTIBLE SUBORDINATED DEBENTURES
INITIALLY OFFERED PURSUANT TO RIGHTS
DISTRIBUTED TO STOCKHOLDERS OF
APRIA HEALTHCARE GROUP INC.
To Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
This letter is being distributed to securities dealers, commercial banks,
trust companies and other nominees in connection with the offering by Apria
Healthcare Group Inc. (the "Company") of $51,779,000 10% Convertible
Subordinated Debentures due 2004 (the "Debentures"), of the Company, at a
subscription price of $1,000 per $1,000 principal amount of Debentures, pursuant
to transferable subscription rights (the "Rights") initially distributed to
holders of record of the Common Stock as of the close of business on
, 1998 (the "Record Date"). The Rights are described in the
Company's Prospectus dated and are evidenced by a Subscription
Warrant registered in your name or the name of your nominee.
Each beneficial owner of shares of the Common Stock registered in your name
or the name of your nominee is entitled to receive one Right for each share of
the Common Stock owned by such beneficial owner as of the Record Date.
We are asking you to contact your clients on whose behalf you hold the
Common Stock registered in your name or in the name of your nominee to obtain
instructions with respect to the Rights.
Enclosed are copies of the following documents:
1. The Prospectus;
2. The "Instructions as to Use of Apria Healthcare Group Inc.
Subscription Warrant" (including Guidelines For Certification of Taxpayer
Identification Number on Substitute Form W-9);
3. The form of a letter which may be sent to your clients on whose
behalf you hold Common Stock registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Rights;
4. A Notice of Guaranteed Delivery for Subscription Warrants issued by
Apria Healthcare Group Inc.; and
5. A return envelope addressed to , the Subscription
Agent.
Your prompt action is requested. The Rights will expire at 5:00 p.m., New
York City time, on 199 , unless extended by the Company (the
"Expiration Date").
To exercise the Rights, a properly completed and executed Subscription
Warrant (unless the guaranteed delivery procedures are complied with) and
payment in full for all Rights exercised must be delivered to the Subscription
Agent as indicated in the Prospectus prior to 5:00 p.m., New York City time, on
the Expiration Date.
Additional copies of the enclosed materials may be obtained from
. Their toll-free telephone number is (800) or they may be called
collect at ( ) .
Very truly yours,
APRIA HEALTHCARE GROUP INC.
<PAGE> 2
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF APRIA HEALTHCARE GROUP INC., THE SUBSCRIPTION AGENT OR ANY
OTHER PERSON MAKING OR DEEMED TO BE MAKING OFFERS OF THE DEBENTURES ISSUABLE
UPON VALID EXERCISE OF THE RIGHTS, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE
ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFERING EXCEPT FOR
STATEMENTS MADE IN THE PROSPECTUS.
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