<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EXPRESS SCRIPTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE [8099] 43-1420563
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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13900 RIVERPORT DRIVE
MARYLAND HEIGHTS, MISSOURI 63043
(314) 770-1666
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
THOMAS M. BOUDREAU, ESQ.
GENERAL COUNSEL AND SECRETARY
EXPRESS SCRIPTS, INC.
13900 RIVERPORT DRIVE
MARYLAND HEIGHTS, MISSOURI 63043
(314) 770-1666
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
VINCENT PAGANO, JR., ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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(d)
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE(1) FEE
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<S> <C> <C> <C> <C>
9 5/8% Senior Notes due 2009......... $250,000,000 100% $250,000,000 $69,500
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Guarantee of 9 5/8% Senior Notes due
2009(2)............................ $250,000,000 100% $250,000,000 (3)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) See inside facing page for additional registrant guarantors.
(3) Pursuant to Rule 457(n) under the Securities Act, no separate fee for the
Guarantee is payable.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SECTION 8(a), OF THE SECURITIES ACT
MAY DETERMINE.
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<PAGE> 2
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
<TABLE>
<CAPTION>
ADDRESS, INCLUDING
ZIP CODE, AND
STATE OR OTHER I.R.S. TELEPHONE NUMBER,
EXACT NAME OF REGISTRANT JURISDICTION OF EMPLOYER INCLUDING AREA CODE, OF
GUARANTOR AS SPECIFIED IN ITS INCORPORATION OR IDENTIFICATION REGISTRANT GUARANTOR'S
CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ----------------------------- ---------------- -------------- ---------------------------
<S> <C> <C> <C>
Diversified Pharmaceutical Minnesota 41-1627938 13900 Riverport Drive
Services, Inc. Maryland Heights,
Missouri 63043
(314) 770-1666
ESI/VRx Sales Development Co. Delaware 43-1832983 13900 Riverport Drive
Maryland Heights,
Missouri 63043
(314) 770-1666
Express Scripts Vision Delaware 43-1752714 13900 Riverport Drive
Corporation Maryland Heights,
Missouri 63043
(314) 770-1666
IVTx, Inc. Delaware 43-1794690 13900 Riverport Drive
Maryland Heights,
Missouri 63043
(314) 770-1666
Managed Prescription Network, Delaware 61-1259835 13900 Riverport Drive
Inc. Maryland Heights,
Missouri 63043
(314) 770-1666
Value Health, Inc. Delaware 06-1194838 13900 Riverport Drive
Maryland Heights,
Missouri 63043
(314) 770-1666
MHI, Inc. Nevada 43-1855987 13900 Riverport Drive
Maryland Heights,
Missouri 63043
(314) 770-1666
ValueRx, Inc. Delaware 54-1468668 13900 Riverport Drive
Maryland Heights,
Missouri 63043
(314) 770-1666
Health Care Services, Inc. Pennsylvania 85-0376128 13900 Riverport Drive
Maryland Heights,
Missouri 63043
(314) 770-1666
ValueRx Pharmacy Program, Michigan 38-2574885 13900 Riverport Drive
Inc. Maryland Heights,
Missouri 63043
(314) 770-1666
YourPharmacy.com, Inc. Delaware 43-1842584 13900 Riverport Drive
Maryland Heights,
Missouri 63043
(314) 770-1666
</TABLE>
<PAGE> 3
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
$250,000,000
EXPRESS SCRIPTS, INC.
OFFER TO EXCHANGE ALL OUTSTANDING
9 5/8% SENIOR NOTES DUE 2009 FOR
9 5/8% SENIOR NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER
- - We will exchange all outstanding notes that are validly tendered and not
validly withdrawn for an equal principal amount of exchange notes that are
freely tradeable.
- - You may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
- - The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended. We do not currently intend to extend the expiration
date.
- - The exchange of outstanding notes for exchange notes in the exchange offer
will not be a taxable event for U.S. federal income tax purposes.
- - We will not receive any proceeds from the exchange offer.
THE EXCHANGE NOTES
- - The exchange notes are being offered in order to satisfy certain of our
obligations under the registration rights agreement entered into in connection
with the placement of the outstanding notes.
- - The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the outstanding notes, except that the exchange
notes will be freely tradeable.
RESALES OF EXCHANGE NOTES
- - The exchange notes may be sold in the over-the-counter market, in negotiated
transactions or through a combination of such methods. The exchange notes will
be eligible for trading in The Portal(SM) Market.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 9
OF THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of exchange notes
received in exchange for outstanding notes where such outstanding notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities.
We have agreed that, for a period of 180 days after the consummation of the
exchange offer, we will make this prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUMMARY.................. 1
EXPRESS SCRIPTS..................... 8
RISK FACTORS........................ 9
USE OF PROCEEDS..................... 17
SELECTED FINANCIAL AND OPERATING
DATA.............................. 18
UNAUDITED CONSOLIDATED CONDENSED PRO
FORMA FINANCIAL DATA.............. 20
THE EXCHANGE OFFER.................. 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DESCRIPTION OF THE NOTES............ 41
MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS......... 82
PLAN OF DISTRIBUTION................ 82
FORWARD-LOOKING STATEMENTS.......... 83
WHERE YOU CAN FIND MORE
INFORMATION....................... 84
LEGAL MATTERS....................... 85
EXPERTS............................. 85
INDEX TO FINANCIAL STATEMENTS....... F-1
</TABLE>
-------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
ANY INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE
ACCURATE AS OF THE DATE OF THIS DOCUMENT.
-------------------------
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus
and may not contain all of the information you may consider important. You
should read this entire prospectus carefully. You should also keep in mind the
following points as you read this prospectus:
- - Unless the context otherwise indicates, references in this document to
"Express Scripts," "we," "us" and "our" refer to Express Scripts, Inc. and its
subsidiaries. References to "NYLIFE HealthCare" refer to NYLIFE HealthCare
Management, Inc.
- - Unless we tell you otherwise, all information in this prospectus has been
adjusted to reflect a two-for-one stock split of our common stock that
occurred on October 30, 1998
- - Information regarding our relative size is based on estimates of our
management in light of their experience in the industry
- - Membership counts may not be comparable between us and Diversified
Pharmaceutical Services, or between us and our competitors, although we
believe they provide a reasonable estimation of the population we serve
SUMMARY OF TERMS OF THE EXCHANGE OFFER
On June 16, 1999, we completed the private offering of the outstanding
notes. References to "notes" in this prospectus are references to both the
outstanding notes and the exchange notes.
Express Scripts and the guarantors entered into a registration rights
agreement with the initial purchasers in the private offering in which Express
Scripts and the guarantors agreed to deliver to you this prospectus and Express
Scripts agreed to complete the exchange offer within 220 days after the date of
original issuance of the outstanding notes. You are entitled to exchange in the
exchange offer your outstanding notes for exchange notes which are identical in
all material respects to the outstanding notes except that:
- the exchange notes have been registered under the Securities Act
- the exchange notes are not entitled to certain registration rights which
are applicable to the outstanding notes under the registration rights
agreement
- certain contingent interest rate provisions are no longer applicable
The Exchange Offer.............. We are offering to exchange up to $250
million aggregate principal amount of
exchange notes for up to $250 million
aggregate principal amount of outstanding
notes. Outstanding notes may be exchanged
only in integral multiples of $1,000.
Resales......................... Based on an interpretation by the staff of
the SEC set forth in no-action letters
issued to third parties, we believe that the
exchange notes issued pursuant to the
exchange offer in exchange for outstanding
notes may be offered for resale, resold and
otherwise transferred by you (unless you are
an "affiliate" of Express Scripts within the
meaning of Rule 405 under the Securities
Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act, provided
1
<PAGE> 6
that you are acquiring the exchange notes in
the ordinary course of your business and
that you have not engaged in, do not intend
to engage in, and have no arrangement or
understanding with any person to participate
in, a distribution of the exchange notes.
Each participating broker-dealer that
receives exchange notes for its own account
pursuant to the exchange offer in exchange
for outstanding notes that were acquired as
a result of market-making or other trading
activity must acknowledge that it will
deliver a prospectus in connection with any
resale of the exchange notes. See "Plan of
Distribution."
Any holder of outstanding notes who
- is an affiliate of Express Scripts
- does not acquire exchange notes in the
ordinary course of its business
- tenders in the exchange offer with the
intention to participate, or for the
purpose of participating, in a
distribution of exchange notes
cannot rely on the position of the staff of
the SEC enunciated in Exxon Capital Holdings
Corporation, Morgan Stanley & Co.
Incorporated or similar no-action letters
and, in the absence of an exemption
therefrom, must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with the resale
of the exchange notes.
Expiration Date; Withdrawal of
Tenders....................... The exchange offer will expire at 5:00 p.m.,
New York City time, on ,
1999, or such later date and time to which
Express Scripts extends it (the "expiration
date"). We do not currently intend to extend
the expiration date. A tender of outstanding
notes pursuant to the exchange offer may be
withdrawn at any time prior to the
expiration date. The expiration date for the
exchange offer will not in any event be
extended to a date later than
, 1999. Any outstanding notes
not accepted for exchange for any reason
will be returned without expense to the
tendering holder promptly after the
expiration or termination of the exchange
offer.
Certain Conditions to the
Exchange Offer.................. The exchange offer is subject to customary
conditions, which we may waive. Please read the section captioned "The Exchange
Offer -- Certain Conditions to the Exchange
Offer" of this prospectus for
2
<PAGE> 7
more information regarding the conditions to
the exchange offer.
Procedures for Tendering
Outstanding Notes............. If you wish to accept the exchange offer,
you must complete, sign and date the
accompanying letter of transmittal, or a
facsimile of the letter of transmittal,
according to the instructions contained in
this prospectus and the letter of
transmittal. You must also mail or otherwise
deliver the letter of transmittal, or a
facsimile of the letter of transmittal,
together with the outstanding notes and any
other required documents, to the exchange
agent at the address set forth on the cover
page of the letter of transmittal. If you
hold outstanding notes through The
Depository Trust Company ("DTC") and wish to
participate in the exchange offer, you must
comply with the Automated Tender Offer
Program procedures of DTC, by which you will
agree to be bound by the letter of
transmittal. By signing, or agreeing to be
bound by, the letter of transmittal, you
will represent to us that, among other
things:
- any exchange notes that you receive will
be acquired in the ordinary course of your
business
- you have no arrangement or understanding
with any person or entity to participate
in a distribution of the exchange notes
- if you are a broker-dealer that will
receive exchange notes for your own
account in exchange for outstanding notes
that were acquired as a result of
market-making activities, that you will
deliver a prospectus, as required by law,
in connection with any resale of such
exchange notes
- you are not an "affiliate," as defined in
Rule 405 of the Securities Act, of Express
Scripts or, if you are an affiliate, you
will comply with any applicable
registration and prospectus delivery
requirements of the Securities Act
Special Procedures for
Beneficial Owners............... If you are a beneficial owner of outstanding
notes which are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee, and you wish to
tender such outstanding notes in the
exchange offer, you should contact such
registered holder promptly and instruct such
registered holder to tender on your behalf.
If you wish to tender on your own behalf,
you must, prior to completing and executing
the letter of trans-
3
<PAGE> 8
mittal and delivering your outstanding
notes, either make appropriate arrangements
to register ownership of the outstanding
notes in your name or obtain a properly
completed bond power from the registered
holder. The transfer of registered ownership
may take considerable time and may not be
able to be completed prior to the expiration
date.
Guaranteed Delivery
Procedures...................... If you wish to tender your outstanding notes
and your outstanding notes are not
immediately available or you cannot deliver
your outstanding notes, the letter of
transmittal or any other documents required
by the letter of transmittal or comply with
the applicable procedures under DTC's
Automated Tender Offer Program prior to the
expiration date, you must tender your
outstanding notes according to the
guaranteed delivery procedures set forth in
this prospectus under "The Exchange Offer --
Guaranteed Delivery Procedures."
Effect on Holders of Outstanding
Notes......................... As a result of the making of, and upon
acceptance for exchange of all validly
tendered outstanding notes pursuant to the
terms of the exchange offer, we will have
fulfilled a covenant contained in the
registration rights agreement and,
accordingly, we will not be obligated to pay
liquidated damages as described in the
registration rights agreement. If you are a
holder of outstanding notes and you do not
tender your outstanding notes in the
exchange offer, you will continue to hold
such outstanding notes and you will be
entitled to all the rights and limitations
applicable to the outstanding notes in the
indenture, except for any rights under the
registration rights agreement that by their
terms terminate upon the consummation of the
exchange offer.
To the extent that outstanding notes are
tendered and accepted in the exchange offer,
the trading market for outstanding notes
could be adversely affected.
Consequences of Failure to
Exchange........................ All untendered outstanding notes will
continue to be subject to the restrictions
on transfer provided for in the outstanding
notes and in the indenture. In general, the
outstanding notes may not be offered or
sold, unless registered under the Securities
Act, except pursuant to an exemption from,
or in a transaction not subject to, the
Securities Act and applicable state
securities laws. Other than in connection
with the exchange offer, we do not
4
<PAGE> 9
currently anticipate that we will register
the outstanding notes under the Securities
Act.
Certain U.S. Federal Income Tax
Considerations................ The exchange of outstanding notes for
exchange notes in the exchange offer will
not be a taxable event for U.S. federal
income tax purposes. See "Material United
States Federal Income Tax Considerations."
Use of Proceeds................. We will not receive any cash proceeds from
the issuance of exchange notes pursuant to
the exchange offer.
Exchange Agent.................. Bankers Trust Company is the exchange agent
for the exchange offer. The address and
telephone number of the exchange agent are
set forth in the section captioned "Exchange
Offer -- Exchange Agent" of this prospectus.
5
<PAGE> 10
SUMMARY OF TERMS OF THE NOTES
Issuer.......................... Express Scripts, Inc.
Securities Offered.............. $250 million aggregate principal amount of
9 5/8% Senior Notes Due 2009.
Maturity........................ June 15, 2009.
Interest Rate................... 9 5/8% per year.
Interest Payment Dates.......... June 15 and December 15 of each year,
commencing December 15, 1999.
Ranking......................... The notes are senior unsecured obligations
and have the same right of payment as all
our existing and future senior unsecured
indebtedness. The notes are effectively
subordinated to all our existing and future
secured indebtedness to the extent of the
assets securing that indebtedness.
Guarantees...................... Certain of our existing and future domestic
subsidiaries have guaranteed the notes with senior unsecured guarantees of
payment. These guarantees are effectively
subordinated to all of those subsidiaries'
existing and future secured indebtedness to
the extent of the assets securing that
indebtedness.
Optional Redemption............. We cannot redeem the notes until June 15,
2004, except as described immediately below.
Thereafter, we can redeem some or all of the
notes at the redemption prices listed under
the heading "Description of the
Notes -- Optional Redemption" in this
prospectus, plus accrued interest.
Optional Redemption After Public
Equity Offerings.............. At any time (which may be more than once)
before June 15, 2002, we can choose to
redeem up to 35% of the original principal
amount of the notes (including the original
principal amount of any additional notes)
with money that we raise in public equity
offerings, as long as:
- we pay to holders of the notes a
redemption price of 109.625% of the
principal amount of the notes we redeem,
plus accrued interest
- we redeem the notes within 120 days of
completing the public equity offering
- at least 65% of the original principal
amount of notes (including the original
principal amount of any additional notes)
issued remains outstanding afterwards
Change of Control Offer......... If we go through a change of control, we
must give holders of the notes the
opportunity to sell to us their notes at a
purchase price of 101% of their principal
amount, plus accrued interest, unless we
have previously provided to the trustee
under the indenture governing the notes an
irrevocable notice of redemption to redeem
all outstanding notes at a time when
6
<PAGE> 11
such redemption is permitted under the
indenture. See "Description of the
Notes -- Change of Control".
Certain Covenants............... The indenture governing the notes contains
covenants that limit our ability and that of
our subsidiaries to:
- incur additional indebtedness
- pay dividends or distributions on, or
redeem or repurchase, our capital stock
- make investments
- issue or sell capital stock of
subsidiaries
- engage in transactions with affiliates
- create liens on our assets
- transfer or sell assets
- restrict dividend or other payments to us
- consolidate, merge or transfer all or
substantially all of our assets and the
assets of subsidiaries
- engage in unrelated businesses
These covenants are subject to important
exceptions and qualifications, which are
described under "Description of the
Notes -- Covenants."
After the notes receive an investment grade
rating by both S&P and Moody's, we and our
subsidiaries will no longer be required to
comply with some of these covenants. See
"Description of the Notes -- Covenant
Removal."
Exchange Offer; Registration
Rights.......................... Under a registration rights agreement we
executed as part of this offering, we have
agreed to:
- file a registration statement within 60
days after the issue date of the notes
enabling the holders of the notes to
exchange the notes for publicly registered
notes with identical terms
- use our reasonable best efforts to cause
the registration statement to become
effective within 180 days after the issue
date of the notes
- consummate the exchange offer no later
than 220 days after the date of original
issuance of the outstanding notes
- use our reasonable best efforts to file a
shelf registration statement for the
resale of the notes if we cannot effect an
exchange offer within the time periods
listed above and in some other
circumstances
We will pay additional interest on the notes
if we do not comply with our obligations
under the registration rights agreement. See
"Description of the Notes -- Registered
Exchange Offer; Registration Rights."
7
<PAGE> 12
EXPRESS SCRIPTS
We are the largest pharmacy benefit management company, commonly referred
to as a PBM, independent of pharmaceutical manufacturer or drug store ownership
in North America. PBMs coordinate the distribution of outpatient pharmaceuticals
through a combination of benefit management services, including retail drug card
programs and mail pharmacy services. We provide these services for health care
payors. We believe our independence from pharmaceutical manufacturer ownership
allows us to make unbiased formulary recommendations to our clients, balancing
both clinical efficacy and cost. We also believe our independence from drug
store ownership allows us to construct a variety of convenient and
cost-effective retail pharmacy networks for our clients, without favoring any
particular pharmacy chain.
We are the third largest PBM in North America in terms of total members,
and we have one of the largest managed care membership bases of any PBM. Before
1998, our growth was driven almost exclusively by our ability to expand our
product offerings and increase our client and membership base through internally
generated growth. From 1992 through 1997, our net revenues and net income
increased at compound annual growth rates of 58% and 49%, respectively. While
our internal growth strategy remains a major focus, we have recently
complemented our internal growth strategy with two substantial acquisitions. In
April 1998, we acquired ValueRx, and in April 1999, we acquired Diversified
Pharmaceutical Services, or DPS. These acquisitions added to the scale of our
membership base, broadened our product offerings and enhanced our clinical
capabilities, systems and technologies. On a pro forma basis including our
recent debt and equity offerings, our net revenues and EBITDA for the twelve
month period ending March 31, 1999 would have been approximately $3.6 billion
and $241.7 million, respectively.
As of March 31, 1999, after giving effect to the DPS acquisition, we would
have served approximately 47 million members, including 10 million members under
DPS's contract with United HealthCare which will terminate without renewal on
May 31, 2000. Besides United HealthCare, some of our other large clients include
Aetna U.S. Healthcare, Oxford Health Plans and the State of New York Empire Plan
Prescription Drug Program.
Our PBM services are primarily delivered through networks of retail
pharmacies that are under non-exclusive contract with us and through five mail
pharmacy service centers that we own and operate. Our largest retail pharmacy
network includes more than 52,000 retail pharmacies, representing more than 99%
of all retail pharmacies in the United States. In 1998, including ValueRx and
DPS on a pro forma basis, we processed approximately 284 million pharmacy claims
with estimated total drug spending of approximately $10 billion.
------------------------
We were incorporated in Missouri in 1986 and reincorporated in Delaware in
1992. Our principal executive offices are located at 13900 Riverport Drive,
Maryland Heights, Missouri 63043, and our phone number is (314) 770-1666.
Express Scripts(R) is our registered trademark. Our other trademarks include
"ExpressComp(R)", "ExpressReview(R)", "Express Therapeutics(R)", "IVTx(R)",
"PERx(R)", "PERxCare(R)", "PERxComp(R)", "PTE(R)", "ValueRx(R)" and "Value
Health, Inc.(R)". We also acquired several additional trademarks through our
acquisition of DPS.
8
<PAGE> 13
RISK FACTORS
In addition to the other information in this prospectus, the following
factors may be important to you.
FAILURE TO INTEGRATE VALUERX AND DPS COULD ADVERSELY AFFECT OUR BUSINESS
Our acquisitions of ValueRx and DPS have significantly increased our
membership base and the complexity of our operations. In light of both
acquisitions, we have developed and begun to implement an integration plan to
address items such as:
- retention of key employees
- consolidation of administrative and other duplicative functions
- coordination of sales, marketing, customer service and clinical functions
- systems integration
- new product and service development
- client retention and other items
While we have achieved many of our integration goals to date with respect
to the acquisition of ValueRx, some significant integration challenges remain,
including the complete integration of our information technology systems. We
cannot provide any assurance that our integration plan for ValueRx will
successfully address all aspects of our operations, or that we will continue to
achieve our integration goals. In the case of DPS, we cannot provide any
assurance that our integration plan will address all relevant aspects of DPS's
business or that we will be able to implement our integration plan successfully.
In addition, we assumed specific financial targets, including for revenues,
earnings before interest, taxes, depreciation and amortization, and cash flow,
when deciding to purchase ValueRx and DPS, and we cannot provide any assurance
that we will be able to achieve our targets. Many clients have relatively
short-term contracts, and we cannot provide any assurance that we will be able
to achieve our client retention targets. Finally, although we conducted an
extensive investigation in evaluating our acquisitions of ValueRx and DPS, it is
possible that we failed to uncover or appropriately address material problems
with ValueRx's or DPS's operations or financial condition, or failed to discover
contingent liabilities. Any of the foregoing could materially adversely affect
our results of operations or financial condition.
OUR LEVERAGE AND DEBT SERVICE OBLIGATIONS COULD IMPEDE OUR OPERATIONS AND
FLEXIBILITY
We have substantial leverage, which means that the amount of our
outstanding debt will be large compared to the net book value of our assets, and
we will have substantial repayment obligations and interest expense. As of March
31, 1999, on a pro forma basis including our recent debt and equity offerings,
we would have had total consolidated debt of approximately $749 million (before
giving effect to the repayment of $25 million of our indebtedness with available
cash). We and our subsidiaries may incur additional indebtedness in the future.
Our level of debt and the limitations imposed on us by our debt agreements
could have important consequences to you, including the following:
- we will have to use a substantial portion of our cash flow from
operations for debt service rather than for our operations
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<PAGE> 14
- we may not be able to obtain additional debt financing for future working
capital, capital expenditures or other corporate purposes
- some of the debt under our $1.05 billion credit facility may be at a
variable interest rate, making us vulnerable to increases in interest
rates
- we could be less able to take advantage of significant business
opportunities, such as acquisition opportunities, and react to changes in
market or industry conditions
- we could be more vulnerable to general adverse economic and industry
conditions
- we may be disadvantaged compared to competitors with less leverage
Furthermore, our ability to satisfy our obligations, including our debt
service requirements, will be dependent upon our future performance. Factors
which could affect our future performance include, without limitation,
prevailing economic conditions and financial, business and other factors, many
of which are beyond our control and which affect our business and operations.
For more details, see "Description of the Notes."
THE NOTES ARE EFFECTIVELY SUBORDINATED TO ALL OUR SECURED INDEBTEDNESS
The notes and the guarantees are effectively subordinated to all our
existing and future secured indebtedness to the extent of the value of the
assets securing that indebtedness. In connection with our acquisitions of
ValueRx and DPS, we incurred approximately $890 million of indebtedness which is
secured by the stock or other equity interests of each of our existing and
subsequently acquired domestic subsidiaries, excluding Practice Patterns
Science, Great Plains Reinsurance, ValueRx of Michigan, Diversified NY IPA and
Diversified Pharmaceutical Services (Puerto Rico). This indebtedness is
currently funded under our $1.05 billion credit facility with a bank syndicate
led by Credit Suisse First Boston and Bankers Trust Company. At March 31, 1999,
on a pro forma basis including our recent debt and equity offerings, the
aggregate amount of our and our subsidiaries' secured indebtedness, excluding
trade payables, which the notes and the guarantees would have been effectively
subordinated to was $500 million (before giving effect to the repayment of
approximately $25 million of our indebtedness with available cash). If we are
unable to meet our obligations under the credit facility, these creditors could
exercise their rights as a secured party and take possession of the pledged
capital stock of these subsidiaries. This would materially adversely affect our
results of operations and financial condition. We and our subsidiaries may incur
additional indebtedness in the future, subject to limitations contained in the
instruments governing our and our subsidiaries existing indebtedness. This
indebtedness may be secured.
FAILURE TO MANAGE AND MAINTAIN INTERNAL GROWTH COULD ADVERSELY AFFECT
OUR BUSINESS
We have experienced rapid internal growth over the past several years. Our
ability to effectively manage and maintain this internal growth will require
that we continue to improve our financial and management information systems as
well as identify and retain key personnel. We can provide no assurance that we
will successfully meet these requirements or that we will have access to
sufficient capital to do so. Our internal growth is also dependent upon our
ability to attract new clients and achieve growth in the membership base of our
existing clients. If we are unable to continue our client and membership growth,
our results of operations and financial position could be materially adversely
affected.
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<PAGE> 15
COMPETITION IN THE PBM INDUSTRY COULD REDUCE OUR CLIENT MEMBERSHIP AND OUR
PROFIT MARGINS
Pharmacy benefit management is a very competitive business. Our competitors
include several large and well-established companies which may have greater
financial, marketing and technological resources than we do. One major
competitor in the PBM business, Merck-Medco Managed Care, is owned by Merck &
Co., a pharmaceutical manufacturer. Another major competitor, PCS, is owned by
Rite-Aid, a large retail pharmacy chain. Both of these competitors may possess
purchasing or other advantages over us by virtue of their ownership, and could
succeed in taking away some of our clients. Consolidation in the PBM industry
may also lead to increased competition among a smaller number of large PBM
companies. We also face competition from Internet-based providers of
pharmaceuticals such as Drugstore.com and PlanetRx.com. We cannot predict what
effect, if any, these competitors may have on the marketplace or on our
business.
Over the last several years intense competition in the marketplace has
caused many PBMs, including us, to reduce the prices charged to clients for core
services and share a larger portion of the formulary fees and related revenues
received from drug manufacturers with clients. Increased price competition could
reduce our profit margins and have a material adverse effect on our results of
operations.
FAILURE TO RETAIN KEY CLIENTS AND NETWORK PHARMACIES COULD ADVERSELY AFFECT
OUR BUSINESS AND LIMIT OUR ACCESS TO RETAIL PHARMACIES
We currently provide PBM services to approximately 8,500 clients, including
several large clients. Our contracts with clients generally do not have terms of
longer than three years and in some cases are terminable by either party on
relatively short notice. Our larger clients generally distribute requests for
proposals in advance of the expiration of their contracts. If several of these
large clients elect not to extend their relationship with us, and we are not
successful in generating sales to replace the lost business, our future business
and operating results could be materially adversely affected. In addition, we
believe the managed care industry is undergoing substantial consolidation, and
some of our managed care clients could be acquired by another party that is not
our client. In this case, our client may not renew its PBM contract with us.
With the completion of our acquisition of DPS, United HealthCare became our
largest client. With approximately 10 million members, United HealthCare
accounts for approximately 22% of our membership base. DPS's contract with
United HealthCare will expire on May 31, 2000, and United HealthCare has
indicated it will be moving to another provider at that time. In our financial
analysis of the DPS acquisition, we assumed United HealthCare would not renew
its contract. However, if we are unable to reduce our costs on a basis
commensurate with our expectations and manage the transition of this large
client to another provider both efficiently and effectively, the termination of
this contract may materially adversely affect our business and results of
operations.
Our largest national provider network consists of more than 52,000 retail
pharmacies, which represent more than 99% of the retail pharmacies in the United
States. However, the top 10 retail pharmacy chains represent approximately 41%
of the 52,000 pharmacies, with pharmacy chains representing even higher
concentrations in selected areas of the United States. Our contracts with retail
pharmacies, which are non-exclusive, are generally terminable by either party on
relatively short notice. If one or more of the top pharmacy chains elects to
terminate its relationship with us, our members' access to retail pharmacies and
our business could be significantly impaired. In addition, Rite-Aid recently
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<PAGE> 16
acquired one of our major PBM competitors, and other large pharmacy chains
either own PBMs today or could attempt to acquire a PBM in the future. Ownership
of PBMs by retail pharmacy chains could have material adverse effects on our
relationships with these pharmacy chains and on our business and results of
operations.
LOSS OF RELATIONSHIPS WITH PHARMACEUTICAL MANUFACTURERS AND CHANGES IN THE
REGULATION OF DISCOUNTS AND REBATES PROVIDED TO US BY PHARMACEUTICAL
MANUFACTURERS COULD DECREASE OUR PROFITS
We maintain contractual relationships with numerous pharmaceutical
manufacturers which provide us with:
- discounts at the time we purchase the drugs to be dispensed from our mail
pharmacies
- rebates based upon sales of drugs from our mail pharmacies and through
pharmacies in our retail networks
- administrative fees based upon the development and maintenance of
formularies which include the particular manufacturer's products
These fees are all commonly referred to as formulary fees or formulary
management fees.
We also provide various services for, or services which are funded wholly
or partially by, pharmaceutical manufacturers. These services include:
- compliance programs, which involve instruction and counseling of patients
concerning the importance of compliance with the drug treatment regimen
prescribed by their physician
- therapy management programs, which involve education of patients having
specific diseases, such as asthma and diabetes, concerning the management
of their condition
- market research programs in which we provide information to manufacturers
concerning drug utilization patterns
These arrangements are generally terminable by either party on relatively short
notice. If several of these arrangements are terminated or materially altered by
the pharmaceutical manufacturers, our operating results could be materially
adversely affected. In addition, formulary fee programs, as well as some of the
services we provide to the pharmaceutical manufacturers, have been the subject
of debate in federal and state legislatures and various other public forums.
Changes in existing laws or regulations, changes in interpretations of existing
laws or regulations or the adoption of new laws or regulations relating to any
of these programs, may materially adversely affect our business.
Patents covering many brand name drugs that currently have substantial
market share will expire over the next several years, and generic drugs will be
introduced that may substantially reduce the market share of these brand name
drugs. Manufacturers of generic drugs do not generally offer incentive payments
on their drugs to PBMs in the form of discounts, rebates or other formulary
fees. Although we expect new drugs with patent protection to be introduced in
the future, we can provide no assurance these drugs will capture a significant
share of the market such that our incentive payment revenues will not be
reduced.
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<PAGE> 17
PENDING AND FUTURE LITIGATION COULD MATERIALLY AFFECT OUR RELATIONSHIPS WITH
PHARMACEUTICAL MANUFACTURERS OR SUBJECT US TO SIGNIFICANT MONETARY DAMAGES
Since 1993, over 100 separate lawsuits have been filed by retail pharmacies
against drug manufacturers, wholesalers and PBMs challenging brand name drug
pricing practices under various state and federal antitrust laws. Some of these
lawsuits were consolidated into a nationwide class action, while others remained
as individual suits. The class action defendants have either settled the claims
against them or have had the claims dismissed. Several of the individual suits
are ongoing. We are not a party to any of these proceedings, and to date we do
not believe any of the related settlements have had a material adverse effect on
our business. However, we cannot provide any assurance that the terms of the
settlements will not materially adversely affect us in the future or that we
will not be made a party to any separate lawsuit. In addition, we cannot predict
the outcome or possible ramifications to our business of the cases in which the
plaintiffs are trying their claims separately.
Our PBM operations, including the dispensing of pharmaceutical products by
our mail pharmacies, the services rendered in connection with our formulary
management and informed decision counseling services and the products and
services provided in connection with our infusion therapy programs, including
the associated nursing services, have subjected us and may subject us in the
future to litigation and liability for damages. We believe our insurance
protection is adequate for our present operations, but we cannot provide any
assurance that we will be able to maintain our professional and general
liability insurance coverage in the future or that insurance coverage will be
available on acceptable terms to cover any or all potential product or
professional liability claims. A successful product or professional liability
claim in excess of our insurance coverage could have a material adverse effect
on our business.
LIMITATIONS ON REPURCHASES OF NOTES UPON A CHANGE IN CONTROL
The indenture provides that, upon the occurrence of a change in control, we
will be required to make an offer to purchase all of the notes at a price in
cash equal to 101% of their aggregate principal amount, plus accrued and unpaid
interest, if any, to the date of purchase unless we have provided to the trustee
under the indenture governing the notes an irrevocable notice of redemption to
redeem all of the outstanding notes at a time when such redemption is permitted
under the indenture. Events involving a change in control could result in
acceleration of our $1.05 billion credit facility or in acceleration of, or a
similar repurchase obligation with respect to, other indebtedness of ours. We
cannot be sure that in the event of a change in control we would have sufficient
funds to purchase all notes tendered.
Our failure to purchase notes would result in a default under the indenture
and, pursuant to cross-default provisions under our $1.05 billion credit
facility, a default under the credit facility as well, which would permit the
trustee under the indenture or the holders of at least 25% in principal amount
of the outstanding notes, or the lenders under our $1.05 billion credit
facility, to declare the respective principal and accrued but unpaid interest to
be due and payable.
Likewise, the failure to repay the indebtedness under our $1.05 billion
credit facility, if accelerated, would also constitute an event of default under
the indenture, which could result in an acceleration of the notes. In the event
of a change of control, we cannot be sure that we would have the ability to
refinance our $1.05 billion credit facility or have sufficient assets to satisfy
all of our obligations under our $1.05 billion credit facility and
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<PAGE> 18
the notes. The provisions relating to a change in control included in the
indenture may increase the difficulty of a potential acquirer obtaining control
of us. For more details, see "Description of the Notes -- Change of Control."
CHANGES IN STATE AND FEDERAL REGULATIONS COULD RESTRICT OUR ABILITY TO CONDUCT
OUR BUSINESS
Numerous state and federal laws and regulations affect our business and
operations. These laws and regulations include, but are not necessarily limited
to:
- health care fraud and abuse laws and regulations, which prohibit illegal
referral and other payments
- Employee Retirement Income Security Act of 1974 and related regulations,
which regulate many health care plans
- mail pharmacy laws and regulations
- privacy and confidentiality laws and regulations
- proposed comprehensive state PBM regulatory legislation
- consumer protection laws and regulations
- pharmacy network access laws, including "any willing provider" and "due
process" legislation, that regulate aspects of our pharmacy network
contracts
- legislation imposing benefit plan design restrictions, which limit how
our clients can design their drug benefit plans
- various licensure laws, such as managed care and third party
administrator licensure laws
- drug pricing legislation, including "most favored nation" pricing and
"unitary pricing" legislation
- Medicare prescription drug coverage proposals
- other Medicare and Medicaid reimbursement regulations
- potential regulation of the PBM industry by the U.S. Food and Drug
Administration
We believe we are operating our business in substantial compliance with all
existing legal requirements material to the operation of our business. There
are, however, significant uncertainties regarding the application of many of
these legal requirements to our business, and we cannot provide any assurance
that a regulatory agency charged with enforcement of any of these laws or
regulations will not interpret them differently or, if there is an enforcement
action brought against us, that our interpretation would prevail. In addition,
there are numerous proposed health care laws and regulations at the federal and
state levels, many of which could materially affect our ability to conduct our
business or adversely affect our results of operations. We are unable to predict
what additional federal or state legislation or regulatory initiatives may be
enacted in the future relating to our business or the health care industry in
general, or what effect such legislation or regulations might have on us. We
also cannot provide any assurance that federal or state governments will not
impose additional restrictions or adopt interpretations of existing laws that
could have a material adverse effect on our business or results of operations.
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<PAGE> 19
EFFORTS TO REDUCE HEALTH CARE COSTS AND ALTER HEALTH CARE FINANCING PRACTICES
COULD ADVERSELY AFFECT OUR BUSINESS
Efforts are being made in the United States to control health care costs,
including prescription drug costs, in response to, among other things, increases
in prescription drug utilization rates and drug prices. If these efforts are
successful or if prescription drug utilization rates were to decrease
significantly, our business and results of operations could be materially
adversely affected.
We have designed our business to compete within the current structure of
the U.S. health care system. Changing political, economic and regulatory
influences may affect health care financing and reimbursement practices. If the
current health care financing and reimbursement system changes significantly,
our business could be materially adversely affected. Congress is currently
considering proposals to reform the U.S. health care system. These proposals may
increase governmental involvement in health care and PBM services, and otherwise
change the way our clients do business. Health care organizations may react to
these proposals and the uncertainty surrounding them by reducing or delaying
purchases of cost control mechanisms and related services that we provide. We
cannot predict what effect, if any, these proposals may have on our business.
Other legislative or market-driven changes in the health care system that we
cannot anticipate could also materially adversely affect our business.
FAILURE TO SUCCESSFULLY ADDRESS THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR
BUSINESS
Our business relies heavily on computers and other information systems
technology. In 1995, we began addressing the "year 2000" issue, which generally
refers to the inability of computer systems to properly recognize calendar dates
beyond December 31, 1999.
We believe that with appropriate modifications to our existing computer
systems, updates by our vendors and trading partners and conversion to new
software in the ordinary course of our business, the year 2000 issue will not
pose material operational problems for us. However, if the conversions are not
completed in a proper and timely manner by all affected parties, or if our logic
for communicating with noncompliant systems is ineffective, the year 2000 issue
could result in material adverse operational and financial consequences to us.
We cannot provide any assurance that our efforts, or those of our vendors and
trading partners, will be successful in addressing the year 2000 issue. In
addition, while DPS has represented to us that it has implemented a year 2000
plan for upgrading its computer systems and communicated with its vendor/trading
partners regarding these partners' year 2000 compliance, we cannot predict
whether this plan will adequately address all of DPS's year 2000 issues or
whether DPS's vendors/trading partners will adequately address their year 2000
issues. Failure by DPS or its vendors/trading partners to adequately address the
year 2000 issue could have a material adverse effect on our business and results
of operations.
LOSS OF KEY MANAGEMENT COULD ADVERSELY AFFECT OUR BUSINESS
Our success is materially dependent upon our key managers and, in
particular, upon the continued services of Barrett A. Toan, our President and
Chief Executive Officer. Our future operations could be materially adversely
affected if the services of Mr. Toan cease to be available. We and Mr. Toan are
parties to an employment agreement which currently extends to March 31, 2002,
and which automatically extends for an additional one year on April 1, 2001, and
on each April 1 thereafter unless either party gives notice of termination
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<PAGE> 20
at least 30 days prior to such April 1. As of the date hereof, neither we nor
Mr. Toan has given this notice.
NEW YORK LIFE INSURANCE COMPANY CAN CONTROL OUR BUSINESS AND LIMIT OUR
ABILITY TO ENTER INTO SELECTED BUSINESS TRANSACTIONS
We have two classes of authorized common stock: Class A and Class B common
stock. Our Class B common stock is entirely owned by NYLIFE HealthCare, an
indirect subsidiary of New York Life Insurance Company. Each share of our Class
A common stock has one vote per share, and each share of our Class B common
stock has ten votes per share. After giving effect to our recent equity
offering, NYLIFE HealthCare will have approximately 86.9% of the combined voting
power of our common stock. NYLIFE HealthCare could reduce its Class B common
stock ownership to represent slightly less than 10% of the total outstanding
shares of our common stock and still control a majority of the voting power of
our common stock. In addition, NYLIFE HealthCare could sell all of our common
stock held by it in a negotiated transaction and such sale would not constitute
a Change of Control under the indenture governing the notes. Without regard to
the votes of our public stockholders, NYLIFE HealthCare can:
- elect or remove all our directors
- amend our certificate of incorporation, except where the separate
approval of the holders of our Class A common stock is required by law
- accept or reject a merger, sale of assets or other major corporate
transaction
- accept or reject any proposed acquisition of us
- determine the amount and timing of dividends paid to itself and holders
of our Class A common stock
- except in limited circumstances, control our management and operations
and decide all matters submitted for a stockholder vote
Our Class B common stock will automatically convert into the same number of
shares of our Class A common stock upon transfer by NYLIFE HealthCare to any
entity other than New York Life or an affiliate of New York Life or otherwise at
the option of NYLIFE HealthCare. We cannot assure you, however, that our Class B
common stock would automatically convert into our Class A common stock if New
York Life were to transfer the stock of NYLIFE HealthCare to someone who is not
an affiliate of New York Life.
THERE IS NO PUBLIC MARKET FOR THE NOTES
The notes are a new issue of securities for which there is currently no
trading market. As a result, we cannot assure you that a market will develop for
the notes or that you will be able to sell your notes. If a market were to
exist, the notes might trade at prices higher or lower than their initial
offering price. The trading price would depend on many factors, such as
prevailing interest rates and the market for similar securities, general
economic conditions and our financial condition, performance and prospects.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial fluctuation in the prices of these
securities. The market for the notes may be subject to these disruptions, which
could have an adverse effect on your investment. You should be aware that you
may be required to bear the financial risk of an investment in the notes for an
indefinite period of time. We do not intend to apply for listing or quotation of
the notes; however, the notes are eligible for trading in The PortalSM Market.
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<PAGE> 21
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement that we entered into in connection with the
private offering of the outstanding notes. We will not receive any cash proceeds
from the issuance of the exchange notes. In consideration for issuing the
exchange notes as contemplated in this prospectus, we will receive in exchange a
like principal amount of outstanding notes, the terms of which are identical in
all material respects to the exchange notes. The outstanding notes surrendered
in exchange for the exchange notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the exchange notes will not result in any
change in our capitalization.
We used the net proceeds from the private offering of the outstanding notes
to repay a portion of the Term B borrowings under our $1.05 billion credit
facility used by us to finance the acquisition of DPS. At the time of such
repayment, such borrowings bore interest at a rate of 8.42% per annum.
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<PAGE> 22
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth our selected financial and operating data
for the five years ended December 31, 1998 and three months ended March 31, 1998
and 1999. The financial data, excluding the selected data, for the fiscal years
ended December 31, 1996, 1997 and 1998 have been derived from our consolidated
financial statements included in this prospectus which have been audited by
PricewaterhouseCoopers LLP, independent accountants. The financial data,
excluding the selected data, for the fiscal years ended December 31, 1994 and
1995 have been derived from our consolidated financial statements not included
in this prospectus which have been audited by PricewaterhouseCoopers LLP. The
financial data, excluding the selected data, for the three months ended March
31, 1998 and 1999 have been derived from our unaudited consolidated financial
statements included in this prospectus.
The data set forth below should be read in conjunction with the report of
PricewaterhouseCoopers LLP and our consolidated financial statements and related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
(UNAUDITED)
---------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------ ---------------------
1994 1995 1996 1997 1998(2) 1998 1999
-------- ---------- ---------- ---------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................... $384,504 $ 544,460 $ 773,615 $1,230,634 $2,824,872 $371,362 $ 899,087
Costs and expenses:
Cost of revenues......................... 338,151 478,283 684,882 1,119,167 2,584,997 338,492 823,647
Selling, general and administrative...... 25,882 37,300 49,103 62,617 148,990 18,826 46,440
Corporate restructuring.................. -- -- -- -- 1,651 -- --
-------- ---------- ---------- ---------- ---------- -------- ----------
364,033 515,583 733,985 1,181,784 2,735,638 357,318 870,087
-------- ---------- ---------- ---------- ---------- -------- ----------
Operating income........................... 20,471 28,877 39,630 48,850 89,234 14,044 29,000
Interest income (expense), net............. 305 757 3,450 5,856 (12,994) 2,124 (4,829)
-------- ---------- ---------- ---------- ---------- -------- ----------
Income before income taxes................. 20,776 29,634 43,080 54,706 76,240 16,168 24,171
Provision for income taxes................. 8,053 11,307 16,932 21,277 33,566 6,290 10,628
-------- ---------- ---------- ---------- ---------- -------- ----------
Net income................................. $ 12,723 $ 18,327 $ 26,148 $ 33,429 $ 42,674 $ 9,878 $ 13,543
======== ========== ========== ========== ========== ======== ==========
Earnings per share(1):
Basic.................................... $ 0.43 $ 0.62 $ 0.81 $ 1.02 $ 1.29 $ 0.30 $ 0.41
Diluted.................................. $ 0.42 $ 0.60 $ 0.80 $ 1.01 $ 1.27 $ 0.29 $ 0.40
Weighted average shares outstanding(1):
Basic.................................... 29,588 29,560 32,160 32,713 33,105 33,053 33,211
Diluted.................................. 30,293 30,545 32,700 33,122 33,698 33,579 34,154
BALANCE SHEET DATA:
Cash....................................... $ 5,742 $ 11,506 $ 25,211 $ 64,155 $ 122,589 $ 84,556 $ 115,838
Working capital............................ 38,082 58,653 128,259 166,062 117,611 175,232 140,221
Total assets............................... 108,922 164,088 300,425 402,508 1,095,461 414,744 1,096,950
Short-term debt.......................... -- -- -- -- 54,000 -- 54,000
Long-term debt, less current
maturities............................. -- -- -- -- 306,000 -- 306,000
Total debt................................. -- -- -- -- 360,000 -- 360,000
Stockholders' equity....................... 52,485 77,379 164,090 203,701 249,694 214,930 267,542
SELECTED DATA:
Pharmacy benefit covered lives............. 6,000 8,000 10,000 13,000 23,000 12,000 23,000
Drug spending(3)........................... $716,000 $1,172,000 $1,636,000 $2,486,000 $4,495,000 $678,000 $1,450,000
Pharmacy network claims processed.......... 26,323 42,871 57,838 73,164 113,177 19,028 36,028
Mail pharmacy prescriptions filled......... 1,594 2,129 2,770 3,899 7,426 1,069 2,279
EBITDA(4).................................. $ 23,795 $ 33,258 $ 46,337 $ 59,320 $ 115,667 $ 16,440 $ 37,487
Cash flows provided by operating
activities............................... $ 9,741 $ 11,500 $ 29,863 $ 52,503 $ 126,574 $ 24,222 $ (3,808)
Cash flows used in investing activities.... $ (6,348) $ (8,047) $ (64,808) $ (16,567) $ (426,052) $ (4,510) $ (5,677)
Cash flows provided by financial
activities............................... $ 314 $ 2,311 $ 48,652 $ 3,033 $ 357,959 $ 683 $ 2,722
Ratio of earnings to fixed charges (5)..... 46.5x 67.8x 57.8x 56.7x 4.5x 49.0x 4.7x
</TABLE>
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<PAGE> 23
- -------------------------
(1) Earnings per share and weighted average shares outstanding have been
restated to reflect the two-for-one stock split effective October 30, 1998.
(2) Includes our acquisition of ValueRx effective April 1, 1998. Also includes a
corporate restructuring charge in 1998 of $1,651, $1,002 after tax, related
to our managed vision business. Excluding this restructuring charge, our
basic and diluted earnings per share would have been $1.32 and $1.30,
respectively.
(3) Drug spending is a measure of the gross aggregate dollar value of drug
expenditures of all programs managed by us. The difference between drug
spending and revenue reported by us is the combined effect of excluding from
reported revenues:
- the drug ingredient cost for those clients that have established their own
pharmacy networks
- the expenditures for drugs for companies on formulary-only programs
managed by us
- the co-pay portion of drug expenditures that are the responsibility of
members of health plans serviced by us
Therefore, drug spending provides a common basis to compare the drug
expenditures managed by a company given differences in revenue recognition.
(4) EBITDA is earnings before interest, taxes, depreciation and amortization, or
operating income plus depreciation and amortization. EBITDA is presented
because it is a widely accepted indicator of a company's ability to incur
and service indebtedness. EBITDA, however, should not be considered as an
alternative to net income as a measure of operating performance or an
alternative to cash flow as a measure of liquidity. In addition, our
definition of EBITDA may not be comparable to that reported by other
companies.
(5) The ratio of earnings to fixed charges is calculated by dividing income
(loss) before income taxes plus fixed charges, which consist of interest
expense, capitalized interest, amortization of deferred financing fees and
the portions of rental expenses representative of the interest expense
component by fixed charges. The pro forma ratio earnings to fixed charges
for the three months ended March 31, 1999, for the three months ended March
31, 1998, and the year ended December 31, 1998 is 3.0x, 2.2x and 2.3x,
respectively.
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UNAUDITED CONSOLIDATED CONDENSED PRO FORMA FINANCIAL DATA
The following unaudited consolidated condensed pro forma statement of
operations combines the historical statement of operations of us, Value Health,
Inc., Managed Prescription Network, Inc., together comprising the business known
as ValueRx, and DPS for the year ended December 31, 1998, for the three months
ended March 31, 1998, and the three months ended March 31, 1999. On April 1,
1998, we consummated the acquisition of ValueRx. Therefore, the financial
information of ValueRx is included in our consolidated statement of operations
subsequent to April 1, 1998. The unaudited consolidated condensed pro forma
statement of operations has been prepared to reflect the acquisitions of ValueRx
and DPS and the related financings, including our recent debt and equity
offerings and the use of the net proceeds from these offerings, and the use of
$25 million of our cash to repay some of our indebtedness, all as if these
events had occurred on January 1, 1998. Any cost savings we may realize in
connection with the integration of DPS are not reflected in the pro forma
presentation.
The following unaudited consolidated condensed pro forma balance sheet
combines the historical consolidated balance sheet of us and DPS as of March 31,
1999. The unaudited consolidated condensed pro forma balance sheet has been
prepared to reflect the acquisition of DPS and the related financings, including
our recent debt and equity offerings and the use of the net proceeds from these
offerings, and the use of $25 million of our cash to repay some of our
indebtedness, all as if these events had occurred on March 31, 1999.
The detailed assumptions used to prepare the unaudited consolidated
condensed pro forma financial data are contained in the notes to the unaudited
consolidated condensed pro forma financial data. The unaudited consolidated
condensed pro forma financial data reflects the use of the purchase method of
accounting for the acquisitions of ValueRx and DPS. Under the purchase method of
accounting, the basis of accounting for the acquired assets and liabilities is
based upon their fair values at the date of acquisition.
The pro forma adjustments represent our preliminary determination based
upon available information and assumptions which we consider reasonable under
the circumstances. The unaudited consolidated condensed pro forma data is not
necessarily indicative of our future results of operations or the results of
operations as they might have been had the acquisitions and the related
financings, including our recent debt and equity offerings and the use of the
net proceeds from these offerings, been effective on the first day of the period
presented. The unaudited consolidated condensed pro forma financial data should
be read in conjunction with our separate historical consolidated financial
statements and notes included in this prospectus, the separate historical
consolidated financial statements and notes of ValueRx included in our Current
Report on Form 8-K/A dated June 12, 1998, the separate unaudited combined
condensed financial statements and notes for ValueRx for the three months ended
March 31, 1998 included in this prospectus and the separate historical financial
statements and notes of DPS included in our Current Report on Form 8-K/A dated
June 14, 1999.
When reading the historical consolidated financial statements of us and
DPS, a notable difference exists with respect to the revenue recognition for
each of the companies. A substantial portion of our net revenues include
administrative fees, dispensing fees and the drug ingredient costs, as most
clients use one of our pharmacy networks. Where we only administer the contracts
between our clients and our clients' retail pharmacy networks, we record as net
revenues only the administrative fees we receive from our activities. DPS's net
revenues include its administrative fee from the activity of processing the
claim irrespective of a member utilizing a retail pharmacy included in one of
DPS's networks or its clients' network. The fundamental difference in the
revenue recognition is that DPS does not include the associated drug ingredient
costs in its net revenues as it does not have any liability to reimburse the
retail pharmacy included in its network unless DPS receives payment from its
client.
20
<PAGE> 25
EXPRESS SCRIPTS, INC.
UNAUDITED CONSOLIDATED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
--------------------------------------------------------------------------------
DPS OFFERINGS
EXPRESS PRO FORMA ACQUISITION PRO FORMA PRO FORMA
SCRIPTS DPS ADJUSTMENTS PRO FORMA ADJUSTMENTS CONSOLIDATED
-------- ------- ----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues................................... $899,087 $65,366(2) $ -- $964,453 $ -- $964,453
Cost and expenses:
Cost of revenues............................. 823,647(1) -- -- 823,647 -- 823,647(1)
Selling, general and administrative.......... 46,440(1) 57,409 (10,401)(3) 90,578 -- 90,578(1)
(1,890)(4)
(980)(5)
-------- ------- --------- -------- ------- --------
870,087 57,409 (13,271) 914,225 -- 914,225
-------- ------- --------- -------- ------- --------
Operating income............................... 29,000 7,957 13,271 50,228 -- 50,228
Other income (expense)......................... -- 433 359(6) 792 -- 792
Interest income................................ 1,393 -- (541)(7) 852 -- 852
Interest expense............................... (6,222) -- (17,134)(8) (23,356) 6,525(10) (16,831)
-------- ------- --------- -------- ------- --------
Income (loss) before income taxes.............. 24,171 8,390 (4,045) 28,516 6,525 35,041
Provision (benefit) for income taxes........... 10,628 3,096 (1,618)(9) 12,106 2,610(11) 14,716
-------- ------- --------- -------- ------- --------
Net income..................................... $ 13,543 $ 5,294 $ (2,427) $ 16,410 $ 3,915 $ 20,325
======== ======= ========= ======== ======= ========
Basic earnings per share....................... $ 0.41 $ 0.53
======== ========
Diluted earnings per share..................... $ 0.40 $ 0.52
======== ========
Weighted average number of common shares
outstanding during the period-Basic EPS...... 33,211 5,175(12) 38,386
======== ======= ========
Weighted average number of common shares
outstanding during the period-Diluted EPS.... 34,154 5,175(12) 39,329
======== ======= ========
OTHER DATA:
EBITDA (13).................................... $ 37,487 $20,837 $ 10,401(3) $ 68,725 $ -- $ 68,725
</TABLE>
- -------------------------
(1) Cost of revenues and selling, general and administrative expense include
$2,265 and $6,222 of depreciation and amortization, respectively, for us
during the first quarter of 1999. The pro forma consolidated cost of
revenues and selling, general and administrative expense include $2,265 and
$16,232 of depreciation and amortization, respectively.
(2) Net revenues for DPS include revenues from SmithKline Beecham. Subsequent
to our acquisition of DPS, revenues are anticipated to be consistent with
historical revenues as DPS's existing contract with SmithKline Beecham
remains in place.
(3) Adjustment reflects the elimination of management fees paid to United
HealthCare of $10,401 which under the DPS purchase agreement is to be
reimbursed to us by SmithKline Beecham.
(4) Adjustment reflects the net decrease in the first quarter of 1999 of
depreciation and amortization expense to $260 from $2,150 recorded by DPS
resulting from the allocation of the purchase price to the assets acquired
at their fair market value and to conform estimated and useful lives.
Furniture, equipment and internal use software are being depreciated by us
using the straight-line method over estimated useful lives of 5 to 8 years.
(5) Adjustment reflects the net decrease in the first quarter of 1999 of
amortization expense for goodwill and other intangible assets. DPS's
goodwill and other intangible assets amortization expense of $10,730 has
been reversed, and our goodwill and other intangible assets, consisting of
customer contracts, amortization of $9,750 has been included. Goodwill is
being amortized using the straight-line method over the
21
<PAGE> 26
estimated useful life of 30 years. We have preliminarily assigned an estimated
fair value to other intangible assets and are amortizing them using the
straight-line method over the estimated useful lives of 1 to 20 years. We
anticipate spending an estimated $10 million to $20 million in
non-recurring costs during the first twelve months subsequent to our
acquisition of DPS relating to the integration of DPS's operations. These
non-recurring costs have not been reflected in the unaudited consolidated
condensed pro forma statement of operations.
(6) Adjustment reflects the elimination of DPS's $359 equity loss in its joint
venture. SmithKline Beecham retained the equity interest in the joint
venture.
(7) Adjustment reflects the decrease in interest income resulting from
expending $48,081 of cash to consummate the acquisition of DPS. The
adjustment was calculated using a current interest rate of 4.5% earned by
us on our cash balances.
(8) Adjustment reflects the following:
- the elimination of $5,508 in actual interest expense, exclusive of the
impact of our hedge on variable rate interest, incurred during the first
quarter of 1999 on $360,000 of debt outstanding under our $440,000
credit facility, which has been replaced with the $1,050,000 credit
facility
- the addition of $21,677 in interest expense from borrowings of $890,000
under the $1,050,000 credit facility and $150,000 under the senior
subordinated bridge credit facility, assuming interest rates on the
$1,050,000 credit facility of 7.67% for the revolving facility and the
Term A facility and 8.42% for the Term B facility, and a rate of 9.97%
on the senior subordinated bridge credit facility, based on the actual
rates incurred by us at consummation of the $1,050,000 credit facility
and $150,000 senior subordinated bridge facility
- the addition of $921 in deferred financing fees amortization and $44 in
annual administrative fees; these deferred financing fees are being
amortized using the straight-line method over 6 to 8 years, which
represents the maturity of the term loans under the $1,050,000 credit
facility
(9) Adjustment reflects the tax effect of the pro forma adjustments at the
combined federal and state statutory rate of 40%.
(10) Adjustment reflects the following:
- the elimination of the interest expense impact of $6,436 from the
retirement of the $150,000 senior subordinated bridge credit facility,
at an interest rate in effect at consummation of 9.97%, and the
retirement of $414,770 of the term loan borrowings under the $1,050,000
credit facility, at the actual interest rate at consummation of 8.42%,
using the net proceeds from our sale of 5,175 shares of Class A common
stock, including the underwriters' over-allotments, offered pursuant to
our equity offering, the net proceeds of our senior notes offering at an
interest rate of 9.625% on the senior notes and the use of $25 million
of our cash.
- the elimination of the deferred financing fees amortization expense of
$234 associated with the retirement of the term loan borrowings under
our $1,050,000 credit facility
- the addition of the amortization of $145 from the $5,813 in senior note
deferred financing fees
(11) Adjustment reflects the tax effect of the interest expense adjustment at
the combined federal and state statutory 40% tax rate.
(12) Adjustment reflects the addition for the full period of the 5,175 shares of
Class A common stock, including the underwriters' over-allotments, in our
equity offering at an offering price of $61 per share.
(13) EBITDA is earnings before interest, taxes, depreciation and amortization,
or operating income plus depreciation and amortization. EBITDA is presented
because it is a widely accepted indicator of a company's ability to incur
and service indebtedness. EBITDA, however, should not be considered as an
alternative to net income as a measure of operating performance or an
alternative to cash flow as a measure of liquidity. In addition, our
definition of EBITDA may not be comparable to that reported by other
companies.
22
<PAGE> 27
EXPRESS SCRIPTS, INC.
UNAUDITED CONSOLIDATED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------------------------------------
VALUERX DPS
EXPRESS PRO FORMA VALUERX PRO FORMA
SCRIPTS, INC. VALUERX(1) ADJUSTMENTS PRO FORMA DPS ADJUSTMENTS
------------- ---------- ----------- --------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............... $371,362 $409,928 $ -- $781,290 $47,650(7) $ --
Cost and expenses:
Cost of revenues.......... 338,492(2) 375,295 -- 713,787 -- --
Selling, general and
administrative.......... 18,826(2) 27,628 (3,606)(3) 42,848 55,045 (7,675)(8)
(1,028)(9)
(8,689)(10)
-------- -------- ------- -------- ------- --------
357,318 402,923 (3,606) 756,635 55,045 (17,392)
-------- -------- ------- -------- ------- --------
Operating income........... 14,044 7,005 3,606 24,655 (7,395) 17,392
Other income (expense)..... -- -- -- -- 714 431(11)
Interest income............ 2,138 56 (1,261)(4) 933 -- (541)(12)
Interest expense........... (14) -- (7,007)(5) (7,021) -- (15,635)(13)
-------- -------- ------- -------- ------- --------
Income (loss) before income
taxes..................... 16,168 7,061 (4,662) 18,567 (6,681) 1,647
Provision (benefit) for
income taxes.............. 6,290 3,665 (1,865)(6) 8,090 (2,338) 659(14)
-------- -------- ------- -------- ------- --------
Net income................. $ 9,878 $ 3,396 $(2,797) $ 10,477 $(4,343) $ 988
======== ======== ======= ======== ======= ========
Basic earnings per share... $ 0.30
========
Diluted earnings per
share..................... $ 0.29
========
Weighted average number of
common shares outstanding
during the period -- Basic
EPS....................... 33,053
========
Weighted average number of
common shares outstanding
during the
period -- Diluted EPS..... 33,579
========
OTHER DATA:
EBITDA(18)................. $ 16,440 $ 15,816 $ -- $ 32,256 $12,332 $ 7,675(8)
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------
VALUERX OFFERINGS
AND DPS PRO FORMA PRO FORMA
PRO FORMA ADJUSTMENTS CONSOLIDATED
--------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenues............... $828,940 $ -- $828,940
Cost and expenses:
Cost of revenues.......... 713,787 -- 713,787(2)
Selling, general and
administrative.......... 80,501 -- 80,501(2)
-------- ------ --------
794,288 -- 794,288
-------- ------ --------
Operating income........... 34,652 -- 34,652
Other income (expense)..... 1,145 -- 1,145
Interest income............ 392 -- 392
Interest expense........... (22,656) 6,525(15) (16,131)
-------- ------ --------
Income (loss) before income
taxes..................... 13,533 6,525 20,058
Provision (benefit) for
income taxes.............. 6,411 2,610(16) 9,021
-------- ------ --------
Net income................. $ 7,122 $3,915 $ 11,037
======== ====== ========
Basic earnings per share... $ 0.29
========
Diluted earnings per
share..................... $ 0.28
========
Weighted average number of
common shares outstanding
during the period -- Basic
EPS....................... 5,175(17) 38,228
====== ========
Weighted average number of
common shares outstanding
during the
period -- Diluted EPS..... 5,175(17) 38,754
====== ========
OTHER DATA:
EBITDA(18)................. $ 52,263 $ -- $ 52,263
</TABLE>
- -------------------------
(1) These historical amounts represent the unaudited statement of operations of
ValueRx from January 1, 1998 through March 31, 1998.
(2) Cost of revenues and selling, general and administrative expense include
$1,413 and $983 of depreciation and amortization, respectively, for us
during the first quarter of 1998. The pro forma consolidated cost of
revenues and selling, general and administrative expense include $1,413 and
$16,198 of depreciation and amortization, respectively.
(3) Adjustment reflects the net decrease in depreciation and amortization of
property and equipment and intangible assets, including goodwill resulting
from our allocation of the ValueRx purchase price and conforming estimated
useful lives. ValueRx depreciation and amortization expense of $8,811 has
been eliminated and $5,205 has been added based on the fair value of
property and equipment, goodwill, and
23
<PAGE> 28
other intangible assets. The fair value of property and equipment ($33,756)
is being depreciated using the straight-line method over 3 to 20 years.
Goodwill ($289,863) and other intangible assets, consisting of non-compete
agreements ($9,130) and customer contracts ($48,523), are being amortized
using the straight-line method over 30 years and 2 to 20 years,
respectively.
(4) Adjustment reflects the decrease in interest income resulting from our
expending $100,908 of our short-term investments and cash equivalents to
consummate the acquisition of ValueRx. The adjustment was calculated using
the average interest rate (5.0%) earned by us on our investments during the
quarter prior to the ValueRx acquisition.
(5) Adjustment records the additional net interest expense and the amortization
of the deferred financing fees during the first quarter of 1998 associated
with the $440,000 credit facility utilized for the acquisition of ValueRx.
The additional interest expense was determined assuming an average
borrowing rate of 7.13% on the $360,000 borrowed under the $440,000 credit
facility incurred to consummate the acquisition.
(6) Adjustment reflects the tax effect of the pro forma adjustments at the
combined federal and state statutory rate of 40%.
(7) Net revenues for DPS include revenues from SmithKline Beecham. Subsequent
to our acquisition of DPS, revenues are anticipated to be consistent with
historical revenues as DPS's existing contract with SmithKline Beecham
remains in place.
(8) Adjustment reflects the elimination of management fees paid to United
HealthCare of $7,675, which under the DPS purchase agreement is to be
reimbursed to us by SmithKline Beecham.
(9) Adjustment reflects the net decrease in the 1998 depreciation and
amortization expense to $260 from $1,288 recorded by DPS resulting from the
allocation of the purchase price to the assets acquired at their fair
market value and to conform estimated and useful lives. Furniture,
equipment and internal use software are being depreciated by us using the
straight-line method over estimated useful lives of 5 to 8 years.
(10) Adjustment reflects the net decrease in the 1998 amortization expense for
goodwill and other intangible assets. DPS's goodwill and other intangible
assets amortization expense of $18,439 has been reversed, and our goodwill
and other intangible assets, consisting of customer contracts, amortization
of $9,750 has been included. Goodwill is being amortized using the
straight-line method over the estimated useful life of 30 years. We have
preliminarily assigned an estimated fair value to other intangible assets
and are amortizing them using the straight-line method over the estimated
useful lives of 1 to 20 years. We anticipate spending an estimated $10
million to $20 million in non-recurring costs during the first twelve
months subsequent to our acquisition of DPS relating to the integration of
DPS's operations. These non-recurring costs have not been reflected in the
unaudited consolidated condensed pro forma statement of operations.
(11) Adjustment reflects the elimination of DPS's $431 equity loss in its joint
venture. SmithKline Beecham retained the equity interest in the joint
venture.
(12) Adjustment reflects the decrease in interest income for the first quarter
of 1998 resulting from expending $48,081 of cash to consummate the
acquisition of DPS. The adjustment was calculated using a current interest
rate of 4.5% earned by us on our cash balances.
(13) Adjustment reflects the following:
- the elimination of $7,007 in first quarter of 1998 interest expense
relating to the ValueRx acquisition, exclusive of the impact of our
hedge on variable rate interest, incurred during the first quarter of
1998 on $360,000 of debt outstanding under our $440,000 credit facility,
which has been replaced with the $1,050,000 credit facility
24
<PAGE> 29
- the addition of $21,677 in interest expense from borrowings of $890,000
under the $1,050,000 credit facility and $150,000 under the senior
subordinated bridge credit facility, assuming interest rates on the
$1,050,000 credit facility of 7.67% for the revolving facility and the
Term A facility and 8.42% for the Term B facility, and a rate of 9.97%
on the senior subordinated bridge credit facility, based on the actual
rates incurred by us at consummation of the $1,050,000 credit facility
and $150,000 senior subordinated bridge credit facility
- the addition of $921 in deferred financing fees amortization and $44 in
annual administrative fees; these deferred financing fees are being
amortized using the straight-line method over 6 to 8 years, which
represents the maturity of the term loans under the $1,050,000 credit
facility
(14) Adjustment reflects the tax effect of the pro forma adjustments at the
combined federal and state statutory rate of 40%.
(15) Adjustment reflects the following:
- the elimination of the interest expense impact of $6,436 from the
retirement of the $150,000 senior subordinated bridge credit facility, at
an interest rate in effect at consummation of 9.97%, and the retirement
of $414,770 of the term loan borrowings under the $1,050,000 credit
facility, at the actual interest rate at consummation of 8.42%, using the
net proceeds from our sale of 5,175 shares of Class A common stock,
including the underwriters' over-allotments, offered pursuant to our
equity offering, the net proceeds of our senior notes offering at an
interest rate of 9.625% on the senior notes and the use of $25 million of
our cash
- the elimination of the deferred financing fees amortization expense of
$234 associated with the retirement of the term loan borrowings under our
$1,050,000 credit facility
- the addition of the amortization of $145 from the $5,813 in senior note
deferred financing fees
(16) Adjustment reflects the tax effect of the interest expense adjustment at
the combined federal and state statutory 40% tax rate.
(17) Adjustment reflects the addition for the full period of the 5,175 shares of
Class A common stock, including the underwriters' over-allotments, in our
equity offering at an offering price of $61 per share.
(18) EBITDA is earnings before interest, taxes, depreciation and amortization,
or operating income plus depreciation and amortization. EBITDA is presented
because it is a widely accepted indicator of a company's ability to incur
and service indebtedness. EBITDA, however, should not be considered as an
alternative to net income as a measure of operating performance or an
alternative to cash flow as a measure of liquidity. In addition, our
definition of EBITDA may not be comparable to that reported by other
companies.
25
<PAGE> 30
EXPRESS SCRIPTS, INC.
UNAUDITED CONSOLIDATED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------
VALUERX
EXPRESS PRO FORMA VALUERX
SCRIPTS, INC. VALUERX(1) ADJUSTMENTS PRO FORMA DPS
------------- ---------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues........... $2,824,872 $409,928 $ -- $3,234,800 $ 214,849(7)
Cost and expenses:
Cost of revenues...... 2,584,997(2) 375,295 -- 2,960,292 548
Selling, general and
administrative...... 148,990(2) 27,628 (3,606)(3) 173,012 234,477
Corporate
restructuring....... 1,651 -- -- 1,651 --
Write down of
assets.............. -- -- -- -- 1,092,184
---------- -------- ------- ---------- -----------
2,735,638 402,923 (3,606) 3,134,955 1,327,209
---------- -------- ------- ---------- -----------
Operating income
(loss)................ 89,234 7,005 3,606 99,845 (1,112,360)
Other income (net)..... -- -- -- -- 1,308
Interest income........ 7,236 56 (1,261)(4) 6,031 --
Interest expense....... (20,230) -- (7,007)(5) (27,237) --
---------- -------- ------- ---------- -----------
Income (loss) before
income taxes.......... 76,240 7,061 (4,662) 78,639 (1,111,052)
Provision (benefit) for
income taxes.......... 33,566 3,665 (1,865)(6) 35,366 (388,825)
---------- -------- ------- ---------- -----------
Net income (loss)...... $ 42,674 $ 3,396 $(2,797) $ 43,273 $ (722,227)
========== ======== ======= ========== ===========
Basic earnings per
share................. $ 1.29
==========
Diluted earnings per
share................. $ 1.27
==========
Weighted average number
of common shares
outstanding during the
period -- Basic....... 33,105
==========
Weighted average number
of common shares
outstanding during the
period -- Diluted..... 33,698
==========
OTHER DATA:
EBITDA(19)............. $ 115,667 $ 15,816 $ -- $ 131,483 $ 59,965
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
DPS VALUERX OFFERINGS
PRO FORMA AND DPS PRO FORMA PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues........... $ -- $ 3,449,649 $ -- $ 3,449,649
Cost and expenses:
Cost of revenues...... -- 2,960,840 -- 2,960,840(2)
Selling, general and
administrative...... (33,837)(8) 337,141 -- 337,141(2)
(1,688)(9)
(34,823)(10)
Corporate
restructuring....... -- 1,651 -- 1,651
Write down of
assets.............. -- 1,092,184 -- 1,092,184
-------- ----------- ------- -----------
(70,348) 4,391,816 -- 4,391,816
-------- ----------- ------- -----------
Operating income
(loss)................ 70,348 (942,167) -- (942,167)
Other income (net)..... 1,924(11) 3,232 -- 3,232
Interest income........ (2,164)(12) 3,867 -- 3,867
Interest expense....... (65,282)(13) (92,519) 27,226(15) (65,293)
-------- ----------- ------- -----------
Income (loss) before
income taxes.......... 4,826 (1,027,587) 27,226 (1,000,361)
Provision (benefit) for
income taxes.......... 1,930(14) (351,529) 10,890(16) (340,639)
-------- ----------- ------- -----------
Net income (loss)...... $ 2,896 $ (676,058) $16,336 $ (659,722)(17)
======== =========== ======= ===========
Basic earnings per
share................. $ (17.23)
===========
Diluted earnings per
share................. $ (16.97)
===========
Weighted average number
of common shares
outstanding during the
period -- Basic....... 5,175(18) 38,280
======= ===========
Weighted average number
of common shares
outstanding during the
period -- Diluted..... 5,175(18) 38,873
======= ===========
OTHER DATA:
EBITDA(19)............. $ 33,837(8) $ 225,285 $ -- $ 225,285
</TABLE>
- -------------------------
(1) These historical amounts represent the unaudited statement of operations of
ValueRx from January 1, 1998 through March 31, 1998.
(2) Cost of revenues and selling, general and administrative expense include
$7,559 and $18,874 of depreciation and amortization, respectively, for us
in 1998. The pro forma consolidated cost of revenues and selling, general
and administrative expense include $7,559 and $67,709 of depreciation and
amortization, respectively.
26
<PAGE> 31
(3) Adjustment reflects the net decrease in depreciation and amortization of
property and equipment and intangible assets, including goodwill resulting
from our allocation of the ValueRx purchase price and conforming estimated
useful lives. ValueRx depreciation and amortization expense of $8,811 has
been eliminated and $5,205 has been added based on the fair value of
property and equipment, goodwill, and other intangible assets. The fair
value of property and equipment ($33,756) is being depreciated using the
straight-line method over 3 to 20 years. Goodwill ($289,863) and other
intangible assets, consisting of non-compete agreements ($9,130) and
customer contracts ($48,523), are being amortized using the straight-line
method over 30 years and 2 to 20 years, respectively.
(4) Adjustment reflects the decrease in interest income resulting from our
expending $100,908 of our short-term investments and cash equivalents to
consummate the acquisition of ValueRx. The adjustment was calculated using
the average interest rate (5.0%) earned by us on our investments during the
quarter prior to the ValueRx acquisition.
(5) Adjustment records the additional net interest expense and the amortization
of the deferred financing fees during the first quarter of 1998 associated
with the $440,000 credit facility utilized for the acquisition of ValueRx.
The additional interest expense was determined assuming an average
borrowing rate of 7.13% on the $360,000 borrowed under the $440,000 credit
facility incurred to consummate the acquisition.
(6) Adjustment reflects the tax effect of the pro forma adjustments at the
combined federal and state statutory rate of 40%.
(7) Net revenues for DPS include revenues from SmithKline Beecham. Subsequent
to our acquisition of DPS, revenues are anticipated to be consistent with
historical revenues as DPS's existing contract with SmithKline Beecham
remains in place.
(8) Adjustment reflects the elimination of management fees paid to United
HealthCare of $33,837, which under the DPS purchase agreement is to be
reimbursed to us by SmithKline Beecham.
(9) Adjustment reflects the net decrease in the 1998 depreciation and
amortization expense to $4,695 from $6,383 recorded by DPS resulting from
the allocation of the purchase price to the assets acquired at their fair
market value and to conform estimated and useful lives. Furniture,
equipment and internal use software are being depreciated by us using the
straight-line method over estimated useful lives of 5 to 8 years.
(10) Adjustment reflects the net decrease in the 1998 amortization expense for
goodwill and other intangible assets. DPS's goodwill and other intangible
assets amortization expense of $73,758 has been reversed, and our goodwill
and other intangible assets, consisting of customer contracts, amortization
of $38,935 has been included. Goodwill is being amortized using the
straight-line method over the estimated useful life of 30 years. We have
preliminarily assigned an estimated fair value to other intangible assets
and are amortizing them using the straight-line method over the estimated
useful lives of 1 to 20 years. We anticipate spending an estimated $10
million to $20 million in non-recurring costs during the first twelve
months subsequent to our acquisition of DPS relating to the integration of
DPS's operations. These non-recurring costs have not been reflected in the
unaudited consolidated condensed pro forma statement of operations.
(11) Adjustment reflects the elimination of DPS's $1,924 equity loss in its
joint venture. SmithKline Beecham retained the equity interest in the joint
venture.
(12) Adjustment reflects the decrease in interest income resulting from
expending $48,081 of cash to consummate the acquisition of DPS. The
adjustment was calculated using a current interest rate of 4.5% earned by
us on our cash balances.
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<PAGE> 32
(13) Adjustment reflects the following:
- the elimination of $26,413 in actual interest expense, exclusive of the
impact of our hedge on variable rate interest, incurred during fiscal
1998 on $360,000 of debt outstanding under our $440,000 credit facility,
which has been replaced with the $1,050,000 credit facility
- the addition of $87,832 in interest expense from borrowings of $890,000
under the $1,050,000 credit facility and $150,000 under the senior
subordinated bridge credit facility, assuming interest rates on the
$1,050,000 credit facility of 7.67% for the revolving facility and the
Term A facility and 8.42% for the Term B facility, and an average rate
of 10.72% on the senior subordinated bridge credit facility, based on
the actual rates incurred by us at consummation of the $1,050,000 credit
facility and $150,000 senior subordinated bridge facility. The interest
rate on the senior subordinated bridge facility loan increases 0.5%
every quarter starting at 9.97% and increasing to 11.47%
- the addition of $3,688 in deferred financing fees amortization and $175
in annual administrative fees; these deferred financing fees are being
amortized using the straight-line method over 6 to 8 years, which
represents the maturity of the term loans under the $1,050,000 credit
facility
(14) Adjustment reflects the tax effect of the pro forma adjustments at the
combined federal and state statutory rate of 40%.
(15) Adjustment reflects the following:
- the elimination of the interest expense impact of $26,871 from the
retirement of the $150,000 senior subordinated bridge credit facility,
at an interest rate in effect at consummation of 9.97%, and the
retirement of $414,770 of the term loan borrowings under the $1,050,000
credit facility, at the actual interest rate at consummation of 8.42%,
using the net proceeds from our sale of 5,175 shares of Class A common
stock, including the underwriters' over-allotments, offered pursuant to
our equity offering, the net proceeds of our senior notes offering at an
interest rate of 9.625% on the senior notes and the use of $25 million
of our cash
- the elimination of the deferred financing fees amortization expense of
$936 associated with the retirement of the term loan borrowings under
our $1,050,000 credit facility
- the addition of the amortization of $581 from the $5,813 in senior note
deferred financing fees
(16) Adjustment reflects the tax effect of the interest expense adjustment at
the combined federal and state statutory 40% tax rate.
(17) The write-down of assets on DPS's books of $1,092,184 relates to the
impairment of goodwill. If the acquisition of DPS had occurred on January
1, 1998, goodwill on DPS's books would have been eliminated. Therefore, the
impairment charge for goodwill would not have existed. Net income excluding
this impairment charge would have been $50,198, or $1.31 per basic share
and $1.29 per diluted share.
(18) Adjustment reflects the addition for a full year of our offering of 5,175
shares of Class A common stock, including the underwriters'
over-allotments, in our equity offering at an offering price of $61 per
share.
(19) EBITDA is earnings before interest, taxes, depreciation and amortization,
or operating income plus depreciation and amortization. EBITDA is presented
because it is a widely accepted indicator of a company's ability to incur
and service indebtedness. EBITDA, however, should not be considered as an
alternative to net income as a measure of operating performance or an
alternative to cash flow as a measure of liquidity. In addition, our
definition of EBITDA may not be comparable to that reported by other
companies.
28
<PAGE> 33
EXPRESS SCRIPTS, INC.
UNAUDITED CONSOLIDATED CONDENSED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------------------------------------------------------------
ACQUISITION OFFERINGS
EXPRESS SCRIPTS, PRO FORMA ACQUISITION PRO FORMA PRO FORMA
INC. DPS ADJUSTMENTS PRO FORMA ADJUSTMENTS CONSOLIDATED
---------------- ---------- ----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash............................... $ 115,838 $ -- $ (48,081)(1) $ 67,757 $ (25,000)(11) $ 42,757
Accounts receivable................ 446,453 120,884 -- 567,337 -- 567,337
Intercompany receivable............ -- -- -- -- -- --
Other current assets............... 100,836 2,904 (1,880)(2) 101,860 -- 101,860
---------- ---------- ----------- ---------- --------- ----------
Total current assets............. 663,127 123,788 (49,961) 736,954 (25,000) 711,954
Property and equipment, net.......... 73,346 27,894 (19,602)(3) 81,638 -- 81,638
Goodwill, net........................ 268,081 542,184 185,148(4) 995,413 -- 995,413
Deferred income taxes................ -- 427,278 (427,278)(2) -- -- --
Other assets......................... 92,396 279,583 (131,040)(5) 240,939 (1,679)(9) 239,260
---------- ---------- ----------- ---------- --------- ----------
Total assets..................... $1,096,950 $1,400,727 $ (442,733) $2,054,944 $ (26,679) $2,028,265
========== ========== =========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of long-term
debt............................. $ 54,000 $ -- $ (49,350)(6) $ 4,650 $ (4,148)(11) $ 502
Claims and rebates payable......... 331,525 232,666 -- 564,191 -- 564,191
Accounts payable................... 65,715 -- -- 65,715 -- 65,715
Accrued expenses................... 71,666 35,609 11,619(7) 118,894 (2,997)(10) 115,897
---------- ---------- ----------- ---------- --------- ----------
Total current liabilities........ 522,906 268,275 (37,731) 753,450 (7,145) 746,305
Credit facility:
Revolving debt..................... -- -- 140,000(6) 140,000 -- 140,000
Term debt.......................... 306,000 -- 439,350(6) 745,350 (410,622)(11) 334,728
Senior notes, net of unamortized
discount of $1,185................. -- -- -- -- 248,815(11) 248,815
Senior subordinated bridge credit
facility........................... -- -- 150,000(6) 150,000 (150,000)(11) --
---------- ---------- ----------- ---------- --------- ----------
Total long-term debt............. 306,000 -- 729,350 1,035,350 (311,807) 723,543
Other long-term liabilities.......... 502 50 -- 552 -- 552
---------- ---------- ----------- ---------- --------- ----------
Total liabilities................ 829,408 268,325 691,619 1,789,352 (318,952) 1,470,400
Stockholders' equity................. 267,542 1,132,402 (1,134,352)(8) 265,592 292,273(11) 557,865
---------- ---------- ----------- ---------- --------- ----------
Total liabilities and
stockholders' equity........... $1,096,950 $1,400,727 $ (442,733) $2,054,944 $ (26,679) $2,028,265
========== ========== =========== ========== ========= ==========
</TABLE>
- -------------------------
(1) Adjustment reflects the use of $48,081 of our cash balances to fund the
purchase of DPS.
(2) Adjustment reflects the elimination of the historical deferred tax assets
of DPS. As part of its acquisition, we will file an Internal Revenue Code
sec. 338(h)(10) election. Accordingly, at March 31, 1999, the tax basis
balance sheet and the book basis balance sheet are estimated to be the
same, and therefore no deferred taxes are recognized with respect to DPS.
(3) Adjustment reflects the fair value assigned to DPS property and equipment.
(4) Adjustment reflects the excess of the purchase price of DPS over the
estimated fair market value of the identified assets acquired. The purchase
price of $700 million, plus an estimated $25 million in
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<PAGE> 34
transaction costs, plus the assumption and incurrence of liabilities
totalling $284,325 was preliminarily allocated in the following manner:
<TABLE>
<S> <C>
Current assets.............................................. $121,908
Property and equipment...................................... 8,292
Deferred financing fees..................................... 19,483
Customer contracts.......................................... 132,310
Goodwill.................................................... 727,332
Liabilities................................................. 284,325
</TABLE>
We anticipate assessing the value of all long-lived assets acquired when
events or circumstances have occurred that indicate the remaining estimated
useful life of long-lived assets may warrant revision or that the remaining
balance of an asset may not be recoverable.
(5) Adjustment reflects the following:
- elimination of the unamortized deferred financing fees in the amount of
$3,250 related to the extinguishment of our $440,000 credit facility
- elimination of other intangible assets of DPS in the amount of $279,583
These eliminations were offset by $19,483 paid in deferred financing fees
related to the $1,050,000 credit facility used to finance the DPS
acquisition and the preliminary allocation of fair value to customer
contracts in the amount of $132,310. We are in the process of establishing
fair values for all identifiable assets and will adjust the fair value
allocated to customer contracts accordingly when complete.
(6) Adjustment reflects borrowings of $890,000 under our $1,050,000 credit
facility and $150,000 under the senior subordinated bridge credit facility
to finance the acquisition of DPS and which refinanced our existing
outstanding debt of $360,000 under our $440,000 credit facility. The
$1,050,000 credit facility consists of a $300,000 revolving credit
facility, of which $140,000 has been borrowed, and a $750,000 term
facility.
(7) Adjustment reflects the reduction of taxes payable by $1,300 for the
write-off of deferred financing fees, and the payment of accrued interest
of $5,063 associated with the repayment of the $440,000 credit facility.
These amounts were offset by accruals of $1,982 for transaction costs and
an estimated $16,000 for other liabilities associated with the purchase of
DPS, such as facility consolidation and employee transition costs, that we
are presently identifying and evaluating.
(8) Adjustment reflects the elimination of the DPS pre-acquisition equity
balances and the write-off of our unamortized deferred financing fees of
approximately $1,950, net of tax, from our $440,000 credit facility as an
extraordinary item. After the write-off of the unamortized deferred
financing fees, net income after extraordinary items for the three months
ended March 31, 1999 would have been $18,375, or $0.48 per basic share and
$0.47 per diluted share.
(9) Adjustment reflects the elimination of our unamortized deferred financing
fees related to the extinguishment of $414,770 borrowed under the
$1,050,000 credit facility and the $150,000 senior subordinated bridge
credit facility offset by $5,813 in deferred financing fees for this
offering.
(10) Adjustment reflects the reduction in taxes payable as a result of the
write-off of deferred financing fees related to the extinguishment of
$414,770 borrowed under our $1,050,000 credit facility.
(11) Adjustment reflects the net proceeds received from our sale of 5,175 shares
of Class A common stock, including the underwriters' over-allotments, at an
offering price of $61 per share and from our senior notes offering. The
proceeds from our equity offering and our senior notes offering, along with
approximately $25 million of our cash, will be used to repay the $150,000
senior subordinated bridge credit facility and $414,770 of the term loans
under the $1,050,000 credit facility. The proceeds are offset by the
write-off of approximately $4,495, net of tax, of the deferred financing
fees from the $1,050,000 credit facility as an extraordinary item. After
the write-off of $4,495 and $1,950, see (7) above, in unamortized deferred
financing fees, net income after extraordinary items for the three months
ended March 31, 1999 would have been $13,880, or $0.36 per basic share and
$0.35 per diluted share.
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<PAGE> 35
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into a registration rights agreement with the initial
purchasers of the outstanding notes in which we agreed, under certain
circumstances, to file a registration statement relating to an offer to exchange
the outstanding notes for exchange notes. We also agreed to use our reasonable
best efforts to cause such offer to be consummated no later than 220 days after
the original issue of the outstanding notes. The exchange notes will have terms
substantially identical to the outstanding notes except that the exchange notes
will not contain terms with respect to transfer restrictions, registration
rights and liquidated damages for failure to observe certain obligations in the
registration rights agreement. The outstanding notes were issued on June 16,
1999.
Under the circumstances set forth below, we will use our reasonable best
efforts to cause the SEC to declare effective a shelf registration statement
with respect to the resale of the outstanding notes and keep the statement
effective for up to two years after the effective date of the shelf registration
statement. These circumstances include:
- if any changes in law, SEC rules or regulations or applicable
interpretations thereof by the staff of the SEC do not permit us to
effect the exchange offer as contemplated by the registration rights
agreement
- if any outstanding notes validly tendered in the exchange offer are not
exchanged for exchange notes no later than 220 days after the original
issue of the outstanding notes
- if any initial purchaser of the outstanding notes so requests (but only
with respect to any outstanding notes not eligible to be exchanged for
exchange notes in the exchange offer)
- if any holder of the outstanding notes notifies us that it is not
permitted to participate in the exchange offer or would not receive fully
tradable exchange notes pursuant to the exchange offer
If we fail to comply with certain obligations under the registration rights
agreement, we will be required to pay liquidated damages to holders of the
outstanding notes. Please read "Description of the Notes -- Registered Exchange
Offer; Registration Rights" for more details regarding the registration rights
agreement.
Each holder of outstanding notes that wishes to exchange such outstanding
notes for transferable exchange notes in the exchange offer will be required to
make the following representations:
- any exchange notes will be acquired in the ordinary course of its
business
- such holder has no arrangement with any person to participate in the
distribution of the exchange notes
- such holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of Express Scripts or if it is an affiliate, that it will
comply with applicable registration and prospectus delivery requirements
of the Securities Act
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where such outstanding notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution."
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<PAGE> 36
RESALE OF EXCHANGE NOTES
Based on interpretations of the SEC staff set forth in no action letters
issued to unrelated third parties, we believe that exchange notes issued under
the exchange offer in exchange for outstanding notes may be offered for resale,
resold and otherwise transferred by any exchange note holder without compliance
with the registration and prospectus delivery provisions of the Securities Act,
if:
- such holder is not an "affiliate" of Express Scripts within the meaning
of Rule 405 under the Securities Act
- such exchange notes are acquired in the ordinary course of the holder's
business
- the holder does not intend to participate in the distribution of such
exchange notes
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
- cannot rely on the position of the staff of the SEC enunciated in Exxon
Capital Holdings Corporation or similar interpretive letters
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction
This prospectus may be used for an offer to resell, resale or other
retransfer of exchange notes only as specifically set forth in this prospectus.
With regard to broker-dealers, only broker-dealers that acquired the outstanding
notes as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for outstanding notes, where such
outstanding notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
Please read "Plan of Distribution" for more details regarding the transfer of
exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any outstanding
notes properly tendered and not withdrawn prior to the expiration date. We will
issue $1,000 principal amount of exchange notes in exchange for each $1,000
principal amount of outstanding notes surrendered under the exchange offer.
Outstanding notes may be tendered only in integral multiples of $1,000.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the outstanding notes except the exchange notes will be
registered under the Securities Act, will not bear legends restricting their
transfer and will not provide for any liquidated damages upon our failure to
fulfill our obligations under the registration rights agreement to file, and
cause to be effective, a registration statement. The exchange notes will
evidence the same debt as the outstanding notes. The exchange notes will be
issued under and entitled to the benefits of the same indenture that authorized
the issuance of the outstanding notes. Consequently, both series will be treated
as a single class of debt securities under that indenture. For a description of
the indenture, see "Description of the Notes."
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $250 million aggregate principal amount
of the outstanding notes are outstanding. This prospectus and the letter of
transmittal are being
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<PAGE> 37
sent to all registered holders of outstanding notes. There will be no fixed
record date for determining registered holders of outstanding notes entitled to
participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement, the applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations of the SEC.
Outstanding notes that are not tendered for exchange in the exchange offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits such holders have under the indenture relating to the
outstanding notes and the registration rights agreement.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent. The exchange agent will act as agent for the tendering
holders for the purposes of receiving the exchange notes from us and delivering
exchange notes to such holders. Subject to the terms of the registration rights
agreement, we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any outstanding notes not previously
accepted for exchange, upon the occurrence of any of the conditions specified
below under "--Certain Conditions to the Exchange Offer."
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important that you read "--Fees and Expenses" below for more details regarding
fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
, 1999, unless in our sole discretion, we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any outstanding notes
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding notes not previously accepted if any of the
conditions set forth below under "--Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of such
delay, extension or termination to the exchange agent
- subject to the terms of the registration rights agreement, to amend the
terms of the exchange offer in any manner
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of outstanding notes of such amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we
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<PAGE> 38
shall have no obligation to publish, advertise, or otherwise communicate any
such public announcement, other than by making a timely release to a financial
news service.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any outstanding notes,
and we may terminate the exchange offer as provided in this prospectus before
accepting any outstanding notes for exchange if in our reasonable judgment:
- the exchange notes to be received will not be tradeable by the holder,
without restriction under the Securities Act or the Exchange Act and
without material restrictions under the blue sky or securities laws of
substantially all of the states of the United States
- the exchange offer, or the making of any exchange by a holder of
outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the SEC
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us
- the representations described under "--Purpose and Effect of the Exchange
Offer," "--Procedures for Tendering" and "Plan of Distribution"
- such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available to
us an appropriate form for registration of the exchange notes under the
Securities Act
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any outstanding notes by giving oral or written notice of
such extension to their holders. During any such extensions, all outstanding
notes previously tendered will remain subject to the exchange offer, and we may
accept them for exchange. We will return any outstanding notes that we do not
accept for exchange for any reason without expense to their tendering holder as
promptly as practicable after the expiration or termination of the exchange
offer.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the outstanding notes
as promptly as practicable. In the case of any extension, such notice will be
issued no later than 9:00 a.m., New York City time, on the business day after
the previously scheduled expiration date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, this failure will not constitute a
waiver of such right. Each such right will be deemed an ongoing right that we
may assert at any time or at various times.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue exchange notes in exchange for any such outstanding
notes, if at such time any
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<PAGE> 39
stop order will be threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
such letter of transmittal or facsimile to the exchange agent prior to
the expiration date or
- comply with DTC's Automated Tender Offer Program procedures described
below
In addition, either:
- the exchange agent must receive outstanding notes along with the letter
of transmittal or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such outstanding notes into the
exchange agent's account at DTC according to the procedure for book-entry
transfer described below or a properly transmitted agent's message or
- the holder must comply with the guaranteed delivery procedures described
below
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "--Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between such holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at the holder's election
and risk. Rather than mail these items, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter of transmittal or outstanding notes to
us. Holders may request their respective brokers, dealers, commercial banks,
trust companies or other nominees to effect the above transactions for them.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owner's behalf. If such beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the letter of transmittal
and delivering its outstanding notes either:
- make appropriate arrangements to register ownership of the outstanding
notes in such owner's name or
- obtain a properly completed bond power from the registered holder of
outstanding notes
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the
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<PAGE> 40
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or another
"eligible institution" within the meaning of Rule 17Ad-15 under the Exchange
Act, unless the outstanding notes tendered pursuant thereto are tendered:
- by a registered holder who has not competed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal or
- for the account of an eligible institution
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes listed on the outstanding notes, such
outstanding notes must be endorsed or accompanied by a properly completed bond
power. The bond power must be signed by the registered holder as the registered
holder's name appears on the outstanding notes and an eligible institution must
guarantee the signature on the bond power.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the outstanding notes to the exchange
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent. The term "agent's message" means a
message transmitted by DTC, received by the exchange agent and forming part of
the book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering outstanding notes that
are the subject of such book-entry confirmation
- such participant has received and agrees to be bound by the terms of the
letter of transmittal (or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery)
- the agreement may be enforced against such participant
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance of tendered
outstanding notes and withdrawal of tendered outstanding notes. Our
determination will be final and binding. We reserve the absolute right to reject
any outstanding notes not properly tendered or any outstanding notes the
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular outstanding notes. Our interpretation of the terms and
conditions of the exchange offer (including the instructions in the letter of
transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of outstanding notes must
be cured within such time as we shall determine. Although we intend to notify
holders of defects or irregularities with respect to tenders of outstanding
notes, neither Express Scripts, the exchange agent nor any other person will
incur any liability for failure to give such notification. Tenders of
outstanding notes will not
36
<PAGE> 41
be deemed made until such defects or irregularities have been cured or waived.
Any outstanding notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned to the exchange agent without cost to the tendering
holder, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
In all cases, we will issue exchange notes for outstanding notes that we
have accepted for exchange under the exchange offer only after the exchange
agent timely receives:
- outstanding notes or a timely book-entry confirmation of such outstanding
notes into the exchange agent's account at DTC
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message
By signing the letter of transmittal, each tendering holder of outstanding
notes will represent to us that, among other things:
- any exchange notes that the holder receives will be acquired in the
ordinary course of its business
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes
- if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the exchange notes
- if the holder is a broker-dealer that will receive exchange notes for its
own account in exchange for outstanding notes that were acquired as a
result of market-making activities, that it will deliver a prospectus, as
required by law, in connection with any resale of such exchange notes
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of Express Scripts or, if the holder is an affiliate, it
will comply with any applicable registration and prospectus delivery
requirements of the Securities Act
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where such outstanding notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus; and any financial institution participating
in DTC's system may make book-entry delivery of outstanding notes by causing DTC
to transfer such outstanding notes into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. Holders of outstanding notes who
are unable to deliver confirmation of the book-entry tender of their outstanding
notes into the exchange agent's account at DTC or all other documents required
by the letter of transmittal to the exchange agent on or prior to the expiration
date must tender their outstanding notes according to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their outstanding notes but whose outstanding
notes are not immediately available or who cannot deliver their outstanding
notes, the letter of
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<PAGE> 42
transmittal or any other required documents to the exchange agent or comply with
the applicable procedures under DTC's Automated Tender Offer Program prior to
the expiration date may tender if:
- the tender is made through an eligible institution
- prior to the expiration date, the exchange agent receives from such
eligible institution either a properly completed and duly executed notice
of guaranteed delivery (by facsimile transmission, mail or hand delivery)
or a properly transmitted agent's message and notice of guaranteed
delivery:
- setting forth the name and address of the holder, the registered
number(s) of such outstanding notes and the principal amount of
outstanding notes tendered
- stating that the tender is being made thereby
- guaranteeing that, within three (3) New York Stock Exchange trading
days after the expiration date, the letter of transmittal (or
facsimile thereof) together with the outstanding notes or a book-entry
confirmation, and any other documents required by the letter of
transmittal, will be deposited by the eligible institution with the
exchange agent
- the exchange agent receives such properly completed and executed letter
of transmittal (or facsimile thereof), as well as all tendered
outstanding notes in proper form for transfer or a book-entry
confirmation, and all other documents required by the letter of
transmittal, within three (3) New York State Exchange trading days after
the expiration date
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of outstanding
notes may withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at one
of the addresses set forth below under "--Exchange Agent" or
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system
Any such notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn
- identify the outstanding notes to be withdrawn (including the principal
amount of such outstanding notes)
- where certificates for outstanding notes have been transmitted, specify
the name in which such outstanding notes were registered, if different
from that of the withdrawing holder
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution
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<PAGE> 43
If outstanding notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn
outstanding notes and otherwise comply with the procedures of such facility. We
will determine all questions as to the validity, form and eligibility (including
time of receipt) of such notices, and our determination shall be final and
binding on all parties. We will deem any outstanding notes so withdrawn not to
have been validly tendered for exchange for purposes of the exchange offer. Any
outstanding notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder (or, in the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at DTC according to the procedures described
above, such outstanding notes will be credited to an account maintained with DTC
for outstanding notes) as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn outstanding
notes may be retendered by following one of the procedures described under
"--Procedures for Tendering" above at any time on or prior to the expiration
date.
EXCHANGE AGENT
Bankers Trust Company has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent addressed
as follows:
<TABLE>
<S> <C> <C>
By Overnight Mail or Courier: By Hand: By Mail:
BT Services Tennessee, Inc. Bankers Trust Company BT Services Tennessee, Inc.
Corporate Trust and Agency Corporate Trust and Agency Reorganization Unit
Group Group P.O. Box 292737
Reorganization Unit Attn: Reorganization Department Nashville, TN 37229-2737
648 Grassmere Park Road Receipt & Delivery Window
Nashville, TN 37211 123 Washington Street, 1st
Floor
New York, NY 10006
By Facsimile Transmission:
(615) 835-3701
Confirm by Telephone:
(615) 835-3572
Information:
(800) 735-7777
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
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<PAGE> 44
We will pay the cash expenses to be incurred in connection with the
exchange offer. The expenses are estimated in the aggregate to be approximately
$ . They include:
- SEC registration fees
- fees and expenses of the exchange agent and trustee
- accounting and legal fees and printing costs
- related fees and expenses
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes (whether imposed on the registered holder
or any other person) if:
- certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered or
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer
If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of outstanding notes who do not exchange their outstanding notes
for exchange notes under the exchange offer will remain subject to the
restrictions on transfer of such outstanding notes:
- as set forth in the legend printed on the notes as a consequence of the
issuance of the outstanding notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws
- otherwise set forth in the offering circular distributed in connection
with the private offering of the outstanding notes
In general, you may not offer or sell the outstanding notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the outstanding notes under the Securities Act. Based on
interpretations of the SEC staff, exchange notes issued pursuant to the exchange
offer may be offered for resale, resold or otherwise transferred by their
holders (other than any such holder that is our "affiliate" within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the
holders acquired the exchange notes in the ordinary course of the holders'
business and the holders have no arrangement or understanding with respect to
the distribution of the exchange notes to be acquired in the exchange offer. Any
holder who tenders in the exchange offer for the purpose of participating in a
distribution of the exchange notes:
- could not rely on the applicable interpretations of the SEC
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction
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<PAGE> 45
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the outstanding notes, which is the aggregate principal amount
as reflected in our accounting records on the date of exchange. Accordingly, we
will not recognize any gain or loss for accounting purposes in connection with
the exchange offer. We will record the expenses of the exchange offer as
incurred.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
DESCRIPTION OF THE NOTES
GENERAL
The form and terms of the exchange notes and the outstanding notes are
identical in all material respects, except that the registration rights and
related liquidated damages provisions, and the transfer restrictions applicable
to the outstanding notes, do not apply to the exchange notes. All references to
"Notes" in this section are references to both the outstanding notes and the
exchange notes, unless otherwise specified.
Express Scripts issued the outstanding 9 5/8% Senior Notes due 2009 (the
"Outstanding Notes") under an Indenture (the "Indenture"), among itself, the
Guarantors and Bankers Trust Company, as trustee (the "Trustee"). The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture
Act").
Certain terms used in this description are defined under the caption
" -- Certain Definitions." In this description, the word "Company" refers only
to Express Scripts and not to any of its subsidiaries.
The following description is only a summary of the material provisions of
the Indenture and the Registration Rights Agreement. We urge you to read the
Indenture and the Registration Rights Agreement because they, and not this
description, define your rights as holders of these Notes. You may request
copies of these agreements at our address set forth under "Express Scripts."
BRIEF DESCRIPTION OF THESE NOTES
These Notes:
- are senior unsecured obligations of the Company
- are guaranteed on a senior unsecured basis by each of the Guarantors
- rank equally with all other senior unsecured Indebtedness of the Company
and the Guarantors
- rank senior in right of payment to all subordinated Indebtedness of the
Company and the Guarantors
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<PAGE> 46
- are effectively subordinated to the Company's and the Guarantors' secured
Indebtedness, to the extent of the value of the assets securing such
Indebtedness
- will entitle you to the benefits of the Registration Rights Agreement
PRINCIPAL, MATURITY AND INTEREST
The Company issued the Outstanding Notes initially with an aggregate
principal amount of $250 million. The Company issued the Outstanding Notes in
denominations of $1,000 and any integral multiple of $1,000. The Notes will
mature on June 15, 2009.
Subject to our compliance with the covenant described under the caption
"-- Limitation on Indebtedness," we are permitted to issue more Notes under the
Indenture in a principal amount of $250 million (the "Additional Notes").
Interest on these Notes will accrue at the rate of 9 5/8% per annum and
will be payable semiannually in arrears on June 15 and December 15, commencing
on December 15, 1999. The Company will make each interest payment to the holders
of record of these Notes on the immediately preceding June 1 and December 1.
Interest on these Notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Additional interest may accrue on the Notes in certain circumstances
pursuant to the Registration Rights Agreement.
OPTIONAL REDEMPTION
Except as set forth below, we will not be entitled to redeem the Notes at
our option prior to June 15, 2004. On and after June 15, 2004, we will be
entitled at our option to redeem all or a portion of these Notes upon not less
than 30 nor more than 60 days' notice at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the 12-month period beginning on June 15 in the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004................................................ 104.8125%
2005................................................ 103.2083
2006................................................ 101.6042
2007 and thereafter................................. 100.0000%
</TABLE>
In addition, before June 15, 2002, we may at our option on one or more
occasions redeem up to 35% of the original principal amount of Notes (including
the original principal amount of any Additional Notes) at a redemption price of
109.625% of the principal amount thereof, plus accrued and unpaid interest to
the redemption date, with the net cash proceeds from one or more Public Equity
Offerings; provided that
(1) at least 65% of the aggregate principal amount of Notes originally
issued (including the original principal amount of any Additional
Notes) pursuant to the Indenture remains outstanding immediately after
the occurrence of each such redemption (other than Notes held, directly
or indirectly, by the Company or its Affiliates); and
(2) each such redemption occurs within 120 days after the date of the
related Public Equity Offering.
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<PAGE> 47
SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the Notes at any time, the Trustee will
select Notes on a pro rata basis, by lot or by such other method as the Trustee
in its sole discretion shall deem to be fair and appropriate.
We will redeem Notes of $1,000 or less in whole and not in part. We will
cause notices of redemption to be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. We will issue a new Note in principal amount equal to the
unredeemed portion of the original Note in the name of the holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
RANKING
GENERAL
The Notes rank equally in right of payment with all other senior unsecured
Indebtedness of the Company and the Guarantors. The Notes rank senior in right
of payment to all subordinated Indebtedness of the Company and the Guarantors.
The Notes are effectively subordinated to the Company's and the Guarantors'
secured Indebtedness to the extent of the value of the assets securing such
Indebtedness.
As of March 31, 1999, after giving effect to the issuance of the Notes and
the application of the proceeds of the Notes, the Company and the Guarantors
would have had approximately $749 million of Indebtedness on a consolidated
basis (before giving effect to the repayment of $25 million of our indebtedness
with available cash), $500 million of which would have been secured Indebtedness
under the Senior Credit Facility. The Senior Credit Facility is secured by all
of the capital stock of certain of the Company's direct and indirect domestic
subsidiaries. Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company may incur, under certain circumstances
the amount of such Indebtedness could be substantial. See "Certain
Covenants -- Limitation on Indebtedness."
LIABILITIES OF SUBSIDIARIES UNDER NOTES
Claims of creditors of the Company's Subsidiaries, other than the
Guarantors, generally have priority with respect to the assets and earnings of
such Subsidiaries over the claims of creditors of the Company, including holders
of the Notes. Accordingly, the Notes are effectively subordinated to creditors
(including trade creditors) and preferred stockholders, if any, of the Company's
Subsidiaries other than the Guarantors.
At the Issue Date, all of the Company's Restricted Subsidiaries (other than
Diversified NY IPA and Diversified Pharmaceutical Services (Puerto Rico)) were
Guarantors.
GUARANTEES
The obligations of the Company pursuant to the Notes, including the
repurchase obligation resulting from a Change of Control, are unconditionally
guaranteed, on a senior unsecured basis, by the Guarantors (each such guarantee,
a "Guarantee"). The Guarantors agree to pay, in addition to the amount stated
above, any and all expenses (including reasonable counsel fees and expenses)
incurred by the Trustee and the Holders
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<PAGE> 48
in enforcing any rights under the Guarantees. The Guarantees are limited in
amount to an amount not to exceed the maximum amount that can be guaranteed by
the Guarantors, after giving effect to all of their other contingent and fixed
liabilities (including, without limitation, any guarantees under the Senior
Credit Facility), without rendering the Guarantees voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. If any Guarantee is rendered
voidable, it could be subordinated by a court to all other Indebtedness
(including guarantees and other contingent liabilities) of the relevant
Guarantor, and, depending on the amount of such Indebtedness, the Guarantor's
liability on its Guarantee could be reduced to zero.
Pursuant to the Indenture, a Guarantor may consolidate with, merge with or
into or transfer all or substantially all its assets to any other Person to the
extent described below under "Certain Covenants -- Merger and Consolidation";
provided, however, that if such other Person is not the Company, such
Guarantor's obligations under its Guarantee must be expressly assumed by such
other Person. However, upon the sale or other disposition (including by way of
consolidation or merger) of all the Capital Stock, or the sale or disposition of
all or substantially all the assets, of a Guarantor (in each case other than to
the Company or an Affiliate of the Company) permitted by the Indenture, such
Guarantor will be released and relieved from all its obligations under the
Indenture and its Guarantee and such Guarantee shall terminate; provided,
however, that if the lenders under the Senior Credit Facility release the
guarantee of YourPharmacy.com, Inc. under the Senior Credit Facility,
YourPharmacy.com, Inc. will be automatically released and relieved of all its
obligations under the Indenture and its Guarantee and such Guarantee will
terminate; provided, further, however, if at any time after such release
YourPharmacy.com, Inc. again becomes a guarantor under the Senior Credit
Facility, the Company shall cause YourPharmacy.com, Inc. to unconditionally
guarantee on a senior basis all of the Company's obligations under the Notes and
the Indenture to the same extent as it guarantees the Company's obligations
under the Senior Credit Facility.
BOOK-ENTRY; DELIVERY AND FORM
We initially issued the Outstanding Notes and will issue the Exchange Notes
in the form of one or more global notes (collectively, the "Global Note"). The
Global Note is deposited with the Trustee as custodian for DTC and registered in
the name of a nominee of DTC. Except as set forth below, the Global Note may be
transferred, in whole and not in part, only to DTC or another nominee of DTC.
You may hold your beneficial interests in the Global Note directly through DTC
if you have an account with DTC or indirectly through organizations which have
accounts with DTC.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and "a clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of institutions that have accounts with DTC ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the initial purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's
book-entry system is also available to others such as banks, brokers, dealers
and trust companies (collectively, the "indirect partici-
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<PAGE> 49
pants") that clear through or maintain a custodial relationship with a
participant, whether directly or indirectly.
Pursuant to procedures established by DTC, upon the deposit of the Global
Note with DTC, DTC will credit, on its book-entry registration and transfer
system, the principal amount of Notes represented by such Global Note to the
accounts of participants. Ownership of beneficial interests in the Global Note
is limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in the Global Note is shown on,
and the transfer of those ownership interests will be effected only through,
records maintained by DTC (with respect to participants' interests), the
participants and the indirect participants (with respect to the owners of
beneficial interests in the Global Note other than participants). The laws of
some jurisdictions may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to transfer or pledge beneficial interests in the Global
Note.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. In addition, as a beneficial owner
of an interest in the Global Note, you may not transfer that interest except in
accordance with the applicable procedures of DTC and, if applicable, Morgan
Guaranty Trust Company of New York, as operator of the Euroclear system
("Euroclear"). Except as set forth below, as an owner of a beneficial interest
in the Global Note, you are not entitled to have the Notes represented by the
Global Note registered in your name, you will not receive or be entitled to
receive physical delivery of certificated Notes and you are not considered to be
the owner or holder of any Notes under the Global Note. We understand that under
existing industry practice, in the event an owner of a beneficial interest in
the Global Note desires to take any action that DTC, as the holder of the Global
Note, is entitled to take, DTC would authorize the participants to take such
action, and the participants would authorize beneficial owners owning through
such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
We will make payments of principal of, premium, if any, and interest on the
Notes represented by the Global Note registered in the name of and held by DTC
or its nominee to DTC or its nominee, as the case may be, as the registered
owner and holder of the Global Note. Neither we, the Trustee nor any Paying
Agent have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
Global Note or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
of, premium, if any, or interest on the Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Note as shown on the records of
DTC or its nominee. We also expect that payments by participants or indirect
participants to owners of beneficial interests in the Global Note held through
such participants or indirect participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants or indirect participants. We will not have any responsibility or
liability for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the Global Note for any Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any other aspect of the relationship between DTC and
its participants or indirect participants or the
45
<PAGE> 50
relationship between such participants or indirect participants and the owners
of beneficial interests in the Global Note owning through such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear will be effected in the ordinary way in
accordance with its rules and operating procedures.
DTC has advised us that it will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in the Global Note is credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the Notes, DTC will exchange the Global Note for certificated
Notes which it will distribute to its participants.
Although DTC and Euroclear are expected to follow the foregoing procedures
in order to facilitate transfers of interests in the Global Note among
participants of DTC and Euroclear, they are under no obligation to perform or
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither we nor the Trustee will have any responsibility or liability
for the performance by DTC, Euroclear or the participants or indirect
participants of their respective obligations under the rules and procedures
governing their respective operations.
DTC management is aware that some computer applications, systems and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributors
(including principal and income payments) to securityholders, book-entry
deliveries and settlement of trades within DTC ("DTC Services"), continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTC's plan includes a
testing phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others, DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (i)
impress upon them the importance of such services being Year 2000 compliant and
(ii) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
CERTIFICATED SECURITIES
Subject to certain conditions, the Notes represented by the Global Note are
exchangeable for certificated Notes in definitive form of like tenor in
denominations of $1,000 and integral multiples if:
(1) DTC or any successor depository notifies us in writing that it is no
longer willing or able to act as a depositary and we are unable to
locate a qualified successor
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<PAGE> 51
within 90 days or if at any time the Depository ceases to be a clearing
agency registered under the Exchange Act;
(2) we in our discretion at any time determine not to have all the Notes
represented by the Global Note; or
(3) a default entitling the holders of the Notes to accelerate the maturity
thereof has occurred and is continuing.
Any Note that is exchangeable pursuant to the preceding paragraph is
exchangeable for certificated Notes issuable in authorized denominations and
registered in such names as DTC shall direct. Subject to the foregoing, the
Global Note is not exchangeable, except for a Global Note of the same aggregate
denomination to be registered in the name of DTC or its nominee.
Neither we nor the Trustee will be liable for any delay by the related
holder of a Global Note (a "Global Note Holder") or the Depository in
identifying the beneficial owners of the related Notes, and we and the Trustee
may conclusively rely on, and will be protected in relying on, instructions from
such Global Note Holder or of the Depository for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
SAME DAY PAYMENT
The Indenture requires us to make payments in respect of Notes (including
principal, premium, if any, and interest) by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
We and the Guarantors have agreed pursuant to a Registration Rights
Agreement that we and the Guarantors will, at our cost:
(1) within 60 days after the Issue Date, file a registration statement (the
"Exchange Offer Registration Statement") with the SEC with respect to a
registered offer (the "Registered Exchange Offer") to exchange the
Outstanding Notes for new notes (the "Exchange Notes") having terms
substantially identical in all material respects to the Outstanding
Notes and guaranteed by each of the Guarantors except that the Exchange
Notes will not contain terms with respect to transfer restrictions;
(2) use our reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities
Act within 180 days after the Issue Date;
(3) as soon as practicable after the effectiveness of the Exchange Offer
Registration Statement (the "Effectiveness Date"), to offer the
Exchange Notes in exchange for surrender of the Outstanding Notes; and
(4) to keep the Registered Exchange Offer open for not less than 30 days
(or longer if required by applicable law) after the date notice of the
Registered Exchange Offer is mailed to the holders of the Outstanding
Notes.
For each Outstanding Note surrendered to us pursuant to the Registered
Exchange Offer, we will issue to the holder of such Outstanding Note an Exchange
Note having a principal amount equal to that of the surrendered Outstanding
Note. Interest on each Exchange Note will accrue from the last interest payment
date on which interest was paid on the Outstanding Note surrendered in exchange
thereof or, if no interest has been paid
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on such Outstanding Note, from the date interest begins to accrue on such
Outstanding Note.
Under existing SEC interpretations, the Exchange Notes will be freely
transferable by holders other than our affiliates after the Registered Exchange
Offer without further registration under the Securities Act if the holder of the
Exchange Notes represents to us in the Registered Exchange Offer that it is
acquiring the Exchange Notes in the ordinary course of its business, that it has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and that it is not an affiliate of ours, as
such terms are interpreted by the SEC; provided, however, that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Registered
Exchange Offer will have a prospectus delivery requirement with respect to
resales of such Exchange Notes. The SEC has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to Exchange Notes (other than a resale of an unsold allotment from
the original sale of the Outstanding Notes) with the prospectus contained in the
Exchange Offer Registration Statement.
Under the Registration Rights Agreement, we are required to allow
Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes for
180 days following the effective date of such Exchange Offer Registration
Statement (or such shorter period during which Participating Broker-Dealers are
required by law to deliver such prospectus).
In the event that applicable interpretations of the staff of the SEC do not
permit us to effect such a Registered Exchange Offer, or if for any other reason
we do not consummate the Registered Exchange Offer no later than 220 days after
the date of original issuance of the outstanding Notes, or if an initial
purchaser shall notify us within 10 business days following consummation of the
Registered Exchange Offer that Outstanding Notes held by it are not eligible to
be exchanged for Exchange Notes in the Registered Exchange Offer, or if any
holder of Outstanding Notes shall notify us that:
(1) such holder is prohibited by law or SEC policy from participating in
the Registered Exchange Offer;
(2) such holder may not resell the Exchange Notes acquired by it in the
Registered Exchange Offer to the public without delivering a prospectus
and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such
holder; or
(3) such holder is a broker-dealer and holds Outstanding Notes that are
part of an unsold allotment from the original sale of the Outstanding
Notes,
then, we and the Guarantors will, at our cost,
(1) as promptly as practicable, file a shelf registration statement (the
"Shelf Registration Statement") with the SEC covering resales of the
Notes or the Exchange Notes, as the case may be;
(2) use our reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act; and
(3) keep the Shelf Registration Statement effective until the earlier of
(a) the time when the Outstanding Notes covered by the Shelf
Registration Statement can be sold pursuant to Rule 144 without any
limitations under clauses (c), (e), (f) and (h) of Rule 144 and (b) two
years from the Issue Date.
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We will, in the event a Shelf Registration Statement is filed, among other
things, provide to each holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Outstanding Notes or the Exchange Notes, as the case
may be. A holder selling such Outstanding Notes or Exchange Notes pursuant to
the Shelf Registration Statement generally would be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
We will pay additional cash interest on the Notes if:
(1) by August 15, 1999 (60 days after the Issue Date), neither the Exchange
Offer Registration Statement nor the Shelf Registration Statement has
been filed with the SEC;
(2) by January 22, 2000 (220 days after the Issue Date), neither the
Registered Exchange Offer is consummated nor the Shelf Registration
Statement is declared effective; or
(3) after either the Exchange Offer Registration Statement or the Shelf
Registration Statement is declared effective, such Registration
Statement thereafter ceases to be effective or usable (subject to
certain exceptions),
(each such event referred to in clauses (1) through (3) above, a "Registration
Default") from and including the date on which any such Registration Default
shall occur to but excluding the date on which all Registration Defaults have
been cured.
The rate of additional interest will be at the rate of 0.25% per annum for
the first 90-day period immediately following the occurrence of such
Registration Default regardless of the number of such Registration Defaults (and
such rate will increase by an additional 0.25% per annum with respect to each
subsequent 90-day period), until all Registration Defaults have been cured, up
to a maximum additional interest rate of 0.50% per annum. We will pay such
additional interest on regular interest payment dates. Such additional interest
will be in addition to any other interest payable from time to time with respect
to the Outstanding Notes and the Exchange Notes.
All references in the Indenture, in any context, to any payment of
principal, purchase prices in connection with a purchase of Notes, and interest
or any other amount payable on or with respect to any of the Notes shall be
deemed to include payment of any additional cash interest pursuant to the
Registration Rights Agreement.
If we effect the Registered Exchange Offer, we will be entitled to close
the Registered Exchange Offer 30 days after the commencement thereof provided
that we have accepted all Outstanding Notes theretofore validly tendered in
accordance with the terms of the Registered Exchange Offer.
This summary of certain provisions of the Registration Rights Agreement is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Registration Rights Agreement, a copy of which is available from us upon
request.
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CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that we purchase all or a
part of such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase:
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) or any two or more such persons acting in concert, other
than one or more Permitted Holders, becomes the beneficial owner
(within the meaning of Rule 13d-3 of the Exchange Act), directly or
indirectly, of more than 35% of the total voting power of the then
outstanding Voting Stock of the Company and the Permitted Holders
beneficially own (within the meaning of Rule 13d-3 of the Exchange
Act), directly or indirectly, a lesser percentage of the total voting
power of the outstanding Voting Stock of the Company than such person
or persons; provided, that the acquisition of beneficial ownership of
shares of Voting Stock of the Company beneficially owned (or which
immediately prior to such acquisition were beneficially owned) by a
Permitted Holder by one or more Persons from time to time shall not
constitute a Change of Control;
(2) if the Permitted Holders do not beneficially own (within the meaning of
Rule 13d-3 under the Exchange Act), directly or indirectly, more than
50% of the total voting power of the then outstanding Voting Stock of
the Company, during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders
of the Company was approved by a vote of the majority of the directors
of the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office;
(3) the adoption by the holders of Capital Stock of the Company of any plan
or proposal for the liquidation or dissolution of the Company (whether
or not otherwise in compliance with the Indenture); or
(4) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale
of all or substantially all the assets of the Company and its
Subsidiaries, taken as a whole, to another Person (other than to a
Wholly Owned Subsidiary of the Company), and, in the case of any such
merger or consolidation, the securities of the Company that are
outstanding immediately prior to such transaction and which represent
100% of the aggregate voting power of the Voting Stock of the Company
are changed into or exchanged for cash, securities or property, unless
pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of
the surviving corporation that represent immediately after such
transaction (a) at least 35% of the aggregate voting power of the
Voting Stock of the surviving corporation and (b) a greater percentage
of the aggregate voting power of the Voting Stock of the surviving
corporation than the percentage of the aggregate voting power of the
Voting Stock beneficially owned by any other "person" (as such term is
used in Section 13(d) and 14(d) under the Exchange Act) or any other
two or more such persons acting in concert.
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Within 30 days following any Change of Control (unless the Company shall
have provided an irrevocable redemption notice to the Trustee with respect to a
redemption of all outstanding Notes at a time when such redemption is permitted
under the Indenture), the Company shall mail a notice to each Holder with a copy
to the Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of purchase;
(2) the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such Change of
Control);
(3) the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with the
covenant described hereunder, that a Holder must follow in order to
have its Notes purchased.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
Subject to the limitations discussed below, the Company could, in the
future, enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the ability of the Company and its Restricted Subsidiaries to
incur additional Indebtedness are contained in the covenant described under
"-- Limitation on Indebtedness." Such restrictions can only be waived with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding. Except for the limitations contained in such covenants, however,
the Indenture will not contain any covenants or provisions that may afford
holders of the Notes protection in the event of a highly leveraged transaction.
The Senior Credit Facility contains, and future indebtedness of the Company
may contain, prohibitions on the occurrence of certain events that would
constitute a Change of Control or require such indebtedness to be repurchased
upon a Change of Control. Moreover, the exercise by the Holders of their right
to require the Company to purchase the Notes could cause a default under such
indebtedness, even if the Change of Control itself does not, due to the
financial effect of such purchase on the Company. Finally, the Company's ability
to pay cash to the holders of the Notes following the occurrence of a Change of
Control may be limited by the Company's then existing financial resources.
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There can be no assurance that sufficient funds will be available when necessary
to make any required repurchases. For more details, see "Risk
Factors -- Limitations on Repurchases of Notes Upon a Change of Control."
The provisions under the Indenture relating to the Company's obligation to
make an offer to purchase the Notes as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
principal amount of the Notes.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company and, thus, the removal of incumbent
management.
The phrase "all or substantially all" of our assets will likely be
interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of our
assets has occurred.
CERTAIN COVENANTS
COVENANT REMOVAL. Set forth below are summaries of certain covenants
contained in the Indenture. From and after the time that (a) the Notes have
Investment Grade Ratings from both Rating Agencies and (b) there shall not exist
a Default or Event of Default under the Indenture, the Company and the
Restricted Subsidiaries will not be subject to the provisions of the Indenture
applicable to them described under "Limitation on Indebtedness" (including the
application of paragraph (a) thereof pursuant to clause (x) to the proviso to
the third sentence in the definition of "Unrestricted Subsidiary"), "Limitation
on Restricted Payments," "Limitation on Sale or Issuance of Capital Stock of
Restricted Subsidiaries," "Limitation on Sales of Assets and Subsidiary Stock,"
"Limitation on Transactions with Affiliates," "Limitation on Restrictions on
Distributions from Restricted Subsidiaries," clauses (2) and (3) of the first
paragraph and clause (2) of the fourth paragraph under "Merger and
Consolidation" and "Future Guarantors" (collectively, the "Suspended
Covenants"). In addition, the Restricted Subsidiaries shall be released from
their Guarantees at the time referred to in the preceding sentence.
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS.
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; provided, however, that the
Company and the Restricted Subsidiaries may Incur Indebtedness if, on the date
of such Incurrence and after giving effect thereto, the Consolidated Coverage
Ratio exceeds 2.50 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness of the Company and the Guarantors incurred pursuant to the
Senior Credit Facility; provided, however, that, after giving effect to
any such Incurrence, the aggregate principal amount of such
Indebtedness then outstanding does not exceed (a) in the case of the
term loan facilities, $406 million at any one time outstanding and (b)
in the case of the revolving loan facility, the sum of (x) the greater
of (i) $300 million at any one time outstanding and (ii) the sum of (A)
50% of the book value of the inventory of the Company and its
Restricted Subsidiaries and (B) 75% of the book value of the accounts
receivables of the Company and its Restricted Subsidiaries and (y) any
amount permitted to be incurred pursuant to clause (a) of this
paragraph (1) but not outstanding thereunder;
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(2) Indebtedness owed to and held by the Company or any Restricted
Subsidiary; provided, however, that (i) any subsequent issuance or
transfer of any Capital Stock which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or a
Restricted Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the obligor thereon and (ii) if the
Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations with respect to the Notes;
(3) the Notes (other than Additional Notes) and the Guarantees (other than
in respect of Additional Notes);
(4) Indebtedness of the Company or any of its Restricted Subsidiaries
outstanding on the Issue Date (other than Indebtedness described in
clause (1), (2) or (3) of this covenant) other than Indebtedness to be
repaid from the proceeds of the sale of the Notes as described in this
Offering Circular;
(5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) above or pursuant to clause (3) or (4) of this
covenant or this clause (5);
(6) Indebtedness under Interest Rate Agreements or Currency Agreements
directly related to Indebtedness permitted to be Incurred by the
Company pursuant to this covenant;
(7) Indebtedness of the Company or any of its Restricted Subsidiaries
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently drawn against
insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within ten business
days of incurrence;
(8) Indebtedness of the Company or any of its Restricted Subsidiaries in
order to finance insurance premiums and other Indebtedness represented
by letters of credit for the account of the Company or such Restricted
Subsidiary, as the case may be, in order to provide security for
workers' compensation claims or payment obligations in connection with
self-insurance or similar requirements, all in the ordinary course of
business and so long as such Indebtedness is not an obligation for
money borrowed;
(9) obligations in respect of performance and surety bonds and completion
guarantees provided by the Company or any of its Restricted
Subsidiaries in the ordinary course of business in accordance with
customary industry practice in amounts and for purposes customary in
the Company's industry and so long as not an obligation for money
borrowed;
(10) Indebtedness arising from agreements of the Company or any of its
Restricted Subsidiaries providing for adjustment of purchase price,
earnout or other similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or
a Restricted Subsidiary of the Company or any of its Restricted
Subsidiaries, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition;
provided, however, that the maximum assumable liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and its Restricted Subsidiaries in
connection with such disposition;
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(11) Capital Lease Obligations of the Company or any of its Restricted
Subsidiaries incurred pursuant to sale-leaseback transactions in the
ordinary course of business in respect of property or assets owned by
the Company or its Restricted Subsidiaries as of the Issue Date in an
aggregate principal amount not to exceed $60.0 million at any one time
outstanding under this clause (11);
(12) Purchase Money Obligations and Capital Lease Obligations of the
Company or any of its Restricted Subsidiaries in respect of property
or assets acquired or leased after the Issue Date incurred in the
ordinary course of business; and
(13) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of this
paragraph (b)) of the Company or any Restricted Subsidiary in an
aggregate principal amount which does not exceed $50.0 million at any
one time outstanding under this clause (13).
(c) Notwithstanding the foregoing, neither the Company nor any Restricted
Subsidiary shall Incur any Indebtedness pursuant to the foregoing paragraph (b)
if the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations unless such Indebtedness shall be subordinated to the
Notes or the Guarantees, as applicable, to at least the same extent as such
Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (1)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (2) an item
of Indebtedness may be divided and classified in more than one of the types of
Indebtedness described above. A guarantee of Indebtedness permitted by this
covenant to be Incurred by the Company or a Restricted Subsidiary is not
considered a separate Incurrence for purposes of this covenant.
(e) Notwithstanding paragraphs (a) and (b) above, neither the Guarantors
nor the Company shall Incur any Subordinated Obligation unless such Subordinated
Obligation is expressly subordinated in right of payment to the Notes and/or the
Guarantees, as the case may be.
LIMITATION ON LIENS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien upon or with respect to any of the assets of the Company or any
such Restricted Subsidiary, whether now owned or hereafter acquired, or on any
income or profits therefrom, other than Liens which constitute Permitted Liens
at the date such Liens are created, unless contemporaneously therewith or prior
thereto all payments due under the Indenture and the Notes are secured on an
equal and ratable basis with the obligation or liability so secured until such
time as such obligation or liability is no longer secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "Limitation
on Indebtedness"; or
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(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the Issue Date to the end of the most
recent fiscal quarter for which financial statements are available
ending prior to the date of such Restricted Payment (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
(B) the aggregate Net Cash Proceeds and the fair market value (as
determined in good faith by the Board of Directors of the Company)
of tangible property other than cash received by the Company from
capital contributions or the issuance or sale of its Capital Stock
(other than Disqualified Capital Stock) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary of the Company and
other than an issuance or sale to an employee stock ownership plan
or to a trust established by the Company or any of its Subsidiaries
for the benefit of their employees to the extent such sale is
financed by loans from or guaranteed by the Company unless such
loans have been repaid with cash on or prior to the date of
determination);
(C) the amount by which Indebtedness of the Company or its Restricted
Subsidiaries (other than Indebtedness owed to the Company or a
Restricted Subsidiary) is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of the
Company or its Restricted Subsidiaries convertible or exchangeable
for Capital Stock (other than Disqualified Capital Stock) of the
Company (less the amount of any cash, or the fair value of any other
property, distributed by the Company upon such conversion or
exchange); and
(D) an amount equal to the sum of (1) the net reduction in Investments
made after the Issue Date in Unrestricted Subsidiaries and other
Persons constituting Restricted Payments, excluding Investments made
pursuant to clause (b)(7) or (b)(8) below, resulting from dividends,
repayments of loans or advances or other transfers of assets, in
each case to the Company or any Restricted Subsidiary from such
Unrestricted Subsidiaries or other Persons or received by the
Company or any Restricted Subsidiary from the disposition of any
such Investment, and (2) the portion, proportionate to the Company's
equity interest, of the fair market value of the net assets of an
Unrestricted Subsidiary or other Person at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary or
such other Person becomes a Restricted Subsidiary, but only to the
extent of Investments made in such Unrestricted Subsidiary or other
Person after the Issue Date and in any event excluding Investments
made pursuant to clause (b)(7) or (b)(8) below; provided, however,
that the foregoing sum shall not exceed the aggregate amount of
Investments made after the Issue Date and treated as Restricted
Payments by the Company or any Restricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any redemption, repurchase or other acquisition of any Capital Stock or
Subordinated Obligations of the Company made out of the proceeds of the
substantially concurrent sale of, or made by exchange for, Capital
Stock of the
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Company (other than Disqualified Capital Stock and other than Capital
Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or to a trust established by the Company or any of
its Subsidiaries for the benefit of their employees to the extent such
sale is financed by loans from or guaranteed by the Company unless such
loans have been repaid with cash on or prior to the date of
determination); provided, however, that the Net Cash Proceeds from such
sale shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Subordinated Obligations of the Company which is permitted to be
Incurred pursuant to the covenant described under "Limitation on
Indebtedness";
(3) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividend would have complied with this
covenant;
(4) repurchases by the Company of its Capital Stock (i) from employees of
the Company or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment
of such employees or pursuant to any employment agreement between the
Company and such employee, in an amount not to exceed $5 million in any
calendar year and $10 million in the aggregate, plus the aggregate cash
proceeds from any reissuance during such calendar year of its Capital
Stock by the Company to employees, officers or directors of the Company
and its Subsidiaries (without duplication of amounts included in clause
(3)(B) of paragraph (a) above) and (ii) from its Chief Executive
Officer upon death, disability or termination of employment of such
Chief Executive Officer or pursuant to any employment agreement between
the Company and such Chief Executive Officer but only up to the amount
of the Capital Stock owned by such Chief Executive Officer on the Issue
Date;
(5) so long as no Default or Event of Default has occurred and is
continuing, the declaration and payment of dividends to holders of any
class or series of Disqualified Capital Stock of the Company issued in
compliance with the terms of the Indenture to the extent such dividends
are included in the definition of "Consolidated Interest Expense";
(6) repurchases of Capital Stock deemed to occur upon the exercise of stock
options if such Capital Stock represents a portion of the exercise
price thereof;
(7) so long as no Default shall have occurred or be continuing or would
result therefrom, Investments in an aggregate amount outstanding at any
time not exceeding $25 million; and
(8) so long as no Default shall have occurred or be continuing or would
result therefrom, the making of Restricted Payments in an aggregate
amount not to exceed $50 million.
In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (a)(3) above, amounts expended
pursuant to clauses (3), (4), (7) and (8) (but not pursuant to clauses (1), (2),
(5) and (6)) of the immediately preceding paragraph shall be included in such
calculation.
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LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any encumbrance
or restriction on the ability of any Restricted Subsidiary to (a) pay dividends
or make any other distributions on its Capital Stock to the Company or a
Restricted Subsidiary or pay any Indebtedness owed to the Company or a
Restricted Subsidiary, (b) make any loans or advances to the Company or a
Restricted Subsidiary or (c) transfer any of its property or assets to the
Company or a Restricted Subsidiary, except:
(1) any encumbrance or restriction pursuant to an agreement in effect at or
entered into on the Issue Date as in effect on the Issue Date;
(2) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration of, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the
Company) and outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred
to in clause (1) or (2) of this covenant or this clause (3) or
contained in any amendment to an agreement referred to in clause (1) or
(2) of this covenant or this clause (3); provided, however, that the
encumbrances and restrictions with respect to such Restricted
Subsidiary contained in any such refinancing agreement or amendment are
no less favorable in the aggregate to the Holders than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in
such predecessor agreements;
(4) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases governing leasehold interests to
the extent such provisions restrict the transfer of the lease or the
property leased thereunder;
(5) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages;
(6) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition;
(7) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions of the nature described in clause
(c) above on the property so acquired;
(8) encumbrances or restrictions imposed by operation of any applicable
law, rule, regulation or order.
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LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration at the
time of such Asset Disposition at least equal to the fair market value
(including the value of all non-cash consideration), as determined in
good faith by the Board of Directors of the Company or such Restricted
Subsidiary, as the case may be, of the shares and assets subject to
such Asset Disposition;
(2) at least 75% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or cash equivalents;
and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary,
as the case may be)
(A) first, to either (x) (i) prepay the Senior Credit Facility (and
permanently reduce the commitments thereunder) and/or (ii) prepay,
repay, redeem or purchase (and permanently reduce the commitments
under) any other Indebtedness (other than any Disqualified Capital
Stock) of the Company which ranks equally in right of payment with
the Notes or Indebtedness (other than Disqualified Capital Stock) of
a Restricted Subsidiary (in each case other than Indebtedness owed
to the Company or an Affiliate of the Company) in an amount not to
exceed the Other Senior Debt Pro Rata Share or (y) acquire
Additional Assets, in each case within one year from the later of
the date of such Asset Disposition or the receipt of such Net
Available Cash;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A) above, to make an
offer pursuant to paragraph (b) below to the Holders to purchase
Notes pursuant to and subject to the conditions contained in the
Indenture; and
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) or (B) above, to any
other application or use not prohibited by the Indenture.
Notwithstanding the foregoing provisions of this paragraph, the Company and
the Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance with this paragraph (b) except to the extent that the
aggregate Net Available Cash from all Asset Dispositions which is not applied in
accordance with this paragraph exceeds $20 million (at which time, the entire
unutilized Net Available Cash, and not just the amount in excess of $20 million,
shall be applied pursuant to this paragraph).
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of the Company or any
Restricted Subsidiary (other than Subordinated Obligations) and the release of
the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition and (y) securities
received by the Company or any Restricted Subsidiary from the transferee that
are converted by the Company or such Restricted Subsidiary into cash within 90
days of closing the transaction.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes pursuant to clause (a)(3)(B) above, the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes at a
purchase price of 100% of their principal amount (without premium) plus accrued
but unpaid interest, if any, in
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accordance with the procedures (including prorating in the event of over
subscription) set forth in the Indenture.
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with, or for
the benefit of, any Affiliate of the Company (an "Affiliate Transaction") unless
the terms thereof:
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in a
comparable transaction on an arm's-length basis with a Person who is
not such an Affiliate;
(2) if such Affiliate Transaction (or series of related Affiliate
Transactions) involves an amount in excess of $5.0 million (i) are set
forth in writing and (ii) have been approved by a majority of the
members of the Board of Directors having no personal stake in such
Affiliate Transaction; and
(3) if such Affiliate Transaction (or series of related Affiliate
Transactions) involves an amount in excess of $10.0 million, have been
determined by a nationally recognized investment banking firm to be no
less favorable in any material respect to the Company or such
Restricted Subsidiary than that which would have been obtained in a
comparable transaction with an unrelated Person.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any Permitted Investment or Restricted Payment not otherwise prohibited
pursuant to the covenant described under "Limitation on Restricted
Payments";
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
entered into in the ordinary course of business and approved by the
Board of Directors of the Company;
(3) reasonable fees and compensation paid to and indemnity provided on
behalf of officers, directors, employees, agents or consultants of the
Company or any Restricted Subsidiary of the Company as determined in
good faith by the Company's Board of Directors;
(4) any Affiliate Transaction exclusively between the Company and a
Restricted Subsidiary or exclusively between Restricted Subsidiaries;
and
(5) the issuance or sale of any Capital Stock (other than Disqualified
Capital Stock) of the Company.
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LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES.
The Company will not sell or otherwise dispose of any Capital Stock of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
except:
(1) to the Company or a Restricted Subsidiary;
(2) directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary;
(3) in compliance with or to the extent not restricted by the covenant
described under "-- Limitation on Sales of Assets and Subsidiary Stock"
and immediately after giving effect to such issuance or sale, such
Restricted Subsidiary either continues to be a Restricted Subsidiary or
if such Restricted Subsidiary would no longer be a Restricted
Subsidiary, then the Investment of the Company in such Person (after
giving effect to such issuance or sale) would have been permitted to be
made under the "-- Limitation on Restricted Payments" covenant as if
made on the date of such issuance or sale.
Notwithstanding the preceding paragraph, the Company may sell all the
Voting Stock of a Restricted Subsidiary as long as the Company complies with the
terms of the covenant described under "-- Limitation on Sales of Assets and
Subsidiary Stock."
MERGER AND CONSOLIDATION.
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, its assets
substantially as an entirety to, any Person, unless:
(1) either the Company shall be the surviving Person, or the resulting,
surviving or transferee Person (the "Successor Company") shall be a
corporation organized and existing under the laws of the United States
of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company
under the Notes, the Indenture and the Registration Rights Agreement;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or
any Restricted Subsidiary as a result of such transaction as having
been Incurred by such Successor Company or such Restricted Subsidiary
at the time of such transaction), no Default shall have occurred and be
continuing; and
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "Limitation
on Indebtedness."
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but in the case of a conveyance, transfer or
lease, the Company shall not be released from the obligation to pay the
principal of and interest on the Notes.
Notwithstanding the foregoing, (1) any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (2) the Company may merge with an Affiliate
incorporated for the purpose of reincorporating the Company in another
jurisdiction to realize tax or other benefits.
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The Company will not permit any Guarantor to consolidate with or merge with
or into, or convey, transfer, lease, in one transaction or a series of
transactions, all or substantially all of its assets to, any Person unless:
(1) the resulting, surviving or transferee Person shall be a corporation
organized and existing under the laws of the jurisdiction under which
the Guarantor was organized or under the laws of the United States of
America, any State thereof or the District of Columbia, and such Person
(if not the Guarantor) shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, in a form
satisfactory to the Trustee, all the obligations of the Guarantor, if
any, under its Guarantee, the Indenture and the Registration Rights
Agreement; and
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been
Incurred by such Person at the time of such transaction), no Default
shall have occurred and be continuing.
The provisions of the immediately preceding clauses (1) and (2) shall not
apply to any transactions that constitute an Asset Disposition if the Company
complied with the applicable provisions of the covenant described under
"Limitation on Sales of Assets and Subsidiary Stock" above and such Asset
Disposition shall not be to an Affiliate of the Company.
Notwithstanding the foregoing, any Guarantor may merge into or transfer all
or part of its properties and assets to the Company or another Guarantor.
Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, in certain circumstances there may be a
degree of uncertainty as to whether a particular transaction would involve "all
or substantially all" of the property or assets of a Person.
FUTURE GUARANTORS
If the Company or any of its Restricted Subsidiaries transfers or causes to
be transferred, in one transaction or a series of related transactions, any
property to any domestic Restricted Subsidiary that is not the Company or a
Guarantor, or if the Company or any of its Restricted Subsidiaries shall
organize, acquire or otherwise invest in another domestic Restricted Subsidiary,
then such transferee or acquired or other Restricted Subsidiary will (1) by a
supplemental indenture executed and delivered to the Trustee, in form
satisfactory to the Trustee, unconditionally guarantee on a senior basis all of
the Company's obligations under the Notes and the Indenture; and (2) deliver to
the Trustee an officers certificate and an opinion of counsel each stating that
such supplemental indenture complies with the Indenture. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture.
REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the SEC (unless the SEC will not accept such a filing, in which case the
Company will provide such documents to the Trustee) and provide within 15 days
to the Trustee and Holders such annual reports and such information, documents
and other reports as are specified in Sections 13 and 15(d) of the Exchange Act
and applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and
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provided at the times specified for the filing of such information, documents
and reports under such Sections. In addition, for so long as any Notes remain
outstanding, the Company will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any
beneficial owner of Notes, if not obtainable from the SEC, information of the
type that would be filed with the SEC pursuant to the foregoing provisions, upon
the request of any such holder.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest on the Notes when due, continued
for 30 days,
(2) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase,
upon acceleration or otherwise,
(3) the failure by the Company or any Guarantor to comply with its
obligations under "Certain Covenants -- Merger and Consolidation"
above,
(4) the failure by the Company to comply for 30 days after notice with any
of its obligations in the covenants described above under "Change of
Control" (other than a failure to purchase Notes) or under "Certain
Covenants -- Limitation on Indebtedness," "-- Limitation on Liens,"
"-- Limitation on Restricted Payments," "-- Limitation on Restrictions
on Distributions from Restricted Subsidiaries," "-- Limitation on Sales
of Assets and Subsidiary Stock," "-- Limitation on Transactions with
Affiliates" or "-- Limitation on the Sale or Issuance of Capital Stock
of Restricted Subsidiaries,"
(5) the failure by the Company to comply for 60 days after notice with its
other agreements contained in the Indenture,
(6) Indebtedness of the Company or any Restricted Subsidiary is not paid
within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $15 million
(the "cross-acceleration provision"),
(7) certain events of bankruptcy, insolvency or reorganization of the
Company, any Guarantor or any Significant Subsidiary (the "bankruptcy
provisions"),
(8) any judgment or decree for the payment of money in excess of $15
million in the aggregate (net of any amounts with respect to which a
reputable and creditworthy insurance company has acknowledged liability
in writing) is entered against the Company, any Guarantor or any
Significant Subsidiary, remains outstanding for a period of 60 days
following entry of such judgment and is not discharged, bonded, waived
or stayed within 30 days after notice (the "judgment default
provision"), or
(9) a Guarantee ceases to be in full force and effect or is declared to be
null and void and unenforceable or the Guarantee is found to be invalid
or a Guarantor denies its liability under its Guarantee (other than by
reason of release of the Guarantor in accordance with the terms of the
Indenture).
However, a default under clause (4) or (5) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes
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notify the Company of the default and the Company or such Guarantor does not
cure such default within the time specified after receipt of such notice.
If an Event of Default (other than an Event of Default described in clause
(7) above with respect to the Company) occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the outstanding Notes may
declare the principal of and accrued but unpaid interest on all the Notes to be
due and payable. Upon such a declaration, such principal and interest shall be
due and payable immediately. If an Event of Default described in clause (7)
above with respect to the Company occurs and is continuing, the principal of and
interest on all the Notes will by that very fact become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holders. Under certain circumstances, the holders of a majority in principal
amount of the outstanding Notes may rescind any such acceleration and its
consequences with respect to the Notes and their consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder of a Note may pursue
any remedy with respect to the Indenture or the Notes unless
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing,
(2) Holders of at least 25% in principal amount of the outstanding Notes
have requested the Trustee to pursue the remedy,
(3) such Holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense,
(4) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity, and
(5) the Holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice if and
so long as a committee of its trust officers determines that withholding notice
is not opposed to the interest of the Holders. In addition, the Company is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Company also is required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which
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would constitute certain Defaults, their status and what action the Company is
taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the Holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
Holder of an outstanding Note affected thereby, no amendment may, among other
things,
(1) reduce the amount of Notes whose Holders must consent to an amendment,
(2) reduce the rate of or change the time for payment of interest on any
Note,
(3) reduce the principal of or change the Stated Maturity of any Note,
(4) reduce the amount payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under " -- Optional
Redemption,"
(5) make any Note payable in money other than that stated in the Note,
(6) impair the right of any Holder to receive payment of principal of and
interest on such Holder's Notes on or after the due dates therefor or
to institute suit for the enforcement of any payment on or with respect
to such Holder's Notes,
(7) make any change in the amendment provisions which require each Holder's
consent or in the waiver provisions,
(8) affect the ranking of the Notes in any material respect, or
(9) release any Guarantor from any of its obligations under its Guarantee
or the Indenture other than in accordance with the terms of the
Indenture.
Without the consent of any Holder, the Company and the Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor Person of the obligations of the
Company and/or the Guarantors under the Indenture in accordance with "Certain
Covenants -- Merger and Consolidation," to provide for uncertificated Notes in
addition to or in place of certificated Notes (provided that the uncertificated
Notes are issued in registered form for purposes of Section 163(f) of the Code,
or in a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code), to add guarantees with respect to the Notes, to
secure the Notes, to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power conferred upon the Company, to make
any change that does not adversely affect the rights of any Holder or to comply
with any requirement of the SEC in connection with the qualification of the
Indenture under the Trust Indenture Act.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment. However,
the failure to give such notice to all Holders, or any defect therein, will not
impair or affect the validity of the amendment.
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TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges. Subject to the rules and regulations established by DTC, the Company
will not be required to transfer or exchange any Note selected for redemption or
to transfer or exchange any Note for a period of 15 days prior to a selection of
Notes to be redeemed.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), and the Guarantors may terminate their
obligations under the Guarantees, except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes
and to maintain a registrar and paying agent in respect of the Notes. The
Company at any time may terminate its obligations under "Change of Control" and
under the covenants described under "Certain Covenants" (other than the covenant
described under " -- Merger and Consolidation"), the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under " -- Defaults"
above and the limitations contained in clauses (2) and (3) of the first
paragraph and clause (2) of the fourth paragraph under " -- Merger and
Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (4), (6), (7) (with respect only to
Significant Subsidiaries) or (8) under "Defaults" above or because of the
failure of the Company to comply with clauses (2) and (3) of the first paragraph
and clause (2) of the fourth paragraph under "Certain Covenants -- Merger and
Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee U.S. dollars or U.S.
Government Obligations, or a combination thereof, for the payment of principal
of, premium, if any, and interest on the Notes to redemption or maturity, as the
case may be, and must comply with certain other conditions, including delivery
to the Trustee of an opinion of counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance and will be subject to federal income tax on the
same amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when:
(1) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or
paid) have been delivered
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to the Trustee for cancellation or (b) all Notes not theretofore delivered to
the Trustee for cancellation have become due and payable or shall become due and
payable within one year and the Company has irrevocably deposited or caused to
be deposited with the Trustee an amount in U.S. dollars sufficient to
pay and discharge the entire indebtedness on the Notes not theretofore
delivered to the Trustee for cancellation, for the principal of,
premium, if any, and interest to the date of deposit;
(2) the Company has paid or caused to be paid all other sums payable under
the Indenture by the Company; and
(3) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel each stating that all conditions precedent under
the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the SEC that such waiver is against public policy.
CONCERNING THE TRUSTEE
Bankers Trust Company is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
The Indenture contains 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 is permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue or resign.
The Holders of a majority in principal amount of the outstanding Notes have
the right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee, subject to certain exceptions.
The Indenture provides that if an Event of Default occurs (and is not cured),
the Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject to such
provisions, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request of any Holder of Notes, unless such
Holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense and then only to the extent required
by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York.
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CERTAIN DEFINITIONS
"ADDITIONAL ASSETS" means
(1) any property or assets (other than Indebtedness and Capital Stock);
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or a
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary.
"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
"controlling" and "controlled" have meanings correlative to the foregoing.
"ASSET DISPOSITION" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of business
of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted
Subsidiary.
Notwithstanding the foregoing, Asset Disposition shall not include:
(1) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Restricted Subsidiary;
(2) for purposes of the covenant described under "Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only,
a disposition that constitutes a Permitted Investment or a Restricted
Payment permitted by the covenant described under "Certain
Covenants -- Limitation on Restricted Payments" or a disposition
specifically excepted from the definition of Restricted Payment;
(3) a transaction or series of related transactions for which the Company
or its Restricted Subsidiaries receive aggregate consideration less
than or equal to $500,000;
(4) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted under
"Certain Covenants -- Merger and Consolidation";
(5) the disposition of Temporary Cash Investments;
(6) a disposition of obsolete or worn out equipment or equipment that is
no longer useful in the conduct of the business of the Company and its
Restricted Subsidiaries and that is disposed of in each case in the
ordinary course of business;
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(7) an issuance of Capital Stock by a Restricted Subsidiary of the Company
to the Company or to a Wholly-Owned Subsidiary;
(8) a disposition of any Capital Stock of YourPharmacy.com, Inc. or any
corporation, partnership or limited liability company which is the
successor to the business conducted or contemplated to be conducted as
of the Issue Date by YourPharmacy.com, Inc.;
(9) a sale or lease-back transaction involving property owned by the
Company located at 4500 Alexander Blvd., NE in Albuquerque, New
Mexico;
(10) a sale or disposition involving property owned by the Company located
at the Company's site in Plymouth, Minnesota; or
(11) dispositions in connection with Permitted Liens.
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (x) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (y) the sum of all such payments.
"BOARD OF DIRECTORS" means the Board of Directors of the Company, as
applicable, or any committee thereof duly authorized to act on behalf of such
Board.
"BUSINESS DAY" means each day which is not a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (x) the aggregate amount of Consolidated EBITDA for the period of the
most recent four consecutive fiscal quarters ending with the most recent fiscal
quarter for which financial statements are available prior to the date of such
determination to (y) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that
(1) if the Company or any Restricted Subsidiary (x) has Incurred any
Indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, Consolidated EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to
such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period (and, if such Indebtedness is revolving
Indebtedness, the amount of Indebtedness deemed to be outstanding for
such period shall be
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the average outstanding amount of such Indebtedness during such period)
and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such
period or (y) has repaid, repurchased, defeased or otherwise discharged
any Indebtedness since the beginning of the period (including, without
limitation, Indebtedness that has been repaid, repurchased, defeased or
otherwise discharged in connection with an Asset Disposition) that is
no longer outstanding on such date of determination, or if the
transaction giving rise to the need to calculate the Consolidated
Coverage Ratio involves a discharge of Indebtedness (other than
Indebtedness Incurred for working capital purposes unless such
Indebtedness has been permanently repaid and has not been replaced),
Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect to such discharge of such
Indebtedness, including with the proceeds of such new Indebtedness, as
if such discharge had occurred on the first day of such period;
(2) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the Consolidated
EBITDA for such period shall be reduced by an amount equal to the
Consolidated EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or
increased by an amount equal to the Consolidated EBITDA (if negative)
directly attributable thereto for such period;
(3) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction requiring a
calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, Consolidated
EBITDA for such period shall be calculated after giving pro forma
effect thereto as if such Investment or acquisition occurred on the
first day of such period; and
(4) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company
or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, Investment or acquisition of assets
that would have required an adjustment pursuant to clause (2) or (3)
above if made by the Company or a Restricted Subsidiary during such
period, Consolidated EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if
such Asset Disposition, Investment or acquisition occurred on the first
day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating thereto
and the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be made in
accordance with Article 11 of Regulation S-X promulgated under the Securities
Act. If any Indebtedness bears a floating rate of interest and is being given
pro forma effect, the interest on such Indebtedness shall be calculated as if
the average rate in effect during the period had been the applicable rate for
the entire period (taking into account any fixed rate established by an Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months, in which case such fixed rate shall
be used).
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"CONSOLIDATED EBITDA" means, for any period, the sum of Consolidated Net
Income plus the following to the extent deducted in calculating such
Consolidated Net Income:
(1) Consolidated Interest Expense;
(2) provisions for taxes based on income;
(3) total depreciation expense;
(4) total amortization expense;
(5) other non-cash items incurred in the ordinary course of business
reducing Consolidated Net Income less other non-cash items increasing
Consolidated Net Income; and
(6) for any period that includes fiscal quarters ending on or prior to
March 31, 2000, retention bonuses in an aggregate amount up to $10.0
million to the extent actually paid or accrued in such period to key
employees of DPS,
all of the foregoing as determined on a consolidated basis for the Company and
its Restricted Subsidiaries in conformity with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Restricted Subsidiary of the Company shall
be added to Consolidated Net Income to compute EBITDA only to the extent (and in
the same proportion) that the net income of such Restricted Subsidiary was
included in calculating Consolidated Net Income.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP, whether
expensed directly or included as a component of cost of goods sold, plus, to the
extent not included in such total interest expense, and to the extent incurred
by the Company or its Restricted Subsidiaries, without duplication,
(1) interest expense attributable to Capital Lease Obligations (which shall
be in each case deemed to accrue at an interest rate determined in good
faith by the Company to be the rate of interest implicit in each such
Capital Lease Obligation in accordance with GAAP);
(2) amortization of debt discount and debt issuance costs;
(3) non-cash interest expense;
(4) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
(5) net costs associated with Interest Rate Agreements and Currency
Agreements;
(6) dividends paid or payable in respect of any Disqualified Capital Stock
of the Company (other than dividends paid in Qualified Capital Stock)
and all dividends paid or payable by Restricted Subsidiaries in respect
of any Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, in each case multiplied by a fraction, the
numerator of which is one and the denominator of which is one minus the
then current effective federal, state and local tax rate of the
Company, expressed as a decimal; and
(7) interest accruing on any Indebtedness Incurred after the Issue Date of
any other Person to the extent such Indebtedness is guaranteed by the
Company or any Restricted Subsidiary.
"CONSOLIDATED NET INCOME" means, for any period, the net income (or loss)
of the Company and its Restricted Subsidiaries on a consolidated basis for such
period taken as a
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single accounting period determined in conformity with GAAP; provided that there
shall be excluded:
(1) the income (or loss) of any Person (other than a Restricted Subsidiary
of the Company) in which any other Person (other than the Company or
any of its Restricted Subsidiaries) has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid
to the Company or any of its Restricted Subsidiaries (subject to the
exclusion in clause (3) below) by such Person during such period,
(2) the income (or loss) of any Person accrued prior to the date it becomes
a Restricted Subsidiary of the Company or is merged into or
consolidated with the Company or any of its Restricted Subsidiaries or
that Person's assets are acquired by the Company or any of its
Restricted Subsidiaries,
(3) the income of any Restricted Subsidiary of the Company to the extent
that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary, and
(4) any after-tax gains or losses attributable to Asset Dispositions or
returned surplus assets.
"CURRENCY AGREEMENT" means in respect of a Person, any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DEPOSITORY" means The Depository Trust Company, its nominees and their
respective successors.
"DISQUALIFIED CAPITAL STOCK" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified Capital
Stock (excluding Capital Stock converted or exchanged solely at the
option of the Company or a Restricted Subsidiary) or
(3) is redeemable or must be repurchased at the option of the holder
thereof, in whole or in part,
in each case on or prior to the Stated Maturity of the Notes; provided, however,
that (1) any Capital Stock that would not constitute Disqualified Capital Stock
but for provisions thereof giving holders thereof the right to require such
Person to purchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the Stated Maturity of the Notes
shall not constitute Disqualified Capital Stock if the "asset sale" or "change
of control" provisions applicable to such Capital Stock are not more favorable
to the holders of such Capital Stock than the provisions described under
"Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and
" -- Change of Control;" (2) only the portion of Capital Stock which so matures
or is mandatorily redeemable, is so convertible or exchangeable or is so
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redeemable at the option of the holder thereof prior to such date shall be
deemed to be Disqualified Capital Stock; and (3) if such Capital Stock is issued
to any employee or to any plan for the benefit of employees of the Company or
its Subsidiaries or by any such plan to such employees, such Capital Stock shall
not constitute Disqualified Capital Stock solely because it may be required to
be repurchased by the Company in order to satisfy applicable statutory or
regulatory obligations or as a result of such employee's termination, death or
disability.
"DPS" means, collectively, Diversified Pharmaceutical Services, Inc. and
Diversified Pharmaceutical Services (Puerto Rico) Inc.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor statute.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board, and
(3) such other statements by such other entity as approved by a significant
segment of the accounting profession.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue
of agreements to keep-well, to take-or-pay or to maintain financial
statement conditions or otherwise) or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "guarantee"
used as a verb has a corresponding meaning. The term "guarantor" shall mean any
Person guaranteeing any obligation.
"GUARANTORS" means (1) each of the Company's domestic Restricted
Subsidiaries existing on the Issue Date (other than Practice Patterns Science,
Inc., Great Plains Reinsurance Company, ValueRx of Michigan, Inc., Diversified
NY IPA, Inc. and Diversified Pharmaceutical Services (Puerto Rico) Inc.) and (2)
any Person that becomes a domestic Restricted Subsidiary of the Company that
pursuant to the covenant described under "Future Guarantors" or otherwise in the
future executes a supplemental indenture in which such Restricted Subsidiary
unconditionally guarantees on a senior basis the Company's obligations under the
Notes and the Indenture; provided that any Person constituting a Guarantor as
described above shall cease to constitute a Guarantor when its respective
Guarantee is released in accordance with the terms of the Indenture.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a Note is
registered on the Registrar's books.
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"INCUR" means issue, assume, guarantee, incur or otherwise become liable;
provided, however, that any Indebtedness or Capital Stock of a Person existing
at the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall not be deemed the Incurrence of
Indebtedness.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication),
(1) the principal of and premium (if any) in respect of
(A) indebtedness of such Person for money borrowed and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or
liable;
(2) all Capital Lease Obligations of such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property (which purchase price is due more than one
year after taking title of such property), all conditional sale
obligations of such Person and all obligations of such Person under any
title retention agreement (but excluding trade accounts payable arising
in the ordinary course of business not overdue by more than 90 days);
(4) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through
(3) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon, or, if
and to the extent drawn upon, such drawing is reimbursed no later than
the 30th Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Capital
Stock or, with respect to any Restricted Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5)
above of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including
by means of any guarantee (but only to the extent of the amount
actually guaranteed);
(7) all obligations of the type referred to in clauses (1) through (6)
above of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such Person),
the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so
secured; and
(8) to the extent not otherwise included in this definition, the net
obligations of such Person under currency agreements and interest swap
agreements.
For purposes of the preceding sentence, the maximum fixed repurchase price
of any Disqualified Capital Stock that does not have a fixed repurchase price
shall be calculated
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in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were repurchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture; provided, however,
that if such Disqualified Capital Stock is not then permitted to be repurchased,
the repurchase price shall be the book value of such Disqualified Capital Stock.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date. The principal amount of
any Indebtedness issued with original issue discount shall be the face amount of
such Indebtedness less than remaining unamortized portion of the original issue
discount of such Indebtedness at the date of determination in accordance with
GAAP.
"INTEREST RATE AGREEMENT" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"INVESTMENT" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the Person making the
advance or loan) or other extensions of credit (including by way of guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person; provided, that
endorsements of negotiable instruments and documents in ordinary course of
business shall not be deemed an Investment. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "Certain Covenants -- Limitation on Restricted
Payments,"
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value as
determined in good faith by the Board of Directors of the Company of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that if such designation is made in connection with the acquisition of
such Subsidiary or the assets owned by such Subsidiary, the
"Investment" in such Subsidiary shall be deemed to be the consideration
paid in connection with such acquisition; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value as determined in good faith by the
Board of Directors of the Company at the time of such transfer.
"INVESTMENT GRADE RATING" means (1) with respect to S&P, any of the rating
categories from and including AAA to and including BBB- and (2) with respect to
Moody's, any of the rating categories from and including Aaa to and including
Baa3.
"ISSUE DATE" means the date on which the Outstanding Notes were originally
issued.
"LEGAL HOLIDAY" means a Saturday, a Sunday, any day which is a holiday
under the laws of the State of New York or a day on which banking institutions
in the State of New York are authorized or required by law to close. If a
payment date is a Legal Holiday, payment shall be made on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record
shall not be affected.
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"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest).
"MOODY'S" means Moody's Investors Service, Inc.
"NET AVAILABLE CASH" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form) in each case net of
(1) all legal, title and recording tax expenses, brokerage commissions,
underwriting discounts or commissions or sales commissions and other
reasonable fees and expenses (including, without limitation, fees and
expenses of counsel, accountants and investment bankers) related to
such Asset Disposition or converting to cash any other proceeds
received, and any relocation and severance expenses as a result
thereof, and all Federal, state, provincial, foreign and local taxes
required to be accrued or paid as a liability under GAAP, as a
consequence of such Asset Disposition;
(2) all payments made on any Indebtedness or other obligations which are
secured by any assets subject to such Asset Disposition or made in
order to obtain a necessary consent to such Asset Disposition or to
comply with applicable law;
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition; and
(4) appropriate amounts provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the property or
other assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition,
including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such
Asset Disposition.
The amounts in clauses (1) through (4) above, to the extent estimates are
necessary, shall be estimated reasonably and in good faith by the Company.
"NET CASH PROCEEDS," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"OTHER SENIOR DEBT PRO RATA SHARE" means the amount of the Net Available
Cash obtained by multiplying the amount of such Net Available Cash by a
fraction, (i) the numerator of which is the lesser of the aggregate principal
face amount or accreted value of all Indebtedness (other than the Notes,
Subordinated Obligations, Indebtedness outstanding under the Senior Credit
Facility and any other Indebtedness owed to the Company or any Subsidiary of the
Company) of the Company or the applicable Restricted Subsidiary, as the case may
be, outstanding at the time of the applicable Asset Disposition with respect to
which the Company or the applicable Restricted Subsidiary, as the case may be,
is required to use Net Available Cash to repay or make an offer to purchase and
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repay and (ii) the denominator of which is the sum of (a) the aggregate
principal amount of all Notes outstanding at the time of the applicable Asset
Disposition and (b) the lesser of the aggregate principal face amount or
accreted value of all other Indebtedness (other than Subordinated Obligations,
Indebtedness outstanding under the Senior Credit Facility and any other
Indebtedness owed to the Company or any Subsidiary of the Company) of the
Company or the applicable Restricted Subsidiary, as the case may be, outstanding
at the time of the applicable Asset Disposition with respect to which the
Company or the applicable Restricted Subsidiary, as the case may be, is required
to use the Net Available Cash to repay or to offer to purchase and repay.
"PERMITTED HOLDERS" means NYLIFE HealthCare Management, Inc., an indirect
subsidiary of New York Life Insurance Company, a mutual insurance company
organized and existing under the laws of the State of New York, and its
Affiliates.
"PERMITTED INVESTMENTS" means
(1) Investments by the Company or any Restricted Subsidiary in any Person
that is or will become immediately after such Investment a Restricted
Subsidiary or that will merge or consolidate into the Company or a
Restricted Subsidiary;
(2) Investments in cash and Temporary Cash Investments;
(3) loans and advances to employees and officers of the Company and its
Restricted Subsidiaries in the ordinary course of business;
(4) Currency Agreements and Interest Rate Agreements entered into in the
ordinary course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the terms of the
Indenture;
(5) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(6) Investments made by the Company or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset
Disposition made in compliance with the covenant described under the
heading "Limitation on Sales of Assets and Subsidiary Stock";
(7) guarantees of Indebtedness permitted to be incurred under the covenant
described under the heading "Limitation on Indebtedness";
(8) receivables owing to the Company or any Restricted Subsidiary created
or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade
terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances;
(9) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary
course of business;
(10) Investments for consideration consisting exclusively of common stock
of the Company; and
(11) Investments in existence on the Issue Date.
"PERMITTED LIENS" means the following types of Liens:
(1) Liens securing Indebtedness under the Senior Credit Facility permitted
to be incurred under clause (b)(1) of the covenant described under the
heading "Limitation on Indebtedness";
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(2) Liens securing Indebtedness of a Person existing at the time that such
Person is merged into or consolidated with the Company or a Restricted
Subsidiary; provided that such Liens were not created in contemplation
of such merger or consolidation and do not extend to any assets or
property of the Company or any Restricted Subsidiary, other than the
surviving Person and its Subsidiaries;
(3) Liens on assets or property acquired by the Company or a Restricted
Subsidiary; provided that such Liens were not created in contemplation
of such acquisition and do not extend to any other assets or property
(other than proceeds of such acquired assets or property);
(4) Liens in respect of Interest Rate Agreements and Currency Agreements
described in clause (b)(6) of the "Limitation on Indebtedness"
covenant;
(5) Liens for taxes, assessments or governmental charges or claims that
either (a) are not yet delinquent or (b) are being contested in good
faith by appropriate proceedings and as to which appropriate reserves
have been established or other provisions have been made in accordance
with GAAP;
(6) statutory Liens of landlords and carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's, contractors' or other Liens
imposed by law and arising in the ordinary course of business;
(7) Liens (other than any Lien imposed by the Employee Retirement Income
Security Act of 1974, as amended) incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security;
(8) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, progress
payments, government contracts and other obligations of like nature
(exclusive of obligations for the payment of borrowed money), in each
case, incurred in the ordinary course of business;
(9) attachment or judgment Liens not giving rise to a Default or Event of
Default;
(10) easements, rights-of-way, restrictions and other similar charges or
encumbrances not materially interfering with the ordinary conduct of
the business of the Company or any of its Restricted Subsidiaries;
(11) leases or subleases granted to others not materially interfering with
the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries;
(12) Liens securing Refinancing Indebtedness; provided that such Liens only
extend to the assets securing the Indebtedness being refinanced, such
refinanced Indebtedness was previously secured and such Liens do not
extend to any other assets of the Company or the assets of any of the
Company's other Subsidiaries;
(13) Liens securing Purchase Money Obligations and Capital Lease
Obligations permitted to be Incurred under the Indenture;
(14) Liens existing on the Issue Date;
(15) any contract to sell an asset provided such sale is otherwise
permitted under the Indenture;
(16) Liens on property or assets of any Restricted Subsidiary securing
Indebtedness of such Restricted Subsidiary owing to the Company or one
or more Restricted Subsidiaries of the Company;
(17) Liens securing the Notes and the Guarantees; and
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<PAGE> 82
(18) other Liens securing Indebtedness permitted to be Incurred under the
Indenture in an aggregate amount not to exceed $25 million at any time
outstanding.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"PREFERRED STOCK," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"PRINCIPAL" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"PURCHASE MONEY OBLIGATION" means any Indebtedness incurred in the ordinary
course of business by a Person to finance the cost (including the cost of
construction) of an item of assets, the amount of which Indebtedness does not
exceed the sum of (x) 100% of the lesser of such cost or the fair market value
of such assets, as determined in good faith by the Board of Directors of the
Company, and (y) reasonable fees and expenses of such Person incurred in
connection therewith, and which is incurred concurrently with (or within 270
days following) the purchase of such assets and is secured only by the assets so
purchased.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock or that is not Indebtedness that is convertible or exchangeable
into Capital Stock.
"RATING AGENCY" means each of (a) S&P and (b) Moody's.
"REFINANCE" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that
(1) such Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than
the Average Life of the Indebtedness being Refinanced; and
(3) such Refinancing Indebtedness has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that
is equal to or less than the aggregate principal amount (or if Incurred
with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium
and defeasance costs) under the Indebtedness being Refinanced, plus the
reasonable fees and expenses related to the issuance of such
Refinancing Indebtedness;
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<PAGE> 83
provided, further, however, that Refinancing Indebtedness shall not include (x)
Indebtedness of a Restricted Subsidiary (other than the Company) that Refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.
"RESTRICTED PAYMENT" means, with respect to any Person,
(1) the declaration or payment of any dividends or any other distributions
of any sort in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving such Person),
other than dividends or distributions payable solely in its Capital
Stock (other than Disqualified Capital Stock) and dividends or
distributions payable solely to the Company or a Restricted Subsidiary,
and other than pro rata dividends or other distributions made by a
Restricted Subsidiary that is not a Wholly Owned Subsidiary to minority
stockholders (or owners of an equivalent interest in the case of a
Restricted Subsidiary that is an entity other than a corporation),
(2) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of
any option to exchange any Capital Stock (other than into Capital Stock
of the Company that is not Disqualified Capital Stock),
(3) the purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition
of Subordinated Obligations purchased in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in
each case due within one year of the date of acquisition), or
(4) the making of any Investment in any Person (other than a Permitted
Investment), including by designating any Subsidiary as an Unrestricted
Subsidiary.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"SENIOR CREDIT FACILITY" means the Credit Agreement, dated April 1, 1999
among the Company, Credit Suisse First Boston and the other agents and lenders
named therein, and any other bank credit agreement or similar facility entered
into in the future by the Company or any Restricted Subsidiary, as any of the
same, in whole or in part, may be amended, renewed, extended, increased (but
only so long as such increase is permitted under the terms of the Indenture),
substituted, refinanced, restructured or replaced (including, without
limitation, any successive renewals, extensions, increases, substitutions,
refinancings, restructurings, replacements, supplements or other modifications
of the foregoing).
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"STATED MATURITY" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any
79
<PAGE> 84
provision providing for the repurchase of such security at the option of the
holder thereof upon the happening of any contingency unless such contingency has
occurred).
"SUBORDINATED OBLIGATION" means any Indebtedness of the Company or a
Restricted Subsidiary (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to any other
Indebtedness of the Company or any such Restricted Subsidiary, as the case may
be.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"TEMPORARY CASH INVESTMENTS" means, as at any date of determination,
(i) marketable securities (a) issued or directly and unconditionally
guaranteed as to interest and principal by the United States or (b)
issued by any agency of the United States the obligations of which are
backed by the full faith and credit of the United States, in each case
maturing within one year after such date;
(ii) marketable direct obligations issued by any state of the United
States or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after
such date and having, at the time of the acquisition thereof, the
highest rating obtainable from either S&P or Moody's;
(iii) commercial paper maturing no more than one year from the date of
creation thereof and having, at the time of the acquisition thereof,
a rating of at least A-1 from S&P or at least P-1 from Moody's;
(iv) certificates of deposit or bankers' acceptances maturing within one
year after such date and issued or accepted by any commercial bank
organized under the laws of the United States of America or any state
thereof or the District of Columbia that (a) is at least "adequately
capitalized" (as defined in the regulations of its primary Federal
banking regulator) and (b) has Tier 1 capital (as defined in such
regulations) of not less than $100,000,000; and
(v) shares of any money market mutual fund that (a) has at least 95% of
its assets invested continuously in the types of investments referred
to in clauses (i) and (ii) above, (b) has net assets of not less than
$500,000,000, and (c) has the highest rating obtainable from either
S&P or Moody's.
"UNRESTRICTED SUBSIDIARY" means
(1) Practice Patterns Science, Inc., Great Plains Reinsurance Company,
Value Rx of Michigan Inc. and any other Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors of the Company in the manner
provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
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<PAGE> 85
The Board of Directors of the Company may designate any Subsidiary of the
Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Restricted Subsidiary of the Company; provided, however,
that either (A) the Subsidiary to be so designated has total assets of $1,000 or
less or (B) if such Subsidiary has assets greater than $1,000, such designation
would be permitted under the covenant described under "Limitation on Restricted
Payments." The Board of Directors of the Company may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) if such Unrestricted Subsidiary at
such time has Indebtedness, the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "Limitation on
Indebtedness" and (y) no Default shall have occurred and be continuing or would
arise therefrom. Any such designation by the Board of Directors of the Company
shall be evidenced by the Company to the Trustee by promptly filing with the
Trustee a copy of the board resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"VOTING STOCK" of a Person means all classes of Capital Stock or other
interests (including limited liability company or partnership interests) of such
Person then outstanding and normally entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
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<PAGE> 86
MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS
EXCHANGE OF NOTES
The exchange of outstanding notes for exchange notes in the exchange offer
will not constitute a taxable event to holders. Consequently, no gain or loss
will be recognized by a holder upon receipt of an exchange note, the holding
period of the exchange note will include the holding period of the outstanding
note and the basis of the exchange note will be the same as the basis of the
outstanding note immediately before the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OUTSTANDING NOTES FOR
EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where such outstanding notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that, for a period of 180 days after the consummation of the exchange offer, we
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the consummation of the exchange offer we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holders of the
notes) other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated in this prospectus by
reference include forward-looking statements under the Securities Act. In
addition, from time to time, we or our representatives have made or may make
forward-looking statements orally or in writing. The words "may," "will,"
"expect," "anticipate," "believe," "estimate," "plan," "intend" and similar
expressions have been used in this prospectus and the documents incorporated in
this prospectus by reference to identify forward-looking statements. We have
based these forward-looking statements on our current views with respect to
future events and financial performance. Actual results could differ materially
from those projected in the forward-looking statements. These forward-looking
statements are subject to risks, uncertainties and assumptions, including, among
other things:
- risks associated with the consummation and financing of our acquisitions
of ValueRx and DPS, including the ability to successfully integrate the
operations of the acquired businesses with our existing operations,
client retention issues and risks inherent in the acquired entities
operations
- risks associated with our ability to meet our debt obligations
- risks associated with managing and maintaining internal growth
- competition, including price competition, competition in the bidding and
proposal process and our ability to consummate contract negotiations with
prospective clients
- the possible termination of contracts with key clients or providers
- the possible loss of relationships with pharmaceutical manufacturers
- changes in pricing or discount practices of pharmaceutical manufacturers
- adverse results in litigation and regulatory matters, the adoption of
adverse legislation or regulations, more aggressive enforcement of
existing legislation or regulations or a change in the interpretation of
existing legislation or regulations
- the impact of increases in health care costs, changes in drug utilization
patterns and introductions of new drugs
- risks associated with the "year 2000" issue, including our ability to
successfully convert our and DPS's information systems and our and DPS's
non-information systems, and the ability of our and DPS's vendors/trading
partners to successfully convert their systems to be year 2000 compliant
- dependence on key members of management
- our relationship with New York Life, which possesses voting control of us
- other risks described from time to time in our filings with the SEC
We are not obligated to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. All
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained throughout this prospectus and the documents
incorporated in this prospectus by reference. Because of these risks,
uncertainties and assumptions, you should not place undue reliance on these
forward-looking statements.
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<PAGE> 88
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Exchange Act. The Exchange Act file number
for our SEC filings is 000-20199. You may read and copy any document we file at
the following SEC public reference rooms:
<TABLE>
<S> <C> <C>
Judiciary Plaza 500 West Madison Street 7 World Trade Center
450 Fifth Street, N.W. 14th Floor Suite 1300
Room 1024 Chicago, Illinois 60661 New York, New York 10048
Washington, D.C. 20549
</TABLE>
You may obtain information on the operation of the public reference room in
Washington, D.C. by calling the SEC at 1-800-SEC-0330.
We file information electronically with the SEC. Our SEC filings also are
available from the SEC's Internet site at http://www.sec.gov, which contains
reports, proxy and information statements and other information regarding
issuers that file electronically.
Our Class A common stock is listed on The Nasdaq National Market. You may
also read and copy our SEC filings and other information at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
This prospectus is part of a registration statement filed with the SEC. The
SEC allows us to "incorporate by reference" selected documents we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information in the documents incorporated by reference
is considered to be part of this prospectus, and information in documents that
we file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we will make with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act:
- Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
as amended by Form 10-K/A dated June 10, 1999
- Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1999
- Current Reports on Form 8-K dated February 18, 1999, February 24, 1999,
March 25, 1999, April 14, 1999, May 12, 1999, May 13, 1999, May 28, 1999,
July 1, 1999 and Form 8-K/A dated June 12, 1998 and June 14, 1999
We will provide a copy of the documents we incorporate by reference, at no
cost, to any person who receives this prospectus. To request a copy of any or
all of these documents, you should write or telephone us at the following
address and telephone number:
General Counsel
Express Scripts, Inc.
13900 Riverport Drive
Maryland Heights, Missouri 63043
Telephone: (314) 770-1666
IN ORDER TO ASSURE TIMELY DELIVERY, ANY REQUEST FOR COPIES OF THE INDENTURE
OR OTHER AGREEMENTS REFERRED TO IN THIS PROSPECTUS, SHOULD BE DIRECTED TO
EXPRESS SCRIPTS AT THE ADDRESS REFERRED TO ABOVE NO LATER THAN , 1999.
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LEGAL MATTERS
Legal matters in connection with the notes are being passed upon for us by
Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The Express Scripts, Inc. Financial Statements as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998
included in this prospectus and the Diversified Pharmaceutical Services, Inc.
and Subsidiary Financial Statements as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998 and the Value
Health Pharmacy Benefit Management Financial Statements as of December 31, 1996
and for each of the two years in the period ended December 31, 1996 incorporated
by reference in this prospectus have been included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in auditing and accounting.
The Value Health Pharmacy Benefit Management Financial Statements as of
December 31, 1997 and for the five-month period ended December 31, 1997 and for
the seven-month period ended July 31, 1997 and the Managed Prescription Network,
Inc. Financial Statements as of December 31, 1997 and 1996 and for each of the
three years in the period ended December 31, 1997 incorporated by reference in
this prospectus have been so included from our current report on Form 8-K/A
dated June 12, 1998 in reliance on the reports of Ernst & Young LLP, independent
accountants, given on the authority of that firm as experts in auditing and
accounting.
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INDEX TO FINANCIAL STATEMENTS
EXPRESS SCRIPTS, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Consolidated Balance
Sheet............................. F-3
Unaudited Consolidated Statement of
Operations........................ F-4
Unaudited Consolidated Statement of
Changes in Stockholders' Equity... F-5
Unaudited Consolidated Statement of
Cash Flows........................ F-6
Notes to Unaudited Consolidated
Financial Statements.............. F-7
</TABLE>
EXPRESS SCRIPTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants... F-15
Consolidated Balance Sheet.......... F-16
Consolidated Statement of
Operations........................ F-17
Consolidated Statement of Changes in
Stockholders' Equity.............. F-18
Consolidated Statement of Cash
Flows............................. F-19
Notes to Consolidated Financial
Statements........................ F-20
</TABLE>
VALUE HEALTH PHARMACY BENEFIT MANAGEMENT AND
MANAGED PRESCRIPTION NETWORK, INC. D/B/A COLUMBIA PHARMACY SOLUTIONS
UNAUDITED COMBINED CONDENSED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Combined Condensed Balance
Sheet............................. F-46
Unaudited Combined Condensed State-
ment of Operations................ F-47
Unaudited Combined Condensed State-
ment of Cash Flow................. F-48
Notes to Unaudited Combined
Condensed Financial Statements.... F-49
</TABLE>
F-1
<PAGE> 91
EXPRESS SCRIPTS, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
F-2
<PAGE> 92
EXPRESS SCRIPTS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 122,589 $ 115,838
Receivables, less allowance for doubtful accounts of
$17,806 and $14,883, respectively...................... 433,006 446,453
Inventories............................................... 55,634 55,234
Deferred taxes............................................ 41,011 41,841
Prepaid expenses.......................................... 4,667 3,761
---------- ----------
Total current assets................................... 656,907 663,127
Property and equipment, less accumulated depreciation and
amortization.............................................. 77,499 73,346
Goodwill, less accumulated amortization..................... 282,163 268,081
Other assets................................................ 78,892 92,396
---------- ----------
Total assets........................................... $1,095,461 $1,096,950
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 54,000 $ 54,000
Claims and rebates payable................................ 338,251 331,525
Accounts payable.......................................... 60,247 65,715
Accrued expenses.......................................... 86,798 71,666
---------- ----------
Total current liabilities.............................. 539,296 522,906
Long-term debt.............................................. 306,000 306,000
Other liabilities........................................... 471 502
---------- ----------
Total liabilities...................................... 845,767 829,408
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, and no shares issued
Class A Common Stock, $.01 par value, 75,000,000 shares
authorized, 18,610,000 and 18,707,000 shares issued,
respectively........................................... 186 187
Class B Common Stock, $.01 par value, 22,000,000 shares
authorized, 15,020,000 shares issued................... 150 150
Additional paid-in capital................................ 110,099 114,391
Accumulated other comprehensive income...................... (74) (62)
Retained earnings......................................... 146,322 159,865
---------- ----------
256,683 274,531
Class A Common Stock in treasury at cost, 475,000
shares................................................. (6,989) (6,989)
---------- ----------
Total stockholders' equity............................. 249,694 267,542
---------- ----------
Total liabilities and stockholders' equity............. $1,095,461 $1,096,950
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 93
EXPRESS SCRIPTS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1999
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net revenues................................................ $371,362 $899,087
-------- --------
Cost and expenses:
Cost of revenues.......................................... 338,492 823,647
Selling, general & administrative......................... 18,826 46,440
-------- --------
357,318 870,087
-------- --------
Operating income............................................ 14,044 29,000
-------- --------
Interest income (expense):
Interest income........................................... 2,138 1,393
Interest expense.......................................... (14) (6,222)
-------- --------
2,124 (4,829)
-------- --------
Income before income taxes.................................. 16,168 24,171
Provision for income taxes.................................. 6,290 10,628
-------- --------
Net income.................................................. $ 9,878 $ 13,543
======== ========
Basic earnings per share.................................... $ 0.30 $ 0.41
======== ========
Weighted average number of common shares outstanding during
the period -- Basic EPS................................... 33,053 33,211
======== ========
Diluted earnings per share.................................. $ 0.29 $ 0.40
======== ========
Weighted average number of common shares outstanding during
the period -- Diluted EPS................................. 33,579 34,154
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 94
EXPRESS SCRIPTS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF SHARES AMOUNT
----------------- -------------------------------------------------------------------------------
ACCUMULATED
CLASS A CLASS B CLASS A CLASS B ADDITIONAL OTHER
COMMON COMMON COMMON COMMON PAID-IN COMPREHENSIVE RETAINED TREASURY
STOCK STOCK STOCK STOCK CAPITAL INCOME EARNINGS STOCK TOTAL
------- ------- ------- ------- ---------- ------------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998...................... 18,610 15,020 $186 $150 $110,099 $(74) $146,322 $(6,989) $249,694
------ ------ ---- ---- -------- ---- -------- ------- --------
Comprehensive income:
Net income.............. 13,543 13,543
Other comprehensive
income,
Foreign currency
translation
adjustment......... -- -- -- -- -- 12 -- -- 12
------ ------ ---- ---- -------- ---- -------- ------- --------
Comprehensive income...... -- -- -- -- -- 12 13,543 -- 13,555
Exercise of stock
options................. 97 1 2,721 2,722
Tax benefit relating to
employee stock
options................. -- -- -- -- 1,571 -- -- -- 1,571
------ ------ ---- ---- -------- ---- -------- ------- --------
Balance at March 31, 1999... 18,707 15,020 $187 $150 $114,391 $(62) $159,865 $(6,989) $267,542
====== ====== ==== ==== ======== ==== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 95
EXPRESS SCRIPTS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1999
------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 9,878 $ 13,543
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 2,396 8,685
Deferred income taxes................................ (362) 1,545
Bad debt expense..................................... 942 1,592
Tax benefit relating to employee stock options....... 662 1,571
Net changes in operating assets and liabilities...... 10,706 (30,744)
------- --------
Net cash provided by (used in) operating activities....... 24,222 (3,808)
------- --------
Cash flows from investing activities:
Purchases of property and equipment..................... (3,176) (5,677)
Short-term investments.................................. (1,334) --
------- --------
Net cash (used in) investing activities................... (4,510) (5,677)
------- --------
Cash flows from financing activities:
Other, net.............................................. 683 2,722
------- --------
Net cash provided by financing activities................. 683 2,722
------- --------
Effect of foreign currency translation adjustment......... 6 12
------- --------
Net increase (decrease) in cash and cash equivalents...... 20,401 (6,751)
Cash and cash equivalents at beginning of period.......... 64,155 122,589
------- --------
Cash and cash equivalents at end of period................ $84,556 $115,838
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 96
EXPRESS SCRIPTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial statement note disclosures, normally included in financial
statements prepared in conformity with generally accepted accounting principles,
have been omitted in this Form 10-Q pursuant to the Rules and Regulations of the
Securities and Exchange Commission. However, in the opinion of the Company, the
disclosures contained in this Form 10-Q are adequate to make the information
presented not misleading when read in conjunction with the notes to consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1998, as filed with the Securities and Exchange
Commission on March 29, 1999.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the Unaudited Consolidated
Balance Sheet at March 31, 1999, the Unaudited Consolidated Statement of
Operations for the three months ended March 31, 1998, and 1999, the Unaudited
Consolidated Statement of Changes in Stockholders' Equity for the three months
ended March 31, 1999, and the Unaudited Consolidated Statement of Cash Flows for
the three months ended March 31, 1998, and 1999. Operating results for the three
months ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999.
2. RECEIVABLES
As of December 31, 1998 and March 31, 1999, unbilled receivables were
$209,334,000 and $214,941,000, respectively.
3. EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed in the same manner as basic earnings per share but adds the number of
additional common shares that would have been outstanding for the period if the
dilutive potential common shares had been issued. The only difference between
the number of weighted average shares used in the basic and diluted calculation
for all years is stock options and stock warrants granted by the Company using
the "treasury stock" method.
4. ACQUISITION
On April 1, 1998 the Company acquired all of the outstanding capital stock
of Value Health, Inc. and Managed Prescriptions Network, Inc. (collectively, the
"Acquired Entities") from Columbia/HCA Healthcare Corporation ("Columbia") for
approximately $460 million in cash (which includes transactions costs and
executive management severance costs of approximately $15 million),
approximately $360 million of which was obtained through a five-year bank credit
facility (see Note 4) and the remainder from the Company's cash balances and
short-term investments. At closing, the Acquired Entities owned various
subsidiaries that now or formerly conducted a PBM business, commonly known as
"ValueRx."
The acquisition has been accounted for using the purchase method of
accounting and the results of operations of the Acquired Entities have been
included in the consolidated
F-7
<PAGE> 97
EXPRESS SCRIPTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statements and PBM segment since April 1, 1998. The purchase price has
been allocated based on the estimated fair values of net assets acquired at the
date of the acquisition. The excess of purchase price over tangible net assets
acquired has been allocated to other intangible assets consisting of customer
contracts and non-compete agreements in the amount of $57,653,000 which are
being amortized using the straight-line method over the estimated useful lives
of 2 to 20 years and are included in other assets, and goodwill in the amount of
$278,113,000 which is being amortized using the straight-line method over the
estimated useful life of 30 years. In conjunction with the acquisition, the
Acquired Entities and their subsidiaries retained the following liabilities:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired............................ $ 659,166
Cash paid for the capital stock.......................... (460,137)
---------
Liabilities retained................................ $ 199,029
=========
</TABLE>
The following unaudited pro forma information presents a summary of
combined results of operations of the Company and the Acquired Entities as if
the acquisition had occurred at the beginning of the period presented, along
with certain pro forma adjustments to give effect to amortization of goodwill,
other intangible assets, interest expense on acquisition debt and other
adjustments. The pro forma financial information is not necessarily indicative
of the results of operations as they would have been had the transaction been
effected on the assumed dates. Included in the pro forma information are
integration costs incurred by the Company that are being reported within
selling, general and administrative expenses in the statement of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Net revenues.......................................... $781,290
Net income............................................ 9,900
Basic earnings per share.............................. 0.30
Diluted earnings per share............................ 0.29
</TABLE>
5. FINANCING
On April 1, 1998, the Company executed a $440 million credit facility with
a bank syndicate led by Bankers Trust Company, consisting of a $360 million term
loan facility and an $80 million revolving loan facility. The credit facility
expires on April 15, 2003 and is guaranteed by the Company's domestic
subsidiaries other than Practice Patterns Science, Inc. ("PPS"), and Great
Plains Reinsurance Company ("Great Plains") and secured by pledges of 100% (or,
in the case of foreign subsidiaries, 65%) of the capital stock of the Company's
subsidiaries other than PPS and Great Plains. The provisions of this term loan
require quarterly interest payments and, beginning in April 1999, semi-annual
principal payments. The interest rate is based on a spread ("Credit Rate
Spread") over several London Interbank Offered Rates ("LIBOR") or base rate
options, depending upon the Company's ratio of earnings before interest, taxes,
depreciation and amortization
F-8
<PAGE> 98
EXPRESS SCRIPTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
("EBITDA") to debt ("Leverage Ratio"). At March 31, 1999, the interest rate was
5.84375%, representing a credit rate spread of 0.75% over the three-month LIBOR
rate. The credit facility contains covenants that limit the indebtedness the
Company may incur and the amount of annual capital expenditures. The covenants
also establish a minimum interest coverage ratio, a maximum leverage ratio, and
a minimum consolidated net worth. At March 31, 1999, the Company was in
compliance with all covenants. In addition, the Company is required to pay an
annual fee depending on the leverage ratio, payable in quarterly installments,
on the unused portion of the revolving loan. The commitment fee was 22.5 basis
points at March 31, 1999. There were no borrowings at March 31, 1999 under the
revolving loan facility. The carrying amount of the Company's term loan facility
approximates fair value.
In conjunction with the Company's policy to manage interest rate risk, the
Company entered into an interest rate swap agreement ("swap") with The First
National Bank of Chicago, a subsidiary of Bank One Corporation, on April 3,
1998. At March 31, 1999, the swap had a notional principal amount of $360
million. Under the terms of the swap, the Company agrees to receive a floating
rate of interest on the amount of the term loan facility based on a three-month
LIBOR rate in exchange for payment of a fixed rate of interest of 5.88% per
annum. The notional principal amount of the swap amortizes in equal amounts with
the principal balance of the term loan facility. As a result, the Company has,
in effect, converted its variable rate term debt to fixed rate debt at 5.88% per
annum for the entire term of the term loan facility, plus the Credit Rate
Spread.
6. RESTRUCTURING
During the second quarter of 1998, the Company recorded a pre-tax
restructuring charge of $1,651,000 ($1,002,000 after taxes or $0.03 per basic
and diluted earnings per share) associated with the Company closing the non-PBM
service operations of its wholly-owned subsidiary, PhyNet, Inc., and
transferring certain functions of its Express Scripts Vision Corporation to
another vision care provider.
<TABLE>
<CAPTION>
BALANCE AT UTILIZED BALANCE AT
DECEMBER 31, --------------- MARCH 31,
1998 CASH NONCASH 1999
------------ ---- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Write-down of long-lived assets..... $531 $ -- $(195) $336
Employee transition costs for 61
employees......................... 232 -- -- 232
---- ---- ----- ----
$763 $ -- $(195) $568
==== ==== ===== ====
</TABLE>
The restructuring charge includes tangible assets to be disposed of being
written down to their net realizable value, less cost of disposal. Management
expects recovery to approximate its cost of disposal. Considerable management
judgment is necessary to estimate fair value; accordingly, actual results could
vary from such estimates. The Company anticipates completing the remainder of
the restructuring actions by the end of the third quarter of 1999.
F-9
<PAGE> 99
EXPRESS SCRIPTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SEGMENT REPORTING
The Company is organized on the basis of services offered and has
determined that it has two reportable segments: PBM services and non-PBM
services. The Company manages the pharmacy benefit within an opening segment
which encompasses a fully-integrated PBM service. The remaining three operating
service lines (IVTx, Specialty Distribution and Vision) have been aggregated
into a non-PBM reporting segment.
The following table presents information about the reportable segments for
the three months ended March 31:
<TABLE>
<CAPTION>
PBM NON-PBM TOTAL
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1998
Net revenues......................... $358,924 $12,438 $371,362
Income before income taxes........... 15,038 1,130 16,168
1999
Net revenues......................... $884,435 $14,652 $899,087
Income before income taxes........... 22,660 1,511 24,171
</TABLE>
8. SUBSEQUENT EVENTS
On April 1, 1999 the Company completed its acquisition of Diversified
Pharmaceutical Services, Inc. and Diversified Pharmaceutical Services (Puerto
Rico) Inc. (collectively, "DPS"), from SmithKline Beecham Corporation and
SmithKline Beecham InterCredit BV (collectively, "SB") for approximately $700
million in cash, such amount being subject to adjustment based upon the amount
of working capital of DPS at closing. The acquisition will be accounted for
under the purchase method of accounting. The Company will file an Internal
Revenue Code sec.338(h)(10) election, making amortization expense of certain
intangible assets, including goodwill, tax deductible.
The Company used approximately $48 million of its own cash and financed the
remainder of the purchase price and related acquisition costs through a $1.05
billion credit facility with a bank syndicate led by Credit Suisse First Boston
and Bankers Trust Company, and a $150 million senior subordinated bridge credit
facility from Credit Suisse First Boston and Bankers Trust Company. The Company
also used a portion of the proceeds from the $1.05 billion credit facility to
retire the $360 million principal balance outstanding on its $440 million credit
facility (see Note 4). As a result of the retirement of the $360 million balance
outstanding on its $440 million credit facility, the Company will write-off the
remaining deferred financing fees at March 31, 1999 of $3,250,000, or
approximately $1,950,000 net of tax, as an extraordinary item during the second
quarter of 1999.
The $1.05 billion credit facility consists of a $300 million revolving
facility, a $285 million term facility ("Term A"), and a $465 million term
facility ("Term B"). The revolving facility and the Term A facility are for a
period of six years. The Term B facility is for a period of eight years. The
provisions of this loan require quarterly interest payments and, beginning in
March 2000, annual principal payments. The interest rate is
F-10
<PAGE> 100
EXPRESS SCRIPTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based on a spread (the "Base Rate Margin") over several LIBOR or base rate
options, depending upon the Company's ratio of debt to EBITDA. However, the
initial base rate margin is fixed at 275 basis points for the revolving facility
and Term A facility and 350 basis points for the Term B facility for the first
two quarters. The credit facility contains covenants that limit the indebtedness
the Company may incur and the amount of annual capital expenditures. The
covenants also establish a minimum interest coverage ratio, a maximum leverage
ratio, and a minimum fixed charge coverage ratio. In addition, the Company is
required to pay an annual fee of 50 basis points, payable in quarterly
installments, on the unused portion of the revolving facility.
The following represents the schedule of current maturities for the Term A
and Term B facilities (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1999....................................................... $ --
2000....................................................... 4,650
2001....................................................... 47,400
2002....................................................... 61,650
2003....................................................... 61,650
Thereafter................................................. 574,650
--------
$750,000
========
</TABLE>
On March 24, 1999, the Company's Board of Directors adopted, and on May 26,
1999, the Company's stockholders approved, an amendment to the Company's Amended
and Restated 1994 Stock Option Plan to, among other things, increase the number
of shares reserved for issuance under this plan. A total of 2,920,000 shares of
the Company's Class A common stock are currently reserved for issuance under
this plan, and said amount will automatically increase on January 1 of each
year, to and including January 1, 2004, by an amount equal to 1% of the
aggregate number of then outstanding shares of the Company's Class A and Class B
common stock.
On May 26, 1999, the Company's stockholders approved an amendment to the
Company's certificate of incorporation to increase the number of authorized
shares of Class A common stock from 75 million to 150 million and the number of
authorized shares of Class B common stock from 22 million to 31 million.
On June 18, 1999, the Company learned that it is named as a defendant in
Allcare Health Management Systems, Inc. v. Cerner Corporation, et al. No.
499-CV-0464-Y (N.D. TX). Plaintiff commenced this action on or about June 16,
1999, alleging infringement of a patent owned by Plaintiff on a "Wellness Health
Management System" by the Company and its wholly-owned subsidiary Diversified
Pharmaceutical Services, Inc. and ten other unrelated entities. At this stage of
the litigation, neither the merits of Plaintiff's claim nor the potential
liability associated with it, if any, can be ascertained.
On June 18, 1999, SB transferred ownership of Diversified Prescription
Delivery L.L.C. ("DPD"), to the Company, pursuant to the Company's stock
purchase agreement
F-11
<PAGE> 101
EXPRESS SCRIPTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with SB for the acquisition of DPS. The acquisition will be accounted for under
the purchase method of accounting.
In June 1999, the Company completed its equity offering of 5,175,000 shares
of its Class A common stock, which includes the underwriters' over-allotments.
The Company received net proceeds of $300,393,000. The Company also completed
the sale of $250 million of 9 5/8% Senior Notes due 2009 through a private
placement, receiving net proceeds of $243,502,000. The Company used the net
proceeds from the offerings, along with approximately $25 million of its own
cash, to repay the $150 million senior subordinated bridge credit facility plus
accrued interest and $414,770,000 of the Term B facility plus accrued interest.
As a result of the retirement of a portion of the Term B facility, the Company
will write-off $7,491,000, or, approximately $4,495,000 net of tax, in deferred
financing fees as an extraordinary item during the second quarter of 1999.
The 9 5/8% Senior Notes are due June 15, 2009 and require semi-annual
interest payments beginning December 15, 1999. The Senior Notes are guaranteed
by the Company's domestic subsidiaries other than Practice Patterns Science,
Inc., Great Plains Reinsurance Company, ValueRx of Michigan, Inc., Diversified
NY IPA, Inc. and Diversified Pharmaceutical Services (Puerto Rico) Inc. The
following is a summary of financial position and results of operations of the
issuer, the guarantor subsidiaries and non-guarantor subsidiaries:
<TABLE>
<CAPTION>
EXPRESS NON-
SCRIPTS, INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998
Current assets.................. $463,818 $ 188,978 $ 4,111 $ -- $ 656,907
Property and equipment, net..... 27,375 46,817 3,307 77,499
Investments in subsidiaries..... 68,198 74,297 264 (142,759)
Intercompany.................... 363,455 (361,202) (2,253)
Goodwill, net................... 210 281,953 282,163
Other assets.................... 12,783 65,853 256 -- 78,892
-------- --------- ------- --------- ----------
Total assets.................. $935,839 $ 296,696 $ 5,685 $(142,759) $1,095,461
======== ========= ======= ========= ==========
Current liabilities............. $394,553 $ 141,433 $ 3,310 $ -- $ 539,296
Long-term debt.................. 306,000 306,000
Other liabilities............... 779 (251) (57) 471
Stockholders' equity............ 234,507 155,514 2,432 (142,759) 249,694
-------- --------- ------- --------- ----------
Total liabilities and
stockholders' equity........ $935,839 $ 296,696 $ 5,685 $(142,759) $1,095,461
======== ========= ======= ========= ==========
</TABLE>
F-12
<PAGE> 102
EXPRESS SCRIPTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EXPRESS NON-
SCRIPTS, INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
AS OF MARCH 31, 1999
Current assets.................. $458,406 $ 197,231 $ 7,490 $ -- $ 663,127
Property and equipment, net..... 27,018 43,227 3,101 73,346
Investments in subsidiaries..... 68,198 74,297 264 (142,759)
Intercompany.................... 374,087 (371,292) (2,795)
Goodwill, net................... 199 267,882 268,081
Other assets.................... 15,700 76,451 245 -- 92,396
-------- --------- ------- --------- ----------
Total assets.................. $943,608 $ 287,796 $ 8,305 $(142,759) $1,096,950
======== ========= ======= ========= ==========
Current liabilities............. $383,686 $ 133,236 $ 5,984 $ -- $ 522,906
Long-term debt.................. 306,000 306,000
Other liabilities............... 802 (232) (68) 502
Stockholders' equity............ 253,120 154,792 2,389 (142,759) 267,542
-------- --------- ------- --------- ----------
Total liabilities and
stockholders' equity........ $943,608 $ 287,796 $ 8,305 $(142,759) $1,096,950
======== ========= ======= ========= ==========
THREE MONTHS ENDED MARCH 31, 1998
Net revenues.................... $364,970 $ 3,908 $ 2,484 $ -- $ 371,362
Operating expenses 351,065 3,783 2,470 -- 357,318
-------- --------- ------- --------- ----------
Operating income (loss)....... 13,905 125 14 -- 14,044
Interest income (expense)....... 2,102 -- 22 -- 2,124
-------- --------- ------- --------- ----------
Income (loss) before tax
provision................... 16,007 125 36 -- 16,168
Income tax provision
(benefit)..................... 6,205 48 37 -- 6,290
-------- --------- ------- --------- ----------
Net Income (loss)............. $ 9,802 $ 77 $ (1) $ -- $ 9,878
======== ========= ======= ========= ==========
THREE MONTHS ENDED MARCH 31, 1999
Net revenues.................... $493,545 $ 401,878 $ 3,664 $ -- $ 899,087
Operating expenses.............. 466,356 400,698 3,033 -- 870,087
-------- --------- ------- --------- ----------
Operating income (loss)....... 27,189 1,180 631 -- 29,000
Interest income (expense)....... (4,939) 66 44 -- (4,829)
-------- --------- ------- --------- ----------
Income (loss) before tax
provision................... 22,250 1,246 675 -- 24,171
Income tax provision
(benefit)..................... 8,451 1,894 283 -- 10,628
-------- --------- ------- --------- ----------
Net Income (loss)............. $ 13,799 $ (648) $ 392 $ -- $ 13,543
======== ========= ======= ========= ==========
</TABLE>
F-13
<PAGE> 103
EXPRESS SCRIPTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1998 AND
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
F-14
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Express Scripts, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Express Scripts, Inc. and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
February 12, 1999, except for Note 15, which
is as of July 15, 1999
F-15
<PAGE> 105
EXPRESS SCRIPTS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
---- ----
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 64,155 $ 122,589
Short-term investments.................................... 57,938
Receivables, less allowance for doubtful accounts of
$4,802 and $17,806, respectively
Unrelated parties......................................... 194,061 433,006
Related parties........................................... 16,230
Inventories............................................... 28,935 55,634
Deferred taxes............................................ 2,303 41,011
Prepaid expenses.......................................... 346 4,667
-------- ----------
Total current assets.................................... 363,968 656,907
Property and equipment, less accumulated depreciation and
amortization.............................................. 26,821 77,499
Goodwill, less accumulated amortization..................... 251 282,163
Other assets................................................ 11,468 78,892
-------- ----------
Total assets............................................ $402,508 $1,095,461
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ -- $ 54,000
Claims and rebates payable................................ 164,920 338,251
Accounts payable.......................................... 17,979 60,247
Accrued expenses.......................................... 15,007 86,798
-------- ----------
Total current liabilities............................... 197,906 539,296
Long-term debt.............................................. 306,000
Other liabilities........................................... 901 471
-------- ----------
Total liabilities....................................... 198,807 845,767
-------- ----------
Commitments and Contingencies (Notes 3, 9 and 15)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, and no shares issued and outstanding........
Class A Common Stock, $.01 par value, 75,000,000 shares
authorized, 9,238,000 and 18,610,000 shares issued and
outstanding, respectively............................... 93 186
Class B Common Stock, $.01 par value, 22,000,000 shares
authorized, 7,510,000 and 15,020,000 shares issued and
outstanding, respectively............................... 75 150
Additional paid-in capital................................ 106,901 110,099
Accumulated other comprehensive income.................... (27) (74)
Retained earnings......................................... 103,648 146,322
-------- ----------
210,690 256,683
Class A Common Stock in treasury at cost, 475,000
shares.................................................. (6,989) (6,989)
-------- ----------
Total stockholders' equity.............................. 203,701 249,694
-------- ----------
Total liabilities and stockholders' equity.............. $402,508 $1,095,461
======== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-16
<PAGE> 106
EXPRESS SCRIPTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
--------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenues (including $152,311, $208,118
and $145,758, respectively, from related
parties)................................. $773,615 $1,230,634 $2,824,872
-------- ---------- ----------
Cost and expenses:
Cost of revenues (including $122,157,
$176,761 and $127,255, respectively,
to related parties)................... 684,882 1,119,167 2,584,997
Selling, general and administrative...... 49,103 62,617 148,990
Corporate restructuring.................. -- -- 1,651
-------- ---------- ----------
733,985 1,181,784 2,735,638
-------- ---------- ----------
Operating income........................... 39,630 48,850 89,234
-------- ---------- ----------
Interest income (expense):
Interest income.......................... 3,509 6,081 7,236
Interest expense......................... (59) (225) (20,230)
-------- ---------- ----------
3,450 5,856 (12,994)
-------- ---------- ----------
Income before income taxes................. 43,080 54,706 76,240
Provision for income taxes................. 16,932 21,277 33,566
-------- ---------- ----------
Net income................................. $ 26,148 $ 33,429 $ 42,674
======== ========== ==========
Basic earnings per share................... $ 0.81 $ 1.02 $ 1.29
======== ========== ==========
Weighted average number of common shares
outstanding during the period -- Basic
EPS...................................... 32,160 32,713 33,105
======== ========== ==========
Diluted earnings per share................. $ 0.80 $ 1.01 $ 1.27
======== ========== ==========
Weighted average number of common shares
outstanding during the period -- Diluted
EPS...................................... 32,700 33,122 33,698
======== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-17
<PAGE> 107
EXPRESS SCRIPTS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF SHARES AMOUNT
----------------- -------------------------------------------------------------------------------
ACCUMULATED
CLASS A CLASS B CLASS A CLASS B ADDITIONAL OTHER
COMMON COMMON COMMON COMMON PAID-IN COMPREHENSIVE RETAINED TREASURY
STOCK STOCK STOCK STOCK CAPITAL INCOME EARNINGS STOCK TOTAL
------- ------- ------- ------- ---------- ------------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995...................... 4,539 10,500 $ 45 $105 $ 33,158 $ -- $ 44,071 $ -- $ 77,379
Comprehensive income:
Net income.............. 26,148 26,148
Other comprehensive
income,
Foreign currency
translation
adjustment......... -- -- -- -- -- (2) -- -- (2)
------ ------ ------ ---- -------- ----- -------- ------- --------
Comprehensive income...... -- -- -- -- -- (2) 26,148 -- 26,146
Conversion of Class B
Common Stock to Class A
Common Stock............ 2,990 (2,990) 30 (30)
Issuance of Class A Common
Stock
Contractual
agreement.......... 227 2 11,250 11,252
Public offering....... 1,150 12 52,580 52,592
Exercise of stock
options................. 68 1 1,309 1,310
Tax benefit relating to
employee stock
options................. 661 661
Treasury Stock acquired... -- -- -- -- -- -- -- (5,250) (5,250)
------ ------ ------ ---- -------- ----- -------- ------- --------
Balance at December 31,
1996...................... 8,974 7,510 90 75 98,958 (2) 70,219 (5,250) 164,090
------ ------ ------ ---- -------- ----- -------- ------- --------
Comprehensive income:
Net income.............. 33,429 33,429
Other comprehensive
income,
Foreign currency
translation
adjustment......... -- -- -- -- -- (25) -- -- (25)
------ ------ ------ ---- -------- ----- -------- ------- --------
Comprehensive income...... -- -- -- -- -- (25) 33,429 -- 33,404
Exercise of stock
options................. 264 3 4,769 4,772
Tax benefit relating to
employee stock
options................. 3,174 3,174
Treasury Stock acquired... -- -- -- -- -- -- -- (1,739) (1,739)
------ ------ ------ ---- -------- ----- -------- ------- --------
Balance at December 31,
1997...................... 9,238 7,510 93 75 106,901 (27) 103,648 (6,989) 203,701
------ ------ ------ ---- -------- ----- -------- ------- --------
Comprehensive income:
Net income.............. 42,674 42,674
Other comprehensive
income,
Foreign currency
translation
adjustment......... -- -- -- -- -- (47) -- -- (47)
------ ------ ------ ---- -------- ----- -------- ------- --------
Comprehensive income...... -- -- -- -- -- (47) 42,674 -- 42,627
Issuance of stock
dividend................ 9,239 7,510 92 75 (167)
Exercise of stock
options................. 133 1 2,020 2,021
Tax benefit relating to
employee stock
options................. -- -- -- -- 1,345 -- -- -- 1,345
------ ------ ------ ---- -------- ----- -------- ------- --------
Balance at December 31,
1998...................... 18,610 15,020 $ 186 $150 $110,099 $ (74) $146,322 $(6,989) $249,694
====== ====== ====== ==== ======== ===== ======== ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-18
<PAGE> 108
EXPRESS SCRIPTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 26,148 $ 33,429 $ 42,674
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 6,707 10,470 27,042
Deferred income taxes................... 317 (834) 10,068
Bad debt expense........................ 1,456 3,680 4,583
Corporate restructuring, less cash
payments of $184...................... 1,467
Tax benefit relating to employee stock
options............................... 661 3,174 1,345
Changes in operating assets and
liabilities, net of changes resulting
from acquisition:
Receivables........................... (48,149) (50,166) (35,083)
Inventories........................... (3,638) (11,444) (15,417)
Prepaid expenses and other assets..... (3,104) 1,722 756
Claims and rebates payable............ 41,055 57,968 107,660
Accounts payable and accrued
expenses........................... 8,410 4,504 (18,521)
-------- -------- ---------
Net cash provided by operating activities.... 29,863 52,503 126,574
-------- -------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired......... (940) (460,137)
Short-term investments..................... (54,388) (3,550) 57,938
Purchases of property and equipment........ (9,480) (13,017) (23,853)
-------- -------- ---------
Net cash (used in) investing activities...... (64,808) (16,567) (426,052)
-------- -------- ---------
Cash flows from financing activities:
Proceeds on long-term debt................. -- -- 360,000
Proceeds from stock offering............... 52,592
Deferred financing fees.................... (4,062)
Acquisition of treasury stock.............. (5,250) (1,739)
Exercise of stock options.................. 1,310 4,772 2,021
-------- -------- ---------
Net cash provided by financing activities.... 48,652 3,033 357,959
-------- -------- ---------
Effect of foreign currency translation
adjustment................................. (2) (25) (47)
-------- -------- ---------
Net increase in cash and cash equivalents.... 13,705 38,944 58,434
Cash and cash equivalents at beginning of
year....................................... 11,506 25,211 64,155
-------- -------- ---------
Cash and cash equivalents at end of year..... $ 25,211 $ 64,155 $ 122,589
======== ======== =========
Supplemental data:
Cash paid during the year for:
Income taxes............................... $ 14,544 $ 20,691 $ 17,202
Interest................................... $ 59 $ 225 $ 13,568
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-19
<PAGE> 109
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS. Express Scripts, Inc. ("the Company") is a
leading specialty managed care company and (subsequent to its acquisition of
Value Health, Inc. and Managed Prescription Network, Inc. on April 1, 1998, see
Note 2) is the largest full-service pharmacy benefit management ("PBM") company
independent of pharmaceutical manufacturer ownership and drug store ownership in
North America. The Company provides healthcare management and administration
services on behalf of thousands of clients that include health maintenance
organizations, health insurers, third-party administrators, employers and
union-sponsored benefit plans. The Company's fully-integrated PBM services
include network claims processing, mail pharmacy services, benefit design
consultation, drug utilization review, formulary management, disease management,
medical and drug data analysis services, medical information management
services, which include provider profiling and outcome assessments through its
majority-owned Practice Patterns Science, Inc. ("PPS") subsidiary, and informed
decision counseling services through its Express Health LineSM division. The
Company also provides non-PBM services which include infusion therapy services
through its wholly-owned subsidiary IVTx, Inc. ("IVTx"), distribution services
through its Specialty Distribution division, and, prior to September 1, 1998,
provided managed vision care programs through its wholly-owned subsidiary
Express Scripts Vision Corporation ("Vision").
In March 1992, the Company, originally incorporated in Missouri in 1986,
was reincorporated in Delaware and issued an aggregate of 21,000,000 shares of
Class B Common Stock to Sanus Corp. Health Systems ("Sanus") in exchange for the
outstanding shares of its common stock. Sanus at that time was an indirect
subsidiary of New York Life Insurance Company ("NYL"). In April 1992, as a
result of a reorganization, both the Company and Sanus became direct
subsidiaries of NYLIFE HealthCare Management, Inc. ("NYLIFE"). Sanus has since
changed its name to NYLCare Health Plans, Inc. ("NYLCare"). In April 1996,
NYLIFE converted 5,980,000 Class B shares to Class A Common Stock and sold those
shares in a public offering. NYLIFE continues to own all the remaining
outstanding Class B Common Stock of the Company (see Note 11).
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of the Company and all wholly-owned and majority-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
Certain amounts in prior years have been reclassified to conform with 1998
classifications. The preparation of the consolidated financial statements
conform to generally accepted accounting principles, and require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates and assumptions.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash on hand
and temporary investments in money market funds.
SHORT-TERM INVESTMENTS. Short-term investments consisted of debt
securities with a maturity of less than one year that the Company had the
positive intent and ability to hold to maturity and are reported at amortized
cost.
F-20
<PAGE> 110
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES. Inventories consist of prescription drugs, vision supplies
and medical supplies that are stated at the lower of first-in first-out cost or
market.
PROPERTY AND EQUIPMENT. Property and equipment is carried at cost and is
depreciated using the straight-line method over estimated useful lives of seven
years for furniture, five years for equipment and purchased computer software
and three years for personal computers. Leasehold improvements are amortized on
a straight-line basis over the term of the lease or the useful life of the
asset, if shorter. Expenditures for repairs, maintenance and renewals are
charged to income as incurred. Expenditures which improve an asset or extend its
estimated useful life are capitalized. When properties are retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in income.
SOFTWARE DEVELOPMENT COSTS. During 1997, the Company early adopted
Statement of Position No. 98-1 ("SOP 98-1"), Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires the
capitalization of certain costs associated with computer software developed or
obtained for internal use. Given the limited software developed or obtained for
internal use in 1997, adoption had virtually no effect on the Company's
Consolidated Statement of Operations or its financial position. However, the
impact of SOP 98-1 on an ongoing basis will be determined by the magnitude of
computer software developed or obtained for internal use. Research and
development expenditures relating to the development of software to be marketed
to clients, or to be used for internal purposes, are charged to expense until
technological feasibility is established. Thereafter, the remaining software
production costs up to the date of general release to customers, or to the date
placed into production, are capitalized and included as Property and Equipment.
During 1996, 1997 and 1998, $1,898,000, $1,982,000 and $10,244,000 in software
development costs were capitalized, respectively. Capitalized software
development costs amounted to $5,269,000 and $27,516,000 at December 31, 1997
and 1998, respectively. Amortization of the capitalized amounts commences on the
date of general release to customers, or the date placed into production, and is
computed on a product-by-product basis using the straight-line method over the
remaining estimated economic life of the product but not more than five years.
Reductions, if any, in the carrying value of capitalized software costs to net
realizable value are also included in amortization expense. Amortization expense
in 1996, 1997 and 1998 was $136,000, $622,000 and $1,968,000, respectively.
GOODWILL. Goodwill is amortized on a straight-line basis over periods from
15 to 30 years. The amount reported is net of accumulated amortization of
$251,000 and $8,114,000 at December 31, 1997 and 1998, respectively. The Company
periodically evaluates the carrying value of goodwill for impairment. The
evaluation of impairment is based on expected future operating cash flows on an
undiscounted basis for the operations to which goodwill relates. Impairment
losses, if any, would be determined based on the present value of the cash flows
using discount rates that reflect the inherent risk of the underlying business.
In the opinion of management, no such impairment existed at December 31, 1997 or
1998. Amortization expense, included in selling, general and administrative
expenses, was $42,000, $42,000 and $7,863,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
F-21
<PAGE> 111
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER INTANGIBLE ASSETS. Other intangible assets (included in other
assets) consist of customer contracts, non-compete agreements and deferred
financing fees and are amortized on a straight-line basis over periods from 2 to
20 years. Amortization expense for customer contracts and non-compete
agreements, included in selling, general and administrative expenses, and for
deferred financing fees, included in interest expense, was $4,320,000 and
$609,000, respectively, for the year ended December 31, 1998.
CONTRACTUAL AGREEMENTS. The Company has entered into corporate alliances
with certain of its clients whereby shares of the Company's Class A Common Stock
were awarded as advance discounts to the clients. The Company accounts for these
agreements as follows:
PRIOR TO DECEMBER 15, 1995 -- For agreements consummated prior to
December 15, 1995, the stock is valued utilizing the quoted market value at
the date the agreement is consummated if the number of shares to be issued
is known. If the number of shares to be issued is contingent upon the
occurrence of future events, the stock is valued utilizing the quoted
market value at the date the contingency is satisfied and the number of
shares is determinable.
BETWEEN DECEMBER 15, 1995 AND NOVEMBER 20, 1997 -- For agreements
entered into between these dates, the Company utilizes the provisions of
Financial Accounting Standards Board Statement 123 "Accounting for
Stock-Based Compensations" ("FAS 123") which requires that all stock issued
to nonemployees be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued
instead of the intrinsic value method utilized for stock issued or to be
issued under alliances entered into prior to December 15, 1995. The Company
has adopted FAS 123 as it relates to stock issued or to be issued under the
Premier and Manulife alliances based on fair value at the date the
agreement was consummated.
SUBSEQUENT TO NOVEMBER 20, 1997 -- In November 1997, the Emerging
Issues Task Force reached a consensus that the value of equity instruments
issued for consideration other than employee services should be initially
determined on the date on which a "firm commitment" for performance first
exists by the provider of goods or services. Firm commitment is defined as
a commitment pursuant to which performance by a provider of goods or
services is probable because of sufficiently large disincentives for
nonperformance. The consensus must be applied for all new arrangements and
modifications of existing arrangements entered into from November 20, 1997.
The consensus only addresses the date upon which fair value is determined
and does not change the accounting based upon fair value as prescribed by
FAS 123. No such arrangements have been entered into by the Company
subsequent to November 20, 1997.
Shares issued on the effective date of the contractual agreement are
considered outstanding and included in basic and diluted earnings per share
computations when issued. Shares issuable upon the satisfaction of certain
conditions are considered outstanding and included in basic and dilutive
earnings per share computation when all necessary conditions have been
satisfied by the end of the period. If all necessary conditions have not
been satisfied by the end of the period, the number of shares included in
the dilutive earnings per share computation is based on the number of
F-22
<PAGE> 112
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares, if any, that would be issuable if the end of the reporting period
were the end of the contingency period and if the result would be dilutive.
The value of the shares of stock awarded as advance discounts is recorded
as a deferred cost and included in other assets. The deferred cost is
recognized in selling, general and administrative expenses over the period
of the contract.
IMPAIRMENT OF LONG LIVED ASSETS. The Company evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life of
long lived assets may warrant revision or that the remaining balance of an asset
may not be recoverable. The measurement of possible impairment is based on the
ability to recover the balance of assets from expected future operating cash
flows on an undiscounted basis. Impairment losses, if any, would be determined
based on the present value of the cash flows using discount rates that reflect
the inherent risk of the underlying business. In the opinion of management, no
such impairment existed as of December 31, 1997 or 1998, except for the
write-down of the long-lived assets of Express Scripts Vision Corporation (see
Note 7).
DERIVATIVE FINANCIAL INSTRUMENTS. The Company has entered into an interest
rate swap agreement in order to manage exposure to interest rate risk. The
Company does not hold or issue derivative financial instruments for trading
purposes. The interest rate swap is designated as a hedge of the Company's
variable interest rate payments. Amounts received or paid are accrued as
interest receivable or payable and as interest income or expense. The fair value
of interest rate swap agreements is based on market prices. The fair value
represents the estimated amount the Company would receive/pay to terminate the
agreements taking into consideration current interest rates.
In June 1998, the Financial Accounting Standards Board ("the FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). The Statement requires all
derivatives be recognized as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In addition, the
Statement specifies the accounting for changes in the fair value of a derivative
based on the intended use of the derivative and the resulting designation. FAS
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999 and will be applicable to the Company's first quarter of fiscal year
2000. The Company's present interest rate swap (see Note 6) would be considered
a cash flow hedge. Accordingly, the change in the fair value of the swap would
be reported on the balance sheet as an asset or liability. The corresponding
unrealized gain or loss representing the effective portion of the hedge will be
initially recognized in stockholders' equity and other comprehensive income, and
subsequently any changes in unrealized gain or loss from the initial measurement
date will be recognized in earnings concurrent with the interest expense on the
Company's underlying variable rate debt. If the Company had adopted FAS 133 as
of December 31, 1998, the Company would record the unrealized loss of $7,209,000
as a liability and reduction in stockholder's equity and other comprehensive
income.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of cash and cash
equivalents, short-term investments, accounts receivable and accounts payable
approximated fair values due to the short-term maturities of these instruments.
The fair value, which approximates the carrying value, of the Company's term
loan facility was estimated using either quoted
F-23
<PAGE> 113
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market prices or the current rates offered to the Company for debt with similar
maturity. The fair value of the swap ($7,209,000 liability at December 31, 1998)
was based on quoted market price, which reflects the present value of the
difference between estimated future fixed rate payments and future variable rate
receipts.
REVENUE RECOGNITION. Revenues from dispensing prescription and
non-prescription medical products from the Company's mail service pharmacies are
recorded upon shipment. Revenue from sales of prescription drugs by pharmacies
in the Company's nationwide network and pharmacy claims processing revenues are
recognized when the claims are processed. When the Company dispenses
pharmaceuticals to members of health benefit plans sponsored by the Company's
clients or has an independent contractual obligation to pay its network pharmacy
providers for benefits provided to members of its clients' pharmacy benefit
plans, the Company includes payments from plan sponsors for these benefits as
net revenue and ingredient costs or payments to these pharmacy providers in cost
of revenues. If the Company is only administering the plan sponsors' network
pharmacy contracts, or where the Company dispenses pharmaceuticals supplied by
one of the Company's clients, the Company records only the administrative or
dispensing fees derived from the Company's contracts with the plan sponsors as
net revenue.
Client revenue is recognized based upon actual scripts adjudicated and
therefore requires no estimation. Amounts remain unbilled for no more than 30
days based upon the contractual billing schedule agreed with the client. At
December 31, 1997 and 1998, unbilled receivables were $96,644,000 and
$209,334,000, respectively.
COST OF REVENUES. Cost of revenues includes product costs, pharmacy claims
payments and other direct costs associated with dispensing prescriptions and
non-prescription medical products and claims processing operations, offset by
fees received from pharmaceutical manufacturers in connection with the Company's
drug purchasing and formulary management programs. The Company estimates fees
receivable from pharmaceutical manufacturers on a quarterly basis converting
total prescriptions dispensed to estimated rebatable scripts (i.e., those
prescriptions with respect to which the Company is contractually entitled to
submit claims for rebates) multiplied by the contractually agreed manufacturer
rebate amount. Estimated fees receivable from pharmaceutical manufacturers are
recorded when determined by management to be realizable, and realization is not
dependent upon future pharmaceutical sales. Estimates are revised once the
actual rebatable scripts are calculated and rebates are billed to the
manufacturer.
INCOME TAXES. Deferred tax assets and liabilities are recognized based on
temporary differences between financial statement basis and tax basis of assets
and liabilities using presently enacted tax rates.
EARNINGS PER SHARE. Basic earnings per share is computed using the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed in the same manner as basic earnings per share
but adds the number of additional common shares that would have been outstanding
for the period if the dilutive potential common shares had been issued. The only
difference between the number of weighted average shares used in the basic and
diluted calculation for all years is stock options and stock warrants granted by
the Company using the "treasury stock" method, amounting to 540,000, 409,000 and
593,000 in 1996, 1997 and 1998, respectively.
F-24
<PAGE> 114
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION. The financial statements of ESI Canada, Inc.
are translated into U.S. Dollars using the exchange rate at each balance sheet
date for assets and liabilities and a weighted average exchange rate for each
period for revenues, expenses, gains and losses. The functional currency for ESI
Canada, Inc. is the local currency and translation adjustments are recorded
within the other comprehensive income component of stockholders' equity.
EMPLOYEE STOCK-BASED COMPENSATION. The Company accounts for employee stock
options in accordance with Accounting Principles Board No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." Under APB 25, the Company applies
the intrinsic value method of accounting and, therefore, does not recognize
compensation expense for options granted, because options are only granted at a
price equal to market value at the time of grant. During 1996, FAS 123 became
effective for the Company. FAS 123 prescribes the recognition of compensation
expense based on the fair value of options determined on the grant date.
However, FAS 123 grants an exception that allows companies currently applying
APB 25 to continue using that method. The Company has, therefore, elected to
continue applying the intrinsic value method under APB 25. For companies that
choose to continue applying the intrinsic value method, FAS 123 mandates certain
pro forma disclosures as if the fair value method had been utilized (see Note
12).
COMPREHENSIVE INCOME. During 1998, Statement of Financial Accounting
Standards No. 130 ("FAS 130"), "Reporting Comprehensive Income," became
effective for the Company. FAS 130 requires noncash changes in stockholders'
equity be combined with net income and reported in a new financial statement
category entitled "comprehensive income." Other than net income, the only
component of comprehensive income for the Company is the change in the foreign
currency translation adjustment. The Company has displayed comprehensive income
within the Statement of Changes in Stockholders' Equity.
SEGMENT REPORTING. In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FAS 131"). FAS 131 requires that the Company report
certain information, if specific requirements are met, about operating segments
of the Company including information about services, geographic areas of
operation and major customers. The information is to be derived from the
management approach which designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the Company's reportable segments. Adoption of FAS 131 did not affect
the Company's results of operations or its financial position but did affect the
disclosure of segment information (see Note 13).
2. ACQUISITION
On April 1, 1998 the Company acquired all of the outstanding capital stock
of Value Health, Inc. and Managed Prescriptions Network, Inc. (collectively, the
"Acquired Entities") from Columbia/HCA Healthcare Corporation ("Columbia") for
approximately $460 million in cash (which includes transactions costs and
executive management severance costs of approximately $15 million),
approximately $360 million of which was obtained through a five-year bank credit
facility (see Note 6) and the remainder from the Company's cash balances and
short term investments. At closing, the Acquired Entities
F-25
<PAGE> 115
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
owned various subsidiaries that now or formerly conducted a PBM business,
commonly known as "ValueRx".
The acquisition has been accounted for using the purchase method of
accounting and the results of operations of the Acquired Entities have been
included in the consolidated financial statements and PBM segment since April 1,
1998. The purchase price has been preliminarily allocated based on the estimated
fair values of net assets acquired at the date of the acquisition. The excess of
purchase price over tangible net assets acquired was originally allocated to
other intangible assets consisting of customer contracts and non-compete
agreements in the amount of $57,653,000 which are being amortized using the
straight-line method over the estimated useful lives of 2 to 20 years and are
included in other assets, and goodwill in the amount of $289,863,000 which is
being amortized using the straight-line method over the estimated useful life of
30 years. In conjunction with the acquisition, the Acquired Entities and their
subsidiaries retained the following liabilities:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired............................ $ 656,488
Cash paid for the capital stock.......................... (460,137)
---------
Liabilities retained................................ $ 196,351
=========
</TABLE>
The following unaudited pro forma information presents a summary of
combined results of operations of the Company and the Acquired Entities as if
the acquisition had occurred at the beginning of the period presented, along
with certain pro forma adjustments to give effect to amortization of goodwill,
other intangible assets, interest expense on acquisition debt and other
adjustments. The pro forma financial information is not necessarily indicative
of the results of operations as they would have been had the transaction been
effected on the assumed dates. Included in the pro forma information are
integration costs incurred by the Company that are being reported within
selling, general and administrative expenses in the statement of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net revenues.................................. $2,877,906 $3,234,800
Net income.................................... 33,687 42,696
Basic earnings per share...................... 1.03 1.29
Diluted earnings per share.................... 1.02 1.27
</TABLE>
3. CONTRACTUAL AGREEMENTS
On December 31, 1995, the Company entered into a ten-year corporate
alliance with Premier Purchasing Partners, L.P. (formerly, American Healthcare
Systems Purchasing Partners, L.P., the "Partnership"), an affiliate of Premier,
Inc. ("Premier"). Premier is an alliance of healthcare systems resulting from
the merger in 1995 of American Healthcare Systems, Premier Health Alliance and
SunHealth Alliance. Under the terms of the transaction, the Company is Premier's
preferred vendor of pharmacy benefit management
F-26
<PAGE> 116
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
services to Premier's shareholder systems and their managed care affiliates and
will issue shares of its Class A Common Stock as an administrative fee to the
Partnership based on the attainment of certain benchmarks, principally related
to the number of members receiving the Company's pharmacy benefit management
services under the arrangement, and to the achievement of certain joint
purchasing goals. The Company may be required to issue up to 4,500,000 shares to
the Partnership over a period up to the first five years of the agreement if the
Partnership exceeds all benchmarks. Except for certain exemptions from
registration under the Securities Act of 1933 ("the 1933 Act"), any shares
issued to the Partnership cannot be traded until they have been registered under
the 1933 Act and any applicable state securities laws.
In accordance with the terms of the agreement, the Company issued 454,546
shares of Class A Stock to Premier in May, 1996. The shares were valued at
$11,250,000 using the Company's closing stock price on December 31, 1995, the
date the agreement was consummated, and are being amortized over the remaining
term of the agreement. Amortization expense in 1996, 1997 and 1998 was $776,000,
$1,164,000 and $1,164,000, respectively. No additional shares have been earned
by Premier through December 31, 1998.
Effective January 1, 1996, the Company executed a multi-year contract with
The Manufacturers Life Insurance Company ("Manulife"), to introduce pharmacy
benefit management services in Canada. Manulife's Group Benefits Division
continues to work with ESI Canada to provide these services. Under the terms of
the agreement, the Company is the exclusive third-party provider of pharmacy
benefit management services to Manulife's Canadian clients. The Company also
will issue shares of its Class A Common Stock as an advance discount to Manulife
based upon achievement of certain volumes of Manulife pharmacy claims processed
by the Company. No shares will be issued until after the fourth year of the
agreement based on volumes reached in years two through four. The Company
anticipates issuing no more than 474,000 shares to Manulife over a period up to
the first six years of the agreement. Except for certain exemptions from
registration under the 1933 Act, any shares issued to Manulife cannot be traded
until they have been registered under the 1933 Act and any applicable state
securities laws. In accordance with the terms of the agreement, no stock has
been issued since inception.
If Manulife has not exercised an early termination option at the end of the
sixth or tenth year of the agreement, the Company will issue at each of those
times a ten-year warrant as an advance discount to purchase up to approximately
237,000 additional shares of the Company's Class A Common Stock exercisable at
85% of the market price at those times. The actual number of shares for which
such warrant is to be issued is based on the volume of Manulife pharmacy claims
processed by the Company in year six and year ten, respectively.
Pursuant to an agreement with Coventry Corporation, an operator of health
maintenance organizations located principally in Pennsylvania and Missouri, on
January 3, 1995, the Company issued 50,000 shares of Class A Common Stock as an
advance discount to Coventry in a private placement. These shares were valued at
$13.69 per share, the split-adjusted per share market value of the Company's
Class A Common Stock on November 22, 1994, which was the date the agreement was
consummated and the obligation of the parties became unconditional. No revision
of the consideration for the
F-27
<PAGE> 117
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transaction occurred between November 22, 1994 and January 3, 1995. The shares
issued to Coventry were being amortized over a six-year period. However, due to
Coventry extending the agreement for only two years, as discussed below, instead
of three years, the estimated useful life of the shares issued has been reduced
to five years. Amortization expense was $114,000, $114,000 and $171,000 for each
of the years ended December 31, 1996, 1997 and 1998, respectively. Except for
certain exemptions from registration under the 1933 Act, these shares cannot be
traded until they have been registered under the 1933 Act and any applicable
state securities laws.
Effective January 1, 1998, Coventry renewed the agreement for a two-year
term through December 31, 1999. As part of the agreement, the Company issued
warrants as an advance discount to purchase an additional 50,000 shares of the
Company's Class A Common Stock, exercisable at 90% of the market value at the
time of renewal. During 1998, the Company expensed the advance discount which
represented 10% of the market value.
On October 13, 1992, the Company entered into a five-year arrangement with
FHP, Inc. ("FHP") pursuant to which the Company agreed to provide pharmacy
benefit services to FHP and its members. FHP is an operator of health
maintenance organizations, principally in the western United States. In February
1997, PacifiCare Health Systems, Inc. ("PacifiCare") completed the acquisition
of FHP. As a result of the merger, PacifiCare informed the Company that it would
not enter into a long-term extension of the agreement and reached an agreement
with the Company to phase-out membership starting in July 1997 and continued
through March 1998.
In accordance with the agreement, the Company commenced providing pharmacy
benefit services to FHP and its members on January 4, 1993. On the commencement
date and pursuant to the agreement, the Company issued 400,000 shares of its
Class A Common Stock as advance discounts to FHP in a private placement. These
shares were valued at $4.13 per share, the split-adjusted per share market value
of the Company's Class A shares on October 13, 1992, which was the date the
agreement was consummated and the obligations of the parties became
unconditional. No revision of the consideration for the transaction occurred
between October 13, 1992 and January 4, 1993. The cost of the shares issued to
FHP was amortized over a five-year period ending in 1997. No amortization
expense was recorded in 1998. Amortization expense was $165,000 in 1996 and
$990,000 in 1997.
4. RELATED PARTY TRANSACTIONS
The Company had agreements to provide claims processing services and mail
pharmacy prescription services for NYLCare, in return for which it receives
processing fees and reimbursement for the contracted cost of the claims.
Effective July 15, 1998, NYL consummated the sale of NYLCare to Aetna U.S.
Healthcare, Inc., an unrelated party. Therefore, related party amounts for 1998
represent only the period in which NYL owned NYLCare. Transactions subsequent to
July 15, 1998 have been included in unrelated parties.
F-28
<PAGE> 118
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amount receivable from or (due to) related parties comprised the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Receivable from NYLCare................................ $23,709
Due to NYLCare......................................... (7,479)
-------
Total related party receivable......................... $16,230
=======
</TABLE>
Prior to July 15, 1998, the Company was the exclusive provider of pharmacy
benefit management services to NYLCare's managed healthcare subsidiaries,
subject to certain exceptions. The Company's agreement with NYLCare provided
that fees from drug manufacturers whose products are used in the Company's
formularies related to NYLCare subsidiaries was allocated 100% to the Company up
to $400,000 and 75% to NYLCare and 25% to the Company thereafter. The Company
was also the non-exclusive provider of pharmacy benefit management services to
New York Life and Health Insurance Company ("NYLHIC"), a subsidiary of NYLCare.
In 1996 fees from drug manufacturers with respect to this business were
allocated 100% to the Company. Effective January 1, 1997, the Company shared
such fees with NYLHIC on a fixed per script amount which approximates 40% of the
total of such fees.
Such fees allocated to NYLCare and NYLHIC were $7,636,000, $11,690,000 and
$7,257,000 in 1996, 1997 and 1998, respectively, and $3,064,000 in 1996,
$5,803,000 in 1997 and $2,307,000 in 1998 were allocated to the Company and have
been classified in the accompanying consolidated statement of operations as a
reduction of cost of revenues.
As discussed in Note 3, the Company has entered into a ten year corporate
alliance with Premier. Richard Norling is the Chief Operating Officer of Premier
and a member of the Company's Board of Directors. No consideration, monetary or
otherwise, has been exchanged between the Company and Premier between the period
September 1997 and December 1998 (the period during which Premier and the
Company are related parties). The Company may be required to issue additional
shares of its Class A Common Stock to Premier as discussed in Note 3.
Premier is required to promote the Company as the preferred PBM provider to
healthcare entities, plans and facilities which participate in Premier's
purchasing programs. However, all contractual arrangements to provide services
are made directly between the Company and these entities, at varying terms and
independent of any Premier involvement. Therefore, the associated revenues
earned and expenses incurred by the Company are not deemed to be related party
transactions. During 1998, the net revenues that the Company derived from
services provided to the healthcare entities participating in Premier's
purchasing programs was $78,539,000.
F-29
<PAGE> 119
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- --------
(IN THOUSANDS)
<S> <C> <C>
Land............................................. $ -- $ 2,051
Building......................................... 3,076
Furniture........................................ 4,362 8,336
Equipment........................................ 28,924 52,758
Computer software................................ 12,011 37,412
Leasehold improvements........................... 3,934 8,275
------- --------
49,231 111,908
Less accumulated depreciation and amortization... 22,410 34,409
------- --------
$26,821 $ 77,499
======= ========
</TABLE>
6. FINANCING
On April 1, 1998, the Company executed a $440 million credit facility with
a bank syndicate led by Bankers Trust Company, consisting of a $360 million term
loan facility and an $80 million revolving loan facility. The credit facility
expires on April 15, 2003 and is guaranteed by the Company's domestic
subsidiaries other than Practice Patterns Science, Inc. ("PPS"), and Great
Plains Reinsurance Company ("Great Plains") and secured by pledges of 100% (or,
in the case of foreign subsidiaries, 65%) of the capital stock of the Company's
subsidiaries other than PPS and Great Plains. The provisions of this loan
require quarterly interest payments and, beginning in April 1999, semi-annual
principal payments. The interest rate is based on a spread ("Credit Rate
Spread") over several London Interbank Offered Rates ("LIBOR") or base rate
options, depending upon the Company's ratio of earnings before interest, taxes,
depreciation and amortization to debt ("Leverage Ratio"). At December 31, 1998,
the interest rate was 6.0625%, representing a credit rate spread of 0.75% over
the three month LIBOR rate. The credit facility contains covenants that limit
the indebtedness the Company may incur and the amount of annual capital
expenditures. The covenants also establish a minimum interest coverage ratio, a
maximum leverage ratio, and a minimum consolidated net worth. At December 31,
1998, the Company was in compliance with all covenants. In addition, the Company
is required to pay an annual fee depending on the leverage ratio, payable in
quarterly installments, on the unused portion of the revolving loan. The
commitment fee was 22.5 basis points at December 31, 1998. There were no
borrowings at December 31, 1998 under the revolving loan facility. The carrying
amount of the Company's term loan facility approximates fair value.
In conjunction with the credit facility and as part of the Company's policy
to manage interest rate risk, the Company entered into an interest rate swap
agreement ("swap") with The First National Bank of Chicago, a subsidiary of Bank
One Corporation, on
F-30
<PAGE> 120
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
April 3, 1998. At December 31, 1998, the swap had a notional principal amount of
$360 million. Under the terms of the swap, the Company agrees to receive a
floating rate of interest on the amount of the term loan facility based on a
three month LIBOR rate in exchange for payment of a fixed rate of interest of
5.88% per annum. The notional principal amount of the swap amortizes in equal
amounts with the principal balance of the term loan facility. As a result, the
Company has, in effect, converted its variable rate term debt to fixed rate debt
at 5.88% per annum for the entire term of the term loan facility, plus the
Credit Rate Spread.
The following represents the schedule of current maturities for the term
loan facility (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C>
1999............................ $ 54,000
2000............................ 72,000
2001............................ 90,000
2002............................ 96,000
2003............................ 48,000
--------
$360,000
========
</TABLE>
Prior to April 1, 1998, the Company maintained a $25,000,000 unsecured line
of credit with the Mercantile Bank National Association which was terminated
upon the consummation of the Bankers' Trust credit facility. Additionally, the
Company allowed another line of credit in the amount of $25 million to lapse on
October 31, 1997. Terms of the agreements were as follows: interest was charged
on the principal amount outstanding at a rate equal to any of the following
options which the Company, at its option shall select: (i) the bank's "prime
rate", (ii) a floating rate equal to the Bank's cost of funds rate plus 50 basis
points, or (iii) a fixed rate for periods of 30, 60, 90 or 180 days equal to the
LIBOR rate plus 50 basis points. Fees under the agreements on any unused portion
were charged at 10 basis points per year. At December 31, 1997, the Company had
no outstanding borrowings under this agreement, nor did it borrow any amounts
under these agreements during 1997.
7. CORPORATE RESTRUCTURING
During 1998, the Company recorded a pre-tax restructuring charge of
$1,651,000 ($1,002,000 after taxes or $0.03 per basic earnings per share and
$0.03 per dilutive earnings per share) associated with the Company closing the
non-PBM service operations of its wholly-owned subsidiary, PhyNet, Inc., and
transferring certain functions of its Express Scripts Vision Corporation to
another vision care provider.
F-31
<PAGE> 121
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UTILIZED BALANCE AT
1998 --------------- DECEMBER 31,
CHARGE CASH NONCASH 1998
------ ---- ------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Write-down of long-lived assets....... $1,235 $ -- $704 $531
Employee transition costs for 61
employees........................... 416 184 -- 232
------ ---- ---- ----
$1,651 $184 $704 $763
====== ==== ==== ====
</TABLE>
The restructuring charge includes tangible assets to be disposed of being
written down to their net realizable value, less cost of disposal. Management
expects recovery to approximate its cost of disposal. Considerable management
judgment is necessary to estimate fair value, accordingly, actual results could
vary from such estimates. The Company anticipates completing the remainder of
the restructuring actions by the end of the third quarter of 1999.
8. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current provision:
Federal........................................ $13,945 $19,048 $20,171
State.......................................... 2,480 2,779 3,049
Foreign........................................ 190 284 278
------- ------- -------
Total current provision..................... 16,615 22,111 23,498
------- ------- -------
Deferred provision:
Federal........................................ 267 (714) 8,694
State.......................................... 50 (120) 1,374
------- ------- -------
Total deferred provision.................... 317 (834) 10,068
------- ------- -------
Total current and deferred provision............. $16,932 $21,277 $33,566
======= ======= =======
</TABLE>
F-32
<PAGE> 122
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate and the effective
tax rate follows (The effect of foreign taxes on the effective tax rate for
1996, 1997 and 1998 is immaterial):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate....................... 35.0% 35.0% 35.0%
State taxes net of federal benefit...................... 4.3 3.8 3.8
Non-deductible amortization of goodwill and customer
contracts............................................. 4.9
Other, net.............................................. -- 0.1 0.3
---- ---- ----
Effective tax rate...................................... 39.3% 38.9% 44.0%
==== ==== ====
</TABLE>
The deferred tax assets and deferred tax liabilities recorded in the
consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts................................... $1,578 $ 8,013
Inventory costing capitalization and reserves............. 675 684
Accrued expenses.......................................... 512 34,170
Depreciation and property differences..................... 6,808
Non-compete agreements.................................... 933
Other..................................................... 79 17
------ -------
Gross deferred tax assets.............................. 2,844 50,625
Deferred tax liabilities:
Depreciation and property differences..................... (1,166)
Other..................................................... (91) (462)
------ -------
Gross deferred tax liabilities......................... (1,257) (462)
------ -------
Net deferred tax assets..................................... $1,587 $50,163
====== =======
</TABLE>
The Company believes it is probable that the net deferred tax assets,
reflected above, will be realized in future tax returns primarily from the
generation of future taxable income.
9. COMMITMENTS AND CONTINGENCIES
The Company has entered into noncancellable agreements to lease certain
office and distribution facilities with remaining terms from one to eleven
years. Rental expense under the office and distribution facilities leases in
1996, 1997 and 1998 was $2,099,000,
F-33
<PAGE> 123
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,272,000 and $3,876,000, respectively. The future minimum lease payments due
under noncancellable operating leases is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C>
1999.......................... $ 5,555,000
2000.......................... 5,960,000
2001.......................... 5,873,000
2002.......................... 5,758,000
2003.......................... 5,667,000
Thereafter.................... 28,648,000
-----------
$57,462,000
===========
</TABLE>
For the year ended December 31, 1998, approximately 56.2% of the Company's
pharmaceutical purchases were through one wholesaler. The Company believes other
alternative sources are readily available and that no other concentration risks
exist at December 31, 1998.
In the ordinary course of business (which includes the business conducted
by ValueRx prior to the Company's acquisition on April 1, 1998), various legal
proceedings, investigations or claims pending have arisen against the Company
and its subsidiaries (ValueRx continues to be a party to several proceedings
that arose prior to April 1, 1998). The effect of these actions on future
financial results is not subject to reasonable estimation because considerable
uncertainty exists about the outcomes. Nevertheless, in the opinion of
management, the ultimate liabilities resulting from any such lawsuits,
investigations or claims now pending will not materially affect the consolidated
financial position, results of operations, or cash flows of the Company.
10. EMPLOYEE BENEFIT PLANS
RETIREMENT SAVINGS PLAN. The Company offers all of its full-time employees
a retirement savings plan under Section 401(k) of the Internal Revenue Code.
Employees may elect to enter a written salary deferral agreement under which a
maximum of 10% of their salary (effective January 1, 1999 maximum deferral is
12%), subject to aggregate limits required under the Internal Revenue Code, may
be contributed to the plan. The Company matches the first $2,000 of the
employee's contribution for the year. For the year ended December 1996, 1997 and
1998, the Company made contributions of approximately $639,000, $909,000 and,
$1,751,000 respectively.
EMPLOYEE STOCK PURCHASE PLAN. In December 1998, the Company's Board of
Directors approved an employee stock purchase plan, effective March 1, 1999,
that qualifies under Section 423 of the Internal Revenue Code and permits all
employees, excluding certain management level employees, to purchase shares of
the Company's Class A Common Stock. Participating employees may elect to
contribute up to 10% of their salary to purchase common stock at the end of each
six month participation period at a purchase price equal to 85% of the fair
market value of the common stock at the end of the participation period. Class A
Common Stock reserved for future employee purchases under the plan was 250,000
at December 31, 1998.
F-34
<PAGE> 124
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED COMPENSATION PLAN. In December, 1998, the Compensation Committee
of the Board of Directors approved a non-qualified deferred compensation plan
(the "Executive Deferred Compensation Plan"), effective January 1, 1999, that
provides benefits payable to eligible key employees at retirement, termination
or death. Benefit payments are funded by a combination of contributions from
participants and the Company. Participants become fully vested in Company
contributions on the third anniversary of the end of the plan year for which the
contribution is credited to their account. For 1999, the annual Company
contribution will be equal to 6% of each participant's total annual
compensation, with 25% being invested in the Company's Class A Common Stock and
the remaining being allocated to a variety of investment options. As a result,
of the implementation, the Company accrued as compensation expense $797,000 in
1998 as a past service contribution which is equal to 8% of each participant's
total annual cash compensation for the period of the participant's past service
with the Company in a senior executive capacity.
11. COMMON STOCK
The holders of Class A Common Stock have one vote per share, and the
holders of Class B Common Stock have ten votes per share. NYLIFE is the sole
holder of Class B Common Stock. Class B Common Stock converts into Class A
Common Stock on a share-for-share basis upon transfer (other than to New York
Life or its affiliates) and is convertible at any time at the discretion of the
holder. At December 31, 1998, NYLIFE and the holders of Class A Common Stock
have control over approximately 89.0% and 11.0%, respectively, of the combined
voting power of all classes of Common Stock.
In April 1996, NYLIFE converted 5,980,000 shares of Class B Common Stock to
Class A Common Stock and sold the Class A shares in a public offering. The
Company did not receive any proceeds from the sale of these shares. The Company
sold an additional 2,300,000 Class A shares in the same stock offering and
received net proceeds of $52,592,000 after deducting expenses incurred in
connection with the offering.
In October 1998, the Company announced a two-for-one stock split of its
Class A and Class B common stock for stockholders of record on October 20, 1998,
effective October 30, 1998. The split was effected in the form of a dividend by
issuance of one additional share of Class A Common Stock for each share of Class
A Common Stock outstanding and one additional share of Class B Common Stock for
each share of Class B Common Stock outstanding. The earnings per share and the
weighted average number of shares outstanding for basic and diluted earnings per
share have been adjusted for the stock split except on the Consolidated Balance
Sheet and the Consolidated Statement of Changes in Stockholder's Equity.
As of December 31, 1998, the Company had repurchased a total of 475,000
shares of its Class A Common Stock under the open-market stock repurchase
program announced by the Company on October 25, 1996, although no repurchases
occurred during 1998. The Company's Board of Directors approved the repurchase
of up to 1,700,000 shares, and placed no limit on the duration of the program.
Future purchases, if any, will be in such amounts and at such times as the
Company deems appropriate based upon prevailing market and business conditions,
subject to certain restrictions in the credit agreement described above.
F-35
<PAGE> 125
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, 5,807,000 shares of the Company's Class A Common
Stock have been reserved for issuance to organizations with which the Company
has signed contractual agreements (see Note 3).
12. STOCK-BASED COMPENSATION PLANS
At December 31, 1998, the Company has three fixed stock-based compensation
plans, which are described below.
In April 1992, the Company adopted a stock option plan which it amended in
1995, which provides for the grant of nonqualified stock options and incentive
stock options to officers and key employees of the Company selected by the
Compensation Committee of the Board of Directors. Initially, a maximum of
1,400,000 shares of Class A Common Stock could be issued under the plan. That
amount increases annually each January 1, from January 1, 1993 to and including
January 1, 1999 by 140,000, to a maximum of 2,380,000 shares. By unanimous
written consent dated June 6, 1994, the Board of Directors adopted the Express
Scripts, Inc. 1994 Stock Option Plan, also amended in 1995, 1997 and 1998. A
total of 1,920,000 shares of the Company's Class A Common Stock has been
reserved for issuance under this plan. Under either plan, the exercise price of
the options may not be less than the fair market value of the shares at the time
of grant. The Compensation Committee has the authority to establish vesting
terms, and typically provides that the options vest over a five-year period from
the date of grant. The options may be exercised, subject to a ten-year maximum,
over a period determined by the Committee.
In April 1992, the Company also adopted a stock option plan which was
amended in 1995 and 1996 and provides for the grant of nonqualified stock
options to purchase 48,000 shares to each director who is not an employee of the
Company or its affiliates. A maximum of 384,000 shares of Class A Common Stock
may be issued under this plan at a price equal to fair market value at the date
of grant. The plan provides that the options vest over a three- or five-year
period from the date of grant.
The Company applies APB 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for its stock
options plans. Had compensation cost for the Company's stock based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method prescribed by FAS 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below. Note that due to the adoption of the methodology
prescribed by FAS 123, the pro forma results shown below only reflect the impact
of options granted in 1996, 1997 and 1998. Because future options may be granted
and vesting typically occurs over a five year period, the pro forma impact shown
for 1996, 1997 and 1998 is not necessarily representative of the impact in
future years.
F-36
<PAGE> 126
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income
As reported.................................... $26,148 $33,429 $42,674
Pro forma...................................... 25,235 32,034 38,585
Basic earnings per share
As reported.................................... $ 0.81 $ 1.02 $ 1.29
Pro forma...................................... 0.78 0.98 1.16
Diluted earnings per share
As reported.................................... $ 0.80 $ 1.01 $ 1.27
Pro forma...................................... 0.77 0.97 1.14
</TABLE>
The fair value of options granted (which is amortized to expense over the
option vesting period in determining the pro forma impact), is estimated on the
date of grant using the Black-Scholes multiple option-pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Expected life of option...................... 1-6 years 2-7 years 2-7 years
Risk-free interest rate...................... 5.0-6.5% 5.7-6.6% 4.1-5.9%
Expected volatility of stock................. 30-50% 40% 44%
Expected dividend yield...................... None None None
</TABLE>
F-37
<PAGE> 127
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's three fixed stock option plans as
of December 31, 1996, 1997 and 1998, and changes during the years ending on
those dates is presented below.
<TABLE>
<CAPTION>
1996 1997 1998
------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
(SHARE DATA IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 1,446 $10.30 1,677 $12.56 1,702 $17.21
Granted..................... 642 19.85 602 22.78 1,866 40.65
Exercised................... (131) 9.98 (529) 8.80 (133) 14.71
Forfeited/cancelled......... (280) 18.80 (48) 17.56 (655) 38.82
----- ----- ------
Outstanding at end of
year...................... 1,677 12.56 1,702 17.21 2,780 28.02
===== ===== ======
Options exercisable at year
end....................... 756 641 800
Weighted-average fair value
of options granted during
the year.................. $6.57 $9.91 $18.07
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------------
RANGE OF WEIGHTED- WEIGHTED- WEIGHTED-
EXERCISE PRICES NUMBER AVERAGE AVERAGE NUMBER AVERAGE
(SHARE DATA IN OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
THOUSANDS) AT 12/31/98 CONTRACTUAL LIFE PRICE AT 12/31/98 PRICE
- --------------- ----------- ---------------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$ 3.25 - 15.25....... 561 5.33 $10.09 426 $ 8.71
15.50 - 23.50....... 618 7.15 18.64 278 18.47
24.50 - 35.63....... 1,013 8.99 31.22 96 26.02
37.44 - 42.39....... 218 9.44 39.89
55.13....... 370 9.96 55.13 --
----- ---
$ 3.25 - 55.13....... 2,780 8.01 28.02 800 14.17
===== ===
</TABLE>
13. SEGMENT INFORMATION
The Company is organized on the basis of services offered and has
determined that it has two reportable segments: PBM services and non-PBM
services (defined in Note 1 "organization and operations"). The Company manages
the pharmacy benefit within an operating segment which encompasses a
fully-integrated PBM service. The remaining three
F-38
<PAGE> 128
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operating service lines (IVTx, Specialty Distribution and Vision) have been
aggregated into a non-PBM reporting segment.
The following table presents information about the reportable segments for
the years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
PBM NON-PBM TOTAL
---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1996
Net revenues.............................. $ 743,077 $30,538 $ 773,615
Depreciation and amortization expense..... 6,273 434 6,707
Interest income........................... 3,509 3,509
Interest expense.......................... 51 8 59
Income before income taxes................ 39,938 3,142 43,080
Total assets.............................. 286,433 13,992 300,425
Capital expenditures...................... 8,306 1,174 9,480
1997
Net revenues.............................. $1,191,173 $39,461 $1,230,634
Depreciation and amortization expense..... 9,704 766 10,470
Interest income........................... 6,080 1 6,081
Interest expense.......................... 209 16 225
Income before income taxes................ 52,529 2,177 54,706
Total assets.............................. 385,330 17,178 402,508
Capital expenditures...................... 10,782 2,235 13,017
1998
Net revenues.............................. $2,765,111 $59,761 $2,824,872
Depreciation and amortization
expense(1).............................. 25,540 983 26,433
Interest income........................... 7,235 1 7,236
Interest expense(1)....................... 20,218 12 20,230
Income before income taxes................ 70,107 6,133 76,240
Total assets.............................. 1,068,715 26,746 1,095,461
Capital expenditures...................... 23,432 421 23,853
</TABLE>
- -------------------------
(1) The amortization expense for deferred financing fees ($609 in 1998) is
included in interest expense on the Consolidated Statement of Operations and
in depreciation and amortization on the Consolidated Statement of Cash
Flows.
F-39
<PAGE> 129
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the quarterly financial data for the years
ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
EARNINGS
SELLING, PER SHARE
NET COST OF GENERAL & OPERATING NET ---------------
REVENUES REVENUES ADMINISTRATIVE INCOME INCOME BASIC DILUTED
-------- -------- -------------- --------- ------- ----- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
1997
March 31, 1997....... $261,990 $237,298 $13,298 $11,394 $ 7,641 $0.23 $0.23
June 30, 1997........ 300,515 274,906 13,733 11,876 8,131 0.25 0.25
September 30, 1997... 319,937 291,590 15,758 12,589 8,613 0.26 0.26
December 31, 1997.... 348,192 315,373 19,828 12,991 9,044 0.27 0.27
1998
March 31, 1998....... $371,362 $338,492 $18,826 $14,044 $ 9,878 $0.30 $0.29
June 30, 1998........ 807,406 743,557 39,266 22,932 9,568 0.29 0.28
September 30, 1998... 807,319 738,544 43,153 25,622 11,303 0.34 0.34
December 31, 1998.... 838,784 764,403 47,745 26,636 11,924 0.36 0.35
</TABLE>
15. SUBSEQUENT EVENT -- POTENTIAL ACQUISITION
On April 1, 1999, the Company completed its acquisition of Diversified
Pharmaceutical Services, Inc. and Diversified Pharmaceutical Services (Puerto
Rico) Inc. (collectively, "DPS"), from SmithKline Beecham Corporation and
SmithKline Beecham InterCredit BV (collectively, "SB") for approximately $700
million in cash, such amount being subject to adjustment based upon the amount
of working capital of DPS at closing. The acquisition will be accounted for
under the purchase method of accounting. The Company will file an Internal
Revenue Code sec.338(h)(10) election, making amortization expense of certain
intangible assets, including goodwill, tax deductible.
The Company used approximately $48 million of its own cash and financed the
remainder of the purchase price and related acquisition costs through a $1.05
billion credit facility with a bank syndicate led by Credit Suisse First Boston
and Bankers Trust Company, and a $150 million senior subordinated bridge credit
facility from Credit Suisse First Boston and Bankers Trust Company. The Company
also used a portion of the proceeds from the $1.05 billion credit facility to
retire the $360 million principal balance outstanding on its $440 million credit
facility (see Note 4). As a result of the retirement of the $360 million balance
outstanding on its $440 million credit facility, the Company will write-off the
remaining deferred financing fees at March 31, 1999 of $3,250,000, or
approximately $1,950,000 net of tax, as an extraordinary item during the second
quarter of 1999.
The $1.05 billion credit facility consists of a $300 million revolving
facility, a $285 million term facility ("Term A"), and a $465 million term
facility ("Term B"). The revolving facility and the Term A facility are for a
period of six years. The Term B facility is for a period of eight years. The
provisions of this loan require quarterly interest
F-40
<PAGE> 130
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payments and, beginning in March 2000, annual principal payments. The interest
rate is based on a spread (the "Base Rate Margin") over several LIBOR or base
rate options, depending upon the Company's ratio of debt to EBITDA. However, the
initial base rate margin is fixed at 275 basis points for the revolving facility
and Term A facility and 350 basis points for the Term B facility for the first
two quarters. The credit facility contains covenants that limit the indebtedness
the Company may incur and the amounts of annual capital expenditures. The
covenants also establish a minimum interest coverage ratio, a maximum leverage
ratio, and a minimum fixed charge coverage ratio. In addition, the Company is
required to pay an annual fee of 50 basis points, payable in quarterly
installments, on the unused portion of the revolving facility.
The following represents the schedule of current maturities for the Term A
and Term B facilities (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1999.................................................... $ --
2000.................................................... 4,650
2001.................................................... 47,400
2002.................................................... 61,650
2003.................................................... 61,650
Thereafter.............................................. 574,650
--------
$750,000
========
</TABLE>
The following unaudited pro forma information presents a summary of
combined results of operations of the Company, the Acquired Entities and DPS as
if the acquisitions and related financing, including the equity offering, had
occurred at the beginning of the period presented, along with certain pro forma
adjustments to give effect to amortization of goodwill, other intangible assets,
interest expense on acquisition debt and other adjustments. The pro forma
financial information is not necessarily indicative of the results of operations
as they would have been had the transaction been effected on the assumed dates.
Included in the pro forma information are integration costs incurred by the
Company for the Acquired Entities that are being reported within selling,
general and administrative expenses in the statement of operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Net revenues................................ $3,449,649
Net income.................................. $ 50,198
Basic earnings per share.................... $ 1.31
Diluted earnings per share.................. $ 1.29
</TABLE>
On March 24, 1999, the Company's Board of Directors adopted, and on May 26,
1999, the Company's stockholders approved, an amendment to the Company's Amended
and Restated 1994 Stock Option Plan to, among other things, increase the number
of shares reserved for issuance under this plan. A total of 2,920,000 shares of
the Company's
F-41
<PAGE> 131
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Class A common stock are currently reserved for issuance under this plan, and
said amount will automatically increase on January 1 of each year, to and
including January 1, 2004, by an amount equal to 1% of the aggregate number of
then outstanding shares of the Company's Class A and Class B common stock.
On May 26, 1999, the Company's stockholders approved an amendment to the
Company's certificate of incorporation to increase the number of authorized
shares of Class A common stock from 75 million to 150 million and the number of
authorized shares of Class B common stock from 22 million to 31 million.
On June 18, 1999, the Company learned that it is named as a defendant in
Allcare Health Management Systems, Inc. v. Cerner Corporation, et al. No.
499-CV-0464-Y (N.D. TX). Plaintiff commenced this action on or about June 16,
1999, alleging infringement of a patent owned by Plaintiff on a "Wellness Health
Management System" by the Company and its wholly-owned subsidiary Diversified
Pharmaceutical Services, Inc. and ten other unrelated entities. At this stage of
the litigation, neither the merits of Plaintiff's claim nor the potential
liability associated with it, if any, can be ascertained.
On June 18, 1999, SB transferred the ownership of Diversified Prescription
Delivery L.L.C. ("DPD"), to the Company pursuant to the Company's stock purchase
agreement with SB for the acquisition of DPS. The acquisition will be accounted
for under the purchase method of accounting.
In June 1999, the Company completed its equity offering of 5,175,000 shares
of its Class A common stock, which includes the underwriters' over-allotments.
The Company received net proceeds of $300,393,000. The Company also completed
the sale of $250 million of 9 5/8% Senior Notes due 2009 through a private
placement, receiving net proceeds of $243,502,000. The Company used the net
proceeds from the offerings, along with approximately $25 million of its own
cash, to repay the $150 million senior subordinated bridge credit facility plus
accrued interest and $414,770,000 of the Term B facility plus accrued interest.
As a result of the retirement of a portion of the Term B facility, the Company
will write-off $7,491,000, or approximately $4,495,000 net of tax, in deferred
financing fees as an extraordinary item during the second quarter of 1999.
The 9 5/8% Senior Notes are due June 15, 2009 and require semi-annual
interest payments beginning December 15, 1999. The Senior Notes are guaranteed
by the Company's domestic subsidiaries other than Practice Patterns Science,
Inc., Great Plains Reinsurance Company, ValueRx of Michigan, Inc., Diversified
NY IPA, Inc. and Diversified Pharmaceutical Services (Puerto Rico) Inc.. The
following is a summary of
F-42
<PAGE> 132
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial position and results of operations of the issuer, the guarantor
subsidiaries and non-guarantor subsidiaries:
<TABLE>
<CAPTION>
EXPRESS NON-
SCRIPTS, INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Current assets.................. $ 360,276 $ 626 $ 3,066 $ -- $ 363,968
Property and equipment, net..... 22,732 1,640 2,449 -- 26,821
Investments in subsidiaries..... 3,865 -- 264 (4,129) --
Intercompany.................... (994) 781 213 -- --
Goodwill, net................... 251 -- -- -- 251
Other assets.................... 10,974 79 415 -- 11,468
--------- --------- --------- --------- ---------
Total assets.................. $ 397,104 $ 3,126 $ 6,407 $ (4,129) $ 402,508
========= ========= ========= ========= =========
Current liabilities............. $ 194,226 $ 76 $ 3,604 $ -- $ 197,906
Long-term debt and other
liabilities................... 901 -- -- -- 901
Stockholders' equity............ 201,977 3,050 2,803 (4,129) 203,701
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity........ $ 397,104 $ 3,126 $ 6,407 $ (4,129) $ 402,508
========= ========= ========= ========= =========
AS OF DECEMBER 31, 1998
Current assets.................. $ 463,818 $ 188,978 $ 4,111 $ -- $ 656,907
Property and equipment, net..... 27,375 46,817 3,307 -- 77,499
Investments in subsidiaries..... 68,198 74,297 264 (142,759) --
Intercompany.................... 363,455 (361,202) (2,253) -- --
Goodwill, net................... 210 281,953 -- -- 282,163
Other assets.................... 12,783 65,853 256 -- 78,892
--------- --------- --------- --------- ---------
Total assets.................. $ 935,839 $ 296,696 $ 5,685 $(142,759) $1,095,461
========= ========= ========= ========= =========
Current liabilities............. $ 394,553 $ 141,433 $ 3,310 $ -- $ 539,296
Long-term debt.................. 306,000 -- -- -- 306,000
Other liabilities............... 779 (251) (57) -- 471
Stockholders' equity............ 234,507 155,514 2,432 (142,759) 249,694
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity........ $ 935,839 $ 296,696 $ 5,685 $(142,759) $1,095,461
========= ========= ========= ========= =========
YEAR ENDED DECEMBER 31, 1996
Net revenues.................... $ 757,972 $ 11,454 $ 4,189 $ -- $ 773,615
Operating expenses.............. 719,210 10,115 4,660 -- 733,985
--------- --------- --------- --------- ---------
Operating income (loss)....... 38,762 1,339 (471) -- 39,630
Interest income (expense)....... 3,433 -- 17 -- 3,450
--------- --------- --------- --------- ---------
Income (loss) before tax
provision................... 42,195 1,339 (454) -- 43,080
Income tax provision
(benefit)..................... 16,562 525 (155) -- 16,932
--------- --------- --------- --------- ---------
Net income (loss)............. $ 25,633 $ 814 $ (299) $ -- $ 26,148
========= ========= ========= ========= =========
</TABLE>
F-43
<PAGE> 133
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EXPRESS NON-
SCRIPTS, INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Net revenues.................... $1,205,085 $ 16,107 $ 9,442 $ -- $1,230,634
Operating expenses.............. 1,158,490 15,031 8,263 -- 1,181,784
--------- --------- --------- --------- ---------
Operating income (loss)....... 46,595 1,076 1,179 -- 48,850
Interest income (expense)....... 5,821 -- 35 -- 5,856
--------- --------- --------- --------- ---------
Income (loss) before tax
provision................... 52,416 1,076 1,214 -- 54,706
Income tax provision
(benefit)..................... 20,352 417 508 -- 21,277
--------- --------- --------- --------- ---------
Net income (loss)............. $ 32,064 $ 659 $ 706 $ -- $ 33,429
========= ========= ========= ========= =========
YEAR ENDED DECEMBER 31, 1998
Net revenues.................... $1,646,807 $1,167,387 $ 10,678 $ -- $2,824,872
Operating expenses.............. 1,584,731 1,139,387 11,520 -- 2,735,638
--------- --------- --------- --------- ---------
Operating income (loss)....... 62,076 28,000 (842) -- 89,234
Interest income (expense)....... (13,943) 846 103 -- (12,994)
--------- --------- --------- --------- ---------
Income (loss) before tax
provision................... 48,133 28,846 (739) -- 76,240
Income tax provision
(benefit)..................... 18,291 15,434 (159) -- 33,566
--------- --------- --------- --------- ---------
Net income (loss)............. $ 29,842 $ 13,412 $ (580) $ -- $ 42,674
========= ========= ========= ========= =========
</TABLE>
F-44
<PAGE> 134
VALUE HEALTH PHARMACY BENEFIT MANAGEMENT AND
MANAGED PRESCRIPTION NETWORK, INC. D/B/A
COLUMBIA PHARMACY SOLUTIONS
UNAUDITED COMBINED CONDENSED FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
F-45
<PAGE> 135
VALUE HEALTH PHARMACY BENEFIT MANAGEMENT AND
MANAGED PRESCRIPTION NETWORK, INC. D/B/A COLUMBIA PHARMACY SOLUTIONS
UNAUDITED COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
(IN THOUSANDS)
<S> <C>
ASSETS:
Current assets:
Cash and Cash equivalents................................. $ 26,863
Receivables, less allowance for doubtful accounts of
$25,310................................................ 185,506
Inventories............................................... 10,881
Prepaid expenses and other current assets................. 3,320
Deferred income taxes..................................... 41,737
--------
Total current assets................................... 268,307
Property and equipment, net................................. 100,769
Goodwill and other intangibles, net......................... 250,707
Other assets................................................ 2,794
--------
Total assets........................................... $622,577
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Payable to providers...................................... $162,853
Accounts payable and accrued expenses..................... 57,501
--------
Total current liabilities.............................. 220,354
Other liabilities........................................... 1,367
Stockholder's equity........................................ 400,856
--------
Total liabilities and stockholder's equity............. $622,577
========
</TABLE>
See notes to the unaudited combined condensed statements.
F-46
<PAGE> 136
VALUE HEALTH PHARMACY BENEFIT MANAGEMENT AND
MANAGED PRESCRIPTION NETWORK, INC. D/B/A COLUMBIA PHARMACY SOLUTIONS
UNAUDITED COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Net revenues............................................... $409,928 $407,297
-------- --------
Cost and expenses:
Cost of revenues......................................... 375,295 366,913
Selling, general and administrative...................... 27,628 18,552
-------- --------
402,923 385,465
-------- --------
Operating income........................................... 7,005 21,832
-------- --------
Other income (expense):
Interest income.......................................... 56 103
Interest expense......................................... -- (24)
-------- --------
56 79
-------- --------
Income before income taxes................................. 7,061 21,911
Provision for income taxes................................. 3,665 10,832
-------- --------
Net income................................................. $ 3,396 $ 11,079
======== ========
</TABLE>
See notes to the unaudited combined condensed statements.
F-47
<PAGE> 137
VALUE HEALTH PHARMACY BENEFIT MANAGEMENT AND
MANAGED PRESCRIPTION NETWORK, INC. D/B/A COLUMBIA PHARMACY SOLUTIONS
UNAUDITED COMBINED CONDENSED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 3,396 $ 11,079
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 8,811 4,537
Provision for doubtful accounts........................ 478 1,679
Gain on disposal of assets............................. (106) (1,230)
Deferred income taxes.................................. -- 1,877
Net changes in operating assets and liabilities........ (11,355) (17,809)
-------- --------
Net cash provided by operating activities................... 1,224 133
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (5,216) (14,236)
Sale of investment........................................ 6,000 --
-------- --------
Net cash provided by (used in) investing activities......... 784 (14,236)
-------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Net (payments) receipts to/from parent................. (7,220) 46,791
-------- --------
Net (decrease) increase in cash and cash equivalent......... (5,212) 32,688
Cash and cash equivalent at beginning of period............. 32,075 9,370
-------- --------
Cash and cash equivalent at end of period................... $ 26,863 $ 42,058
======== ========
</TABLE>
See notes to the unaudited combined condensed statements.
F-48
<PAGE> 138
VALUE HEALTH PHARMACY BENEFIT MANAGEMENT AND
MANAGED PRESCRIPTION NETWORK, INC. D/B/A COLUMBIA PHARMACY SOLUTIONS
NOTES TO UNAUDITED COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial statement note disclosures, normally included in financial
statements prepared in conformity with generally accepted accounting principles,
have been omitted in these combined condensed financial statements pursuant to
the Form 10-Q rules and Regulations of the Securities and Exchange Commission.
However, in the opinion of the Company, the disclosure contained herein are
adequate to make the information presented not misleading when read in
conjunction with the notes to combined financial statements of Value Health
Pharmacy Benefit Management ("Value Health, Inc.") for the Year Ended December
31, 1997 and the notes to financial statements of Managed Prescription Network,
Inc. d/b/a Columbia Pharmacy Solutions ("MPN") for the Year Ended December 31,
1997 included in the Company's Current Report on Form 8-K/A, as filed with the
Securities and Exchange Commission on June 12, 1998.
In the opinion of the Company, the accompanying unaudited combined
condensed financial statements, including, Value Health, Inc. and MPN, reflect
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the Combined Condensed Balance Sheet at March 31, 1998, the
Combined Condensed Statement of Operations for the three months ended March 31,
1998, and 1997, and the Condensed Combined Statement of Cash Flows for the three
months ended March 31, 1998, and 1997.
NOTE 2 - STOCKHOLDER'S EQUITY
The combined changes in stockholder's equity is as follows:
<TABLE>
<S> <C>
Balance at December 31, 1997.............................. $406,746
Net income........................................... 3,396
Net distributions to parent.......................... (9,286)
--------
Balance at March 31, 1998................................. $400,856
========
</TABLE>
NOTE 3 - SUBSEQUENT EVENTS
On April 1, 1998, Express Scripts, Inc. announced that it had consummated
the acquisition of the outstanding common stock of VHI and MPN, the sole assets
of which are various subsidiaries each now or formerly conducting business as a
pharmacy benefit management company, from Columbia/HCA Healthcare Corporation
for approximately $460 million in cash.
F-49
<PAGE> 139
[EXPRESS SCRIPTS LOGO]
<PAGE> 140
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "Delaware Law") enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director to a corporation or its stockholders for violations of
the director's fiduciary duty, except (1) for any breach of a director's duty of
loyalty to the corporation or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) pursuant to Section 174 of the Delaware Law (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions) or (4) for any transaction from which a director derived an
improper personal benefit. Our Restated Certificate of Incorporation provides
for the elimination of the liability of our directors to the extent permitted by
Section 102(b)(7) of the Delaware Law.
Section 145 of the Delaware Law provides, in summary, that directors and
officers of Delaware corporations are entitled, under certain circumstances, to
be indemnified against all expenses and liabilities (including attorney's fees)
incurred by them as a result of suits brought against them in their capacity as
a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to our best interests, and, with
respect to any criminal action or proceeding, if they had no reasonable cause to
believe their conduct was unlawful; provided, that no indemnification may be
made against expenses in respect of any claim, issue or matter as to which they
shall have been adjudged to be liable to us, unless and only to the extent that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, they are fairly and reasonably entitled to indemnity
for such expenses which the court shall deem proper. Any such indemnification
may be made by us only as authorized in each specific case upon a determination
by our stockholders or disinterested directors that indemnification is proper
because the indemnitee has met the applicable standard of conduct. Article Seven
of our certificate of incorporation entitles our officers and directors to
indemnification to the fullest extent permitted by Section 145 of the Delaware
Law, as the same may be supplemented from time to time.
Article Eight of our certificate of incorporation provides that no director
shall have any personal liability to us or our stockholders for any monetary
damages for breach of fiduciary duty as a director, provided that such provision
does not limit or eliminate the liability of any director (1) for breach of such
director's duty of loyalty to us or our stockholders, (2) for acts or omissions
not in good faith or which involve international misconduct or knowing violation
of the law, (3) under Section 174 of the Delaware Law (involving certain
unlawful dividends or stock repurchases) or (4) for any transaction from which
such director derived an improper personal benefit.
II-1
<PAGE> 141
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
1.1 -- Purchase Agreement, dated June 11, 1999, among Express
Scripts, Inc. and Credit Suisse First Boston Corporation and
Deutsche Bank Securities Inc.
4.1 -- Indenture, dated as of June 16, 1999, among Express Scripts,
Inc., Bankers Trust Company, as trustee, and the Guarantors
named therein
4.2 -- Registration Rights Agreement, dated as of June 11, 1999,
among Express Scripts, Inc. and Credit Suisse First Boston
Corporation and Deutsche Bank Securities Inc.
5.1 -- Opinion of Simpson Thacher & Bartlett*
12.1 -- Statement re: Computation of Ratios*
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Ernst & Young LLP, Minneapolis, Minnesota
23.3 -- Consent of Ernst & Young LLP, Pittsburgh, Pennsylvania
23.4 -- Consent of Simpson Thacher & Bartlett (included in Exhibit
5.1)*
24.1 -- Powers of attorney
25.1 -- Statement of eligibility and qualification under the Trust
Indenture Act of 1939 on Form T-1 of Bankers Trust Company
to act as Trustee under the Indenture*
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Letter to Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees
99.3 -- Form of Letter to Clients
99.4 -- Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement:
a. To include any prospectus required by Section 10(a)(3) of the
Securities Act;
b. To reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
c. To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
II-2
<PAGE> 142
provided, however, that the undertakings set forth in paragraphs (a) and
(b) above shall not apply if the information required to be included in
a post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Exchange Act that are incorporated by reference in this
registration statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment will be deemed to be a new
registration statement relating to the securities offered herein, and
the offering of such securities at that time will be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
4. That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
registration statement will be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such
securities at that time will be deemed to be the initial bona fide
offering thereof.
5. To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent
to the effective date of the registration statement through the date of
responding to the request.
6. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
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 SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act, we have duly caused
this registration statement to be signed on our behalf by the undersigned,
thereunto duly authorized, in the City of Maryland Heights, State of Missouri on
July 16, 1999.
EXPRESS SCRIPTS, INC.
By: *
-----------------------------------
Barrett A. Toan, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities
indicated on , 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(1) Principal Executive Officer:
*
- ------------------------------------ President, Chief Executive
Barrett A. Toan Officer and Director July 16, 1999
(2) Principal Financial Officer:
*
- ------------------------------------ Senior Vice President and Chief
George Paz Financial Officer July 16, 1999
(3) Principal Accounting Officer:
*
- ------------------------------------ Vice President, Chief Accounting
Joseph W. Plum Officer and Assistant Secretary July 16, 1999
(4) Directors:
*
- ------------------------------------
Howard Atkins Director July 16, 1999
*
- ------------------------------------
Judith E. Campbell Director July 16, 1999
*
- ------------------------------------
Richard M. Kernan, Jr. Director July 16, 1999
*
- ------------------------------------
Richard A. Norling Director July 16, 1999
*
- ------------------------------------
Frederick J. Sievert Director July 16, 1999
*
- ------------------------------------
Stephen N. Steinig Director July 16, 1999
*
- ------------------------------------
Seymour Sternberg Director July 16, 1999
</TABLE>
II-4
<PAGE> 144
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ------------------------------------
Howard L. Waltman Chairman, Director July 16, 1999
*
- ------------------------------------
Norman Zachary Director July 16, 1999
*By: /s/ KEITH J. EBLING
- ---------------------------------
As attorney-in-fact for
the person indicated
</TABLE>
II-5
<PAGE> 145
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C> <C>
1.1 -- Purchase Agreement, dated June 11, 1999, among Express
Scripts, Inc. and Credit Suisse First Boston Corporation
and Deutsche Bank Securities Inc..........................
4.1 -- Indenture, dated as of June 16, 1999, among Express
Scripts, Inc., Bankers Trust Company, as trustee, and the
Guarantors named therein..................................
4.2 -- Registration Rights Agreement, dated as of June 11, 1999,
among Express Scripts, Inc. and Credit Suisse First Boston
Corporation and Deutsche Bank Securities Inc..............
5.1 -- Opinion of Simpson Thacher & Bartlett.....................
12.1 -- Statement re: Computation of Ratios.......................
23.1 -- Consent of PricewaterhouseCoopers LLP.....................
23.2 -- Consent of Ernst & Young LLP, Minneapolis, Minnesota......
23.3 -- Consent of Ernst & Young LLP, Pittsburgh, Pennsylvania....
23.4 -- Consent of Simpson Thacher & Bartlett (included in Exhibit
5.1)......................................................
24.1 -- Powers of attorney........................................
25.1 -- Statement of eligibility and qualification under the Trust
Indenture Act of 1939 on Form T-1 of Bankers Trust Company
to act as Trustee under the Indenture.....................
99.1 -- Form of Letter of Transmittal.............................
99.2 -- Form of Letter to Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees........................
99.3 -- Form of Letter to Clients.................................
99.4 -- Form of Notice of Guaranteed Delivery.....................
</TABLE>
II-6
<PAGE> 1
EXHIBIT 1.1
$250,000,000
EXPRESS SCRIPTS, INC.
9 5/8 % Senior Notes due 2009
PURCHASE AGREEMENT
June 11, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
DEUTSCHE BANK SECURITIES INC.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010-3629
Ladies and Gentlemen:
1. Introductory. Express Scripts, Inc., a Delaware corporation (the
"Company"), and the Guarantors (as defined) propose, subject to the terms and
conditions stated herein, to issue and sell to the several initial purchasers
named in Schedule A hereto (collectively, the "Purchasers") U.S. $250,000,000
principal amount of their 9 5/8% Senior Notes due 2009 (the "Notes") to be
issued under an indenture, dated as of June 11, 1999 (the "Indenture"), among
the Issuers (as defined) and Bankers Trust Company, as trustee (the "Trustee").
The Notes will be guaranteed (the "Guarantees") on a senior unsecured basis by
certain of the Company's domestic subsidiaries listed on the signature pages
hereof (collectively, the "Guarantors"). The Company and the Guarantors are
collectively referred to herein as the "Issuers." The Notes and the Guarantees
are collectively referred to herein as the "Offered Securities." The United
States Securities Act of 1933, as amended, is herein referred to as the "Act."
The Purchasers and the direct and indirect transferees of the Offered
Securities will be entitled to the benefits of a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit B (the "Registration Rights
Agreement"), pursuant to which the Issuers have agreed, among other things, to
file a registration statement with the Securities and Exchange Commission (the
"Commission") registering the Exchange Securities (as defined in the
Registration Rights Agreement) under the Act.
The Issuers hereby agree with the Purchasers as follows:
2. Representations and Warranties of the Issuers. The Issuers,
jointly and severally, represent and warrant to, and agree with, the Purchasers
that:
<PAGE> 2
2
(i) A preliminary offering circular and an offering circular relating
to the Offered Securities to be offered by the Purchasers have been prepared by
the Issuers. Such preliminary offering circular (the "Preliminary Offering
Circular") and offering circular (the "Offering Circular"), as supplemented as
of the date of this Agreement are hereinafter collectively referred to as the
"Offering Document." On the date of this Agreement and on the Closing Date (as
defined below), the Offering Document does not and will not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The preceding sentence does not apply to
statements in or omissions from the Offering Document based upon written
information furnished to the Company by any Purchaser through Credit Suisse
First Boston Corporation ("CSFBC") specifically for use therein, it being
understood and agreed that the only such information is that described as such
in Section 7(b) hereof. Except as disclosed in the Offering Document, on the
date of their respective filings, the Company's Annual Report on Form 10-K most
recently filed with the Commission and all subsequent reports (collectively, the
"Exchange Act Reports") which have been filed with the Commission or sent to
stockholders pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), do not include any untrue statements of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Such documents
when they were filed with the Commission, conformed in all material respects to
the requirements of the Exchange Act and the rules and regulations of the
Commission thereunder.
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Offering Document. Each of the subsidiaries of the
Company as listed in Exhibit A hereto (collectively, the "Subsidiaries") has
been duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with corporate power
and authority to own or lease its properties and conduct its business as
described in the Offering Document. The subsidiaries listed on Exhibit B hereto
are the only subsidiaries, direct or indirect, of the Company. The Company and
each of the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such qualification
(except where the failure to so qualify would not have a material adverse effect
on the Company and the Subsidiaries taken as a whole). The outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable and to the extent shown in Exhibit B
hereto are owned by the Company or another Subsidiary free and clear of all
liens, encumbrances and equities and claims; and, other than as described in the
Offering Document or as disclosed in writing to the Purchasers, no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital stock or
ownership interests in the Company or any of the Subsidiaries are outstanding.
<PAGE> 3
3
(iii) The outstanding shares of common stock of the Company have been
duly authorized and validly issued, are fully paid and non-assessable; and no
preemptive rights of stockholders of the Company exist, other than as disclosed
in the Offering Document and waived in writing by the holders thereof. Except as
disclosed in the Offering Document, there are no contracts, agreements or
understandings between the Company and any person that would give rise to a
valid claim against the Company or any Purchaser for a brokerage commission,
finder's fee or other like payment in connection with this offering.
(iv) The Indenture has been duly authorized by each of the Issuers;
and assuming the due authorization, execution and delivery of the Indenture by
the Trustee, the Indenture will constitute a valid and legally binding
obligation of each of the Issuers, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The Indenture meets the
requirements for qualification under the Trust Indenture Act of 1939, as amended
(the "TIA").
(v) The Notes have been duly authorized by the Company; and when the
Notes are issued and authenticated in accordance with the terms of the Indenture
and paid for by the Purchasers pursuant to this Agreement on the Closing Date
(as defined below), the Notes will have been duly executed, authenticated,
issued and delivered and will be in the form contemplated by, and entitled to
the benefits of, the Indenture and will constitute valid and binding obligations
of the Company, enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles. The Guarantees have been duly authorized by
the Guarantors; and when issued by the Guarantors in accordance with the terms
of the Indenture and the Notes are delivered and paid for pursuant to this
Agreement on the Closing Date, the Guarantees will have been duly executed,
issued and delivered and will be in the form contemplated by, and entitled to
the benefits of, the Indenture and will constitute valid and legally binding
obligations of the Guarantors, enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The Offered Securities and
the Indenture conform in all material respects to the description thereof
contained in the Offering Document.
(vi) The Registration Rights Agreement has been duly authorized by each
of the Issuers, and, when duly executed and delivered by the Issuers on the
Closing Date, the Registration Rights Agreement will constitute a valid and
legally binding obligation of each of the Issuers, enforceable in accordance
with its terms, (a) except as rights of indemnity or contribution, or both, may
be limited by state and federal securities laws or contribution, or both, may be
limited by state and federal securities laws or public policy underlying such
laws and (b) subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or
<PAGE> 4
4
affecting creditors' rights and to general equity principles. The Registration
Rights Agreement conforms in all material respects to the description thereof
contained in the Offering Document.
(vii) The Exchange Securities and the guarantees to be endorsed thereon
have been duly authorized by the Company and the Guarantors, respectively; and
when the Exchange Securities are executed, and authenticated, issued in
accordance with the terms of the Indenture and delivered in exchange for the
Notes pursuant to the Registration Rights Agreement, the Exchange Securities
will have been duly executed, authenticated, issued and delivered and will be in
the form contemplated by, and entitled to the benefits of, the Indenture and
will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles; and when the guarantees endorsed on the Exchange Securities are
issued in accordance with the terms of the Indenture and the Exchange Securities
are delivered in exchange for the Notes pursuant to the Registration Rights
Agreement, such guarantees will have been duly executed, issued and delivered
and will be in the form contemplated by, and entitled to the benefits of, the
Indenture and will constitute valid and binding obligations of each of the
Guarantors, enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(viii) The information set forth under the caption "Capitalization" in
the Offering Document is true and correct. The outstanding shares of the
Company's common stock conform in all material respects to the description
thereof in the Offering Document.
(ix) The consolidated financial statements of the Company and its
consolidated subsidiaries, together with related notes and schedules as set
forth or incorporated by reference in the Offering Document, present fairly the
financial position and the results of operations and cash flows of the Company
and its consolidated subsidiaries, at the indicated dates and for the indicated
periods. Such financial statements and related schedules have been prepared in
accordance with generally accepted accounting principles, consistently applied
throughout the periods involved, except as disclosed therein, and all
adjustments necessary for a fair presentation of results for such periods have
been made. The consolidated financial statements of Diversified Pharmaceutical
Services, Inc. ("DPS") and its consolidated subsidiaries, together with related
notes and schedules set forth or incorporated by reference in the Offering
Document, present fairly the financial position and the results of operations
and cash flows of DPS and its consolidated subsidiaries, at the indicated dates
and for the indicated periods. Such financial statements and related schedules
have been prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods involved, except as disclosed
therein, and all adjustments necessary for a fair presentation of results for
such periods have been made. The consolidated financial statements of
<PAGE> 5
5
Value Health, Inc. and Managed Prescription Network, Inc. (collectively,
"ValueRx") and its consolidated subsidiaries, together with related notes and
schedules set forth or incorporated by reference in the Offering Document,
present fairly the financial position and the results of operations and cash
flows of ValueRx and its consolidated subsidiaries, at the indicated dates and
for the indicated periods. Such financial statements and related schedules have
been prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods involved, except as disclosed
therein, and all adjustments necessary for a fair presentation of results for
such periods have been made. The assumptions used in preparing the pro forma
financial statements included in the Offering Document provide a reasonable
basis for presenting the significant effects directly attributable to the
transactions or events described therein, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma columns therein
effect the proper application of those adjustments to the corresponding
historical financial statement amounts. The summary financial and operating data
included or incorporated by reference in the Offering Document present fairly
the information shown therein and such data have been compiled on a basis
consistent with the financial statements presented therein and the books and
records of the Company.
(x) Each of PricewaterhouseCoopers LLP and Ernst & Young LLP, who have
certified certain of the financial statements included in, or incorporated by
reference in, the Offering Document are independent public accountants as
required by the Act.
(xi) There is no action, suit, claim or governmental or third-party
payor audit (other than client audits in the ordinary course of business),
investigation or other proceeding ("Proceeding") pending or, to the knowledge of
the Company, threatened against the Company or any of the Subsidiaries before
any court or administrative agency, domestic or foreign, having jurisdiction
over the Company or any Subsidiary or any of their respective properties which
if determined adversely to the Company or any of the Subsidiaries might
individually or in the aggregate have a material adverse effect on the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and of the Subsidiaries
taken as a whole or prevent the consummation of the transactions contemplated
hereby or materially and adversely affect the Issuers' ability to perform their
respective obligations under the Indenture, the Registration Rights Agreement or
this Agreement, except as set forth in the Offering Document, including, without
limitation, any such Proceeding pursuant to federal or state laws or regulations
(i) prohibiting the payment or receipt of remuneration for patient referrals,
(ii) prohibiting the filing of false claims, (iii) prescribing conditions of
participation for certification by the Medicare and Medicaid programs and state
fund programs or standards for licensure or health planning approval or (iv)
providing for reimbursement under the Medicare and Medicaid and state fund
programs.
(xii) Company and the Subsidiaries have good and marketable title to
all of the properties and assets reflected in the financial statements (other
than as described in the
<PAGE> 6
6
Offering Document) hereinabove described, except for such properties disposed of
in the ordinary course of business, subject to no lien, mortgage, pledge, charge
or encumbrance of any kind except those reflected in such financial statements
(or as described in the Offering Document) or which are not material in amount.
The Company and the Subsidiaries occupy their leased properties under valid and
binding leases, with such exceptions as are not material.
(xiii) The Company and the Subsidiaries have timely filed all federal,
state, local and foreign income tax returns which have been required to be filed
and have paid all taxes indicated by said returns and all assessments received
by them or any of them to the extent that such taxes have become due and are not
being contested in good faith in appropriate proceedings. All material tax
liabilities have been adequately provided for in the financial statements of the
Company.
(xiv) Since the date of the last audited financial statement included
in the Offering Document, there has not been any material adverse change or any
development involving a prospective material adverse change in or adversely
affecting the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
the Subsidiaries taken as a whole, whether or not occurring in the ordinary
course of business, and there has not been any material transaction entered into
or any material transaction that is probable of being entered into by the
Company or any of the Subsidiaries, other than transactions in the ordinary
course of business and changes and transactions described in the Offering
Document. Except as disclosed in or contemplated by the Offering Document, there
has been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock. The Company and the Subsidiaries have
no material contingent obligations which are not disclosed in the Company's
financial statements which are included or incorporated by reference in the
Offering Document.
(xv) Neither the Company nor any of the Subsidiaries is, or, with the
giving of notice or lapse of time or both, will be, in violation of or in
default under (i) its corporate charter or by-laws, (ii) any agreement, lease,
contract, indenture or other instrument or obligation to which it is a party or
by which it, or any of its properties, is bound or (iii) any statute, rule,
regulation or order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any of their
respective properties, which default or violation (in the case of (ii) and (iii)
only) is of material significance in respect of the condition, financial or
otherwise, of the Company and the Subsidiaries taken as a whole or the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and the Subsidiaries taken
as a whole. This Agreement has been duly authorized, executed and delivered by
the Issuers. The execution and delivery of this Agreement, the Registration
Rights Agreement and the Indenture and the issuance and sale of the Offered
Securities and the consummation of the transactions contemplated hereby and
thereby and the fulfillment of the terms hereof and thereof will not conflict
with or result in a breach of any of the terms or provisions of, or constitute a
default
<PAGE> 7
7
under, or result in the creation or imposition of a lien pursuant to any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party, or of the charter or by-laws of any of the
Issuers or any statute, rule regulation or order of any governmental agency or
body or of any decree or order by any court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their respective
properties.
(xvi) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Issuers of this Agreement, the Registration Rights Agreement and the Indenture
and the transactions contemplated hereby and thereby and the issue and sale of
the Offered Securities (except such additional steps as may be necessary to
qualify the Offered Securities for the offering contemplated hereby under state
securities or Blue Sky laws) has been obtained or made and is in full force and
effect.
(xvii) The Company and the Subsidiaries own, possess or can acquire on
reasonable terms adequate patents, patent rights, trade names, trademarks or
copyrights and other intellectual property materially necessary to conduct the
business now operated by them, or presently employed by them. To the best
knowledge of the Company, neither the Company nor any of the Subsidiaries has
infringed any patents, patent rights, trade names, trademarks or copyrights,
which infringement is material to the business of the Company and the
Subsidiaries taken as a whole. The Company knows of no material infringement by
others of patents, patent rights, trade names, trademarks or copyrights owned by
or licensed to the Company or any Subsidiary.
(xviii) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the best knowledge of the Company, is imminent that
could reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the Company and the Subsidiaries taken as a whole.
(xix) Neither the Company nor any Subsidiary is, and after giving
effect to the offer and sale of the Offered Securities will be, an "investment
company" within the meaning of such term under the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations of the
Commission thereunder.
(xx) The Company and each of the Subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of their respective businesses as presently conducted and the value of their
respective properties and as is customary for companies engaged in similar
industries.
(xxi) With respect to pension and welfare plans maintained by the
Company and the Subsidiaries, each of the Company and the Subsidiaries is in
compliance in all material respects with all presently applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published
<PAGE> 8
8
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company or any of the Subsidiaries would have any liability; none of
the Company and the Subsidiaries has incurred or expects to incur liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal from,
any "pension plan" or (ii) Section 412 or 4971 of the Internal Revenue Code of
1986, as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company and the
Subsidiaries would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause the loss
of such qualification.
(xxii) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes and the Company agrees to
comply with such Section if prior to the completion of the distribution of the
Offered Securities it commences doing such business.
(xxiii) To the best knowledge of the Company, the Company and each of
the Subsidiaries has conducted its business in material compliance with all the
laws, rules and regulations of the jurisdictions in which each such entity is
conducting business, except as disclosed in the Offering Document. Without
limiting the foregoing, except as disclosed in the Offering Document, (i) the
Company is in compliance with the requirements of Section 13(b)(2) of the
Exchange Act applicable to it and (ii) the Company and each of the Subsidiaries,
and each of the professional employees of the Company and each Subsidiary, owns
or possesses and is in compliance with the terms, provisions and conditions of
all permits, licenses, franchises, operating certificates, orders,
authorizations, registrations, qualifications, consents or approvals (including
certificates of need, licenses, pharmacy licenses, Medicare provider numbers,
accreditations and other similar documentation or approvals of any local health
departments of any Authority (as hereinafter defined)) of any court, arbitrator
or arbitral body, or any federal, state, local or foreign governmental agency or
self-regulatory authority, department or commission, or any other board, bureau,
review board, instrumentality or similar organization, domestic or foreign, or
any applicable private accrediting organization (collectively, "Authority")
(hereinafter collectively, "Permits") necessary to own and use the properties
and assets of the Company and each of the Subsidiaries, respectively, and to
conduct their respective businesses, except where the failure to comply,
individually or in the aggregate, would not have a material adverse effect on
the Company and the Subsidiaries taken as a whole; as to the Company and each
Subsidiary, each such Permit of and from such Authorities is valid and in full
force and effect and there is no Proceeding pending or, to the Company's
knowledge, threatened (or any reasonable basis therefor) which may cause any
such Permit of or from any Authority to be revoked, withdrawn, canceled,
suspended or not renewed, except where the failure to own or possess such Permit
would not have a material adverse effect on the Company and the Subsidiaries
taken as a whole.
<PAGE> 9
9
(xxiv) To the best knowledge of the Company, each of the Company and
the Subsidiaries and their respective officers and directors, and, to the best
knowledge of the Company, persons who provide professional services under
agreements with the Company and/or the Subsidiaries, have not engaged in any
activities which are prohibited, or are cause for civil penalties or mandatory
or permissive exclusion from Medicare or Medicaid, under Section1320a-7,
1320a-7a, 1302a-7b or 1395nn of Title 42 of the United States Code, the federal
CHAMPUS statute or the regulations promulgated pursuant to such statutes or
related state or local statutes or regulations, standards of accreditation
applicable to the Company or the Subsidiaries or rules of professional conduct,
which activities might reasonably be expected to result in sanctions (financial
or otherwise) that would be material to the Company and the Subsidiaries taken
as a whole.
(xxv) (A) To the best of the Company's knowledge, no person who
immediately following any Closing Date will have a direct or indirect ownership
interest (as those terms are defined in 42 C.F.R. Section 1001.1001) in the
Company of 10% or more (a "Major Investor"), and (B) to the best knowledge of
the Company, no present subsidiary of such Major Investor other than the
Company: (1) has had a civil monetary penalty assessed against it under 42
U.S.C. Section 1320a-7a; (2) has been excluded from participation under the
Medicare program or under a state health care program as defined in 42 U.S.C.
Section 1320a-7(h) (a "State Health Care Program"); or (3) has been convicted
(as that term is defined in 42 C.F.R. Section 1001.2) of any of the following
categories of offenses as described in 42 U.S.C. Section 132a-7(a) or (b)(1),
(2), (3):
(a) criminal offenses relating to the delivery of an item or service
under Medicare or any State Health Care Program;
(b) criminal offenses under federal or state law relating to patient
neglect or abuse in connection with the delivery of a health care item
or service;
(c) criminal offenses under federal or state law relating to fraud, theft,
embezzlement, breach of fiduciary responsibility or other financial
misconduct in connection with the delivery of a health care item or
service or with respect to any act or omission in a program operated by
or financed in whole or in part by any federal, state or local
government agency;
(d) criminal offenses under federal or state laws relating to the
interference with or obstruction of any investigation into any criminal
offense described in (a) through (c) above; or
(e) criminal offenses under federal or state law relating to the unlawful
manufacture, distribution, prescription or dispensing of a controlled
substance.
(xxvi) To the best knowledge of the Company, except as disclosed in the
Offering Document, there is no Medicare, Medicaid or CHAMPUS recoupment or
<PAGE> 10
10
recoupments of any other third-party payor being sought, threatened, requested
or claimed against the Company or any Subsidiary.
(xxvii) No securities of the same class (within the meaning of Rule
144A(d)(3) under the Act) as the Offered Securities are listed on any national
securities exchange registered under Section 6 of the Exchange Act or quoted in
a U.S. automated inter-dealer quotation system.
(xxviii) The offer and sale of the Offered Securities in the manner
contemplated by this Agreement will be exempt from the registration requirements
of the Act by reason of Section 4(2) thereof and Regulation S thereunder; and it
is not necessary to qualify an indenture in respect of the Offered Securities
under the TIA.
(xxix) None of the Issuers, nor any of their respective affiliates, nor
any person acting on their behalf (i) has, within the six-month period prior to
the date hereof, offered or sold in the United States or to any U.S. person (as
such terms are defined in Regulation S ("Regulation S") under the Act) the
Offered Securities or any security of the same class or series as the Offered
Securities or (ii) has offered or will offer or sell the Offered Securities (A)
in the United States by means of any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the Act or (B) with respect
to any such securities sold in reliance on Rule 903 of Regulation S, by means of
any directed selling efforts within the meaning of Rule 902(c) of Regulation S.
The Issuers, their respective affiliates and any person acting on their behalf
have complied and will comply with the offering restrictions requirement of
Regulation S. None of the Issuers has entered or will enter into any contractual
arrangement with respect to the distribution of the Offered Securities except
for this Agreement.
(xxx) No holder of securities of any Issuer (other than the holders of
the Offered Securities) will be entitled to have such securities registered
under the registration statements required to be filed by the Issuers pursuant
to the Registration Rights Agreement.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Issuers agree to sell to the
Purchasers, and the Purchasers agree, severally and not jointly, to purchase
from the Issuers, at a purchase price of 97.401% of the principal amount
thereof, plus accrued interest, if any, from June 16, 1999 to the Closing Date,
the respective principal amounts of Offered Securities set forth opposite the
names of the Purchasers in Schedule A hereto.
The Issuers will deliver against payment of the purchase price therefor
the Offered Securities in the form of one or more permanent global Offered
Securities in definitive form (the "Global Securities") deposited with the
Trustee as custodian for The Depository Trust Company ("DTC") and registered in
the name of Cede & Co., as nominee for DTC. Interests in any permanent Global
Securities will be held only in book-entry form through DTC, except in the
<PAGE> 11
11
limited circumstances described in the Offering Document. Payment for the
Offered Securities shall be made by the Purchasers in federal (same day) funds
by official bank check or checks or wire transfer to an account at a bank
acceptable to CSFBC at the office of Cahill Gordon & Reindel, 80 Pine Street,
New York, NY 10005, at 10:00 A.M. New York City time, on June 16, 1999, or at
such other time not later than seven full business days thereafter as CSFBC and
the Company determine, such time being herein referred to as the "Closing Date,"
against delivery to the Trustee as custodian for DTC of the Global Securities
representing all of the Offered Securities. The Global Securities will be made
available for checking at the above office of Cahill Gordon & Reindel, 80 Pine
Street, New York, NY 10005 at least 24 hours prior to the Closing Date.
4. Representations by Purchasers; Resale by Purchasers. Each Purchaser
severally represents and warrants to the Issuers that it is an "accredited
investor" within the meaning of Regulation D under the Act.
(b) Each Purchaser severally acknowledges that the Offered Securities
have not been registered under the Act and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S or pursuant to an exemption from the registration
requirements of the Act. Each Purchaser severally represents and agrees that it
has offered and sold the Offered Securities, and will offer and sell the Offered
Securities, (i) as part of its distribution at any time and (ii) otherwise until
40 days after the later of the commencement of the Offering and the Closing Date
only in accordance with Rule 903 or Rule 144A under the Act ("Rule 144A") and
pursuant to the offering and transfer procedures and restrictions set forth in
the Offering Document. Accordingly, none of the Purchasers nor any of their
affiliates, nor any persons acting on their behalf, have engaged or will engage
in any directed selling efforts with respect to the Offered Securities, and the
Purchasers, their respective affiliates and all persons acting on their behalf
have complied and will comply with the offering restrictions requirement of
Regulation S and Rule 144A. Each Purchaser severally agrees that, at or prior to
confirmation of sale of the Offered Securities, other than a sale pursuant to
Rule 144A, such Purchaser will have sent to each distributor, dealer or person
receiving a selling concession, fee or other remuneration that purchases the
Offered Securities from it a confirmation or notice to substantially the
following effect:
"The Securities covered hereby have not been registered under
the U.S. Securities Act of 1933 (the "Securities Act") and may
not be offered or sold within the United States or to, or for
the account or benefit of, U.S. persons (i) as part of its
distribution at any time or (ii) otherwise until 40 days after
the later of the date of the commencement of the offering and
the closing date, except in accordance with Regulation S (or
Rule 144A if available) under the Securities Act. Terms used
above have the meanings given to them by Regulation S."
Terms used in this subsection (b) have the meanings given to
them by Regulation S.
<PAGE> 12
12
(c) Each Purchaser severally agrees that it and each of its affiliates
has not entered and will not enter into any contractual arrangement with respect
to the distribution of the Offered Securities except for any such arrangements
with any other Purchaser or affiliates of any other Purchaser or with the prior
written consent of the Issuers.
(d) Each Purchaser severally agrees that it and each of its affiliates
will not offer or sell the Offered Securities in the United States by means of
any form of general solicitation or general advertising within the meaning of
Rule 502(c) under the Act, including, but not limited to (i) any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media or broadcast over television or radio, or (ii) any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising. Each Purchaser severally agrees, with respect to resales made in
reliance on Rule 144A of any of the Offered Securities, to deliver either with
the confirmation of such resale or otherwise prior to settlement of such resale
a notice to the effect that the resale of such Offered Securities has been made
in reliance upon the exemption from the registration requirements of the Act
provided by Rule 144A.
(e) Each Purchaser severally represents and agrees that (i) it has not
offered or sold, and prior to the date six months after the date of issue of the
Offered Securities will not offer or sell, any Offered Securities to persons in
the United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the Offered
Securities in, from or otherwise involving the United Kingdom; and (iii) it has
only issued or passed on and will only issue or pass on in the United Kingdom
any document received by it in connection with the issue of the Offered
Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom such document may otherwise lawfully be issued or passed
on.
5. Certain Agreements of the Issuers. The Issuers agree with the
several Purchasers that:
(a) The Issuers will advise CSFBC promptly of any proposal to amend or
supplement the Offering Document and will not effect such amendment or
supplementation without CSFBC's prior consent. If, at any time prior to the
completion of the resale of the Offered Securities by the Purchasers, any
event occurs as a result of which the Offering Document as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, the Issuers promptly will notify CSFBC of such event and
promptly will prepare, at their own expense, an amendment or supplement
which will correct such statement or omission. Neither CSFBC's consent to,
nor the Purchasers' delivery to
<PAGE> 13
13
offerees or investors of, any such amendment or supplement shall constitute
a waiver of any of the conditions set forth in Section 6.
(b) The Issuers will furnish to CSFBC copies of the Preliminary
Offering Circular, the Offering Circular and all amendments and supplements
to such documents, in each case in such quantities as CSFBC requests. At
any time when the Issuers are not subject to Section 13 or 15(d) of the
Exchange Act, the Issuers will promptly furnish or cause to be furnished to
CSFBC (and, upon request, to each of the other Purchasers) and, upon
request of holders and prospective purchasers of the Offered Securities, to
such holders and purchasers, copies of the information required to be
delivered to holders and prospective purchasers of the Offered Securities
pursuant to Rule 144A(d)(4) under the Act (or any successor provision
thereto) in order to permit compliance with Rule 144A in connection with
resales by such holders of the Offered Securities. The Issuers will pay the
expenses of printing and distributing to the Purchasers all such documents.
(c) The Issuers will arrange for the qualification of the Offered
Securities for sale under the laws of such U.S. jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the resale of the Offered Securities by the Purchasers.
(d) During the period of ten years hereafter, the Company will furnish
to CSFBC and, upon request, to each of the other Purchasers, as soon as
practicable after the end of each fiscal year, a copy of its annual report
to stockholders for such year; and the Company will furnish to CSFBC and,
upon request, to each of the other Purchasers as soon as available, a copy
of each report and any definitive proxy statement of the Company filed with
the Commission under the Exchange Act or mailed to stockholders.
(e) During the period of two years after the Closing Date, the Issuers
will, upon request, furnish to CSFBC and any holder of Offered Securities a
copy of the restrictions on transfer applicable to the Offered Securities.
(f) During the period of two years after the Closing Date, the Issuers
will not, and will not permit any of their affiliates (as defined in Rule
144 under the Act) to, resell any of the Offered Securities that have been
reacquired by any of them.
(g) During the period of two years after the Closing Date, the Company
will not be or become, an open end investment company, unit investment
trust or face amount certificate company that is or is required to be
registered under Section 8 of the Investment Company Act.
(h) The Issuers will pay all expenses incident to the performance of
their obligations under this Agreement, the Indenture and the Registration
Rights Agreement, including (i) any expenses (including fees and
disbursements of counsel) incurred in connection with qualification of the
Offered Securities for sale under the laws of such jurisdictions as CSFBC
designates and the printing of memoranda relating thereto, (ii)
<PAGE> 14
14
any commercial travel and lodging expenses of the Company's officers and
employees in connection with attending or hosting meetings with prospective
purchasers of the Offered Securities (it being understood that the cost of
any chartered airplane will be split evenly between the Company and the
Purchasers), (iii) expenses incurred in printing and distributing any
preliminary offering circulars and the Offering Document (including any
amendments and supplements thereto), (iv) the fees and expenses of the
Trustee and its professional advisers, (v) the cost of qualifying the
Offered Securities for trading in The Portal(SM) Market ("PORTAL") and any
expenses incident thereto and (vi) any fees charged by investment rating
agencies for the rating of the Offered Securities.
(i) In connection with the offering, until CSFBC shall have notified
the Company and the other Purchasers of the completion of the resale of the
Offered Securities, neither the Issuers nor any of their affiliates has or
will, either alone or with one or more other persons, bid for or purchase
for any account in which it or any of its affiliates has a beneficial
interest any Offered Securities or attempt to induce any person to purchase
any Offered Securities; and neither it nor any of its affiliates will make
bids or purchases for the purpose of creating actual, or apparent, active
trading in, or of raising the price of, the Offered Securities.
(j) For a period of 90 days after the Closing Date, the Issuers will
not offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, any U.S. dollar-denominated debt securities issued or
guaranteed by any of them and having a maturity of more than one year from
the date of issue, or publicly disclose the intention to make any such
offer, sale, pledge or disposition, without the prior written consent of
CSFBC. The Issuers will not at any time offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any securities
under circumstances where such offer, sale, pledge, contract or disposition
would cause the exemption afforded by Section 4(2) of the Act or the safe
harbor of Regulation S thereunder to cease to be applicable to the offer
and sale of the Offered Securities.
(k) The Company shall apply the net proceeds of the sale of the Offered
Securities as set forth in the Offering Document.
6. Conditions of the Obligations of the Purchasers. The obligations of
the several Purchasers to purchase and pay for the Offered Securities on the
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Issuers herein set forth, to the accuracy of the
statements of the Issuers' officers made pursuant to the provisions hereof, to
the performance by the Issuers of their obligations hereunder and to the
following additional conditions precedent:
(a) The Purchasers shall have received a letter, dated the date of this
Agreement, of each of PricewaterhouseCoopers LLP (with respect to the
Company and its consolidated subsidiaries and DPS and its consolidated
subsidiaries), and Ernst & Young LLP (with respect to ValueRx and its
consolidated subsidiaries) confirming that they are independent public
accountants within the meaning of the Act and the applicable
<PAGE> 15
15
published rules and regulations thereunder (the "Rules and Regulations")
and to effect that:
(i) in their opinion the financial statements and schedules
examined by them and included or incorporated by reference in the
Offering Document comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements included in the Offering Document;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements
of the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other
specified procedures up to a date no earlier than three business days
prior to the date of this Agreement, nothing came to their attention
that caused them to believe that:
(A) the unaudited financial statements included in the
Offering Document do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations or any material
modifications should be made to such unaudited financial
statements for them to be in conformity with generally accepted
accounting principles;
(B) at the date of the latest available balance sheet read
by such accountants there was any change in capital stock,
increase in long-term debt or any decreases in consolidated net
current assets (working capital) or stockholders' equity of the
Company and its consolidated subsidiaries as compared with the
amounts shown on the March 31, 1999 consolidated balance sheet
included in the Offering Document, and at the last day of the
month preceding the date of this Agreement, there was any change
in the capital stock, increase in long-term debt or any decreases
in stockholders' equity of the Company and its consolidated
subsidiaries as compared with amounts shown on the March 31, 1999
consolidated balance sheet shown in the Offering Document; or
(C) for the period from April 1, 1999 to April 30, 1999,
there were any decreases, as compared with the corresponding
period in the preceding year, (i) in the Company's net sales
(excluding DPS) or in the total or per share amounts in the
Company's income before extraordinary items (excluding DPS) or of
the Company's net income (excluding DPS)
<PAGE> 16
16
or (ii) in DPS's net sales or DPS's total income before
extraordinary items or DPS's net income; and, at the last day of
the month preceding this Agreement, as compared with the
corresponding period in the preceding year, there were any
decreases in (i) the Company's (excluding DPS) net sales, or (ii)
in DPS's net sales or DPS's total income before extraordinary
items or DPS's net income,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Offering Document discloses
have occurred or may occur;
(iv) with respect to the letter being provided by
PricewaterhouseCoopers LLP pertaining to the Company only, on the
basis of a reading of the unaudited pro forma financial statements of
the Company included or incorporated by reference in the Offering
Document, inquiries of certain officials of the Company and DPS who
have responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that such unaudited pro forma financial statements do not
comply as to form in all material respects with the accounting
requirements of Rule 11-02 of Regulation S-X under the Act or that the
pro forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(v) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Offering Document (in each case to the extent that
such dollar amounts, percentages and other financial information are
derived from the general accounting records of the Company and its
subsidiaries or DPS and its subsidiaries, as the case may be, subject
to the internal controls of the Company's or DPS's accounting system,
as the case may be, or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
(b) The offering of 4,500,000 shares of the Company's Class A Common
Stock, par value $.01 per share, pursuant to the Company's registration
statement (No. 333-74613) on Form S-3 and the use of the proceeds thereof as
described in the Offering Document shall have been consummated or shall be
consummated simultaneously with the sale to the Purchasers of the Offered
Securities.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event involving a
prospective change, in the earnings, business, management, properties, assets,
rights, operating condition (financial or
<PAGE> 17
17
other), or prospects of the Company and the Subsidiaries taken a whole which, in
the judgment of the Purchasers, is material and adverse and makes it impractical
or inadvisable to proceed with completion of the offering or the sale of and
payment for the Offered Securities; (ii) any downgrading in the rating of any
debt securities of any Issuer (including, without limitation, the Notes) by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt securities
of any Issuer, including, without limitation, the Notes (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any suspension or
limitation of trading in securities generally on the New York Stock Exchange or
any setting of minimum prices for trading on such exchange, or any suspension of
trading of any securities of the Company on any exchange or in the
over-the-counter market; (iv) any banking moratorium declared by U.S. federal or
New York State authorities; or (v) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of war by
Congress or any other substantial national or international calamity or
emergency if, in the judgment of the Purchasers, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the offering or the sale of and
payment for the Offered Securities.
(d) The Purchasers shall have received on the Closing Date the opinion
of Simpson Thacher & Bartlett, counsel for the Issuers, dated the Closing Date
and addressed to the Purchasers, to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to conduct its business as
described in the Offering Document.
(ii) The outstanding shares of the Company's common stock have
been duly authorized and validly issued and are fully paid and
non-assessable; all of the outstanding shares of common stock of the
Company conform in all material respects to the description thereof
contained in the Offering Document; and no preemptive rights of
stockholders of the Company are set forth in the charter.
(iii) The Indenture is in such form that would not preclude
qualification under the TIA and the rules and regulations of the
Commission applicable to an indenture which is qualified thereunder.
The Indenture has been duly authorized, executed and delivered by each
of the Issuers and, assuming the due authorization, execution and
delivery by the Trustee, is a valid and binding agreement of each of
the Issuers, enforceable against each of the Issuers in accordance
with its terms, except to the extent that enforcement thereof may be
limited by (x) bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors' rights
generally and (y) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
<PAGE> 18
18
(iv) The issuance and sale of the Notes has been duly authorized
by the Company, and the Notes, when executed and authenticated in
accordance with the terms of the Indenture and delivered to and paid
for by the Purchasers in accordance with the terms of this Agreement,
will be valid and binding obligations of the Company entitled to the
benefits of the Indenture and enforceable against the Company in
accordance with their terms, except to the extent that enforcement
thereof may be limited by (x) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating
to creditors' rights generally and (y) general principles of equity
(regardless of whether enforceability is considered in a proceeding at
law or in equity).
(v) The issuance of the Guarantees has been duly authorized by
each of the Guarantors, and the Guarantees, when the Notes are
executed and authenticated in accordance with the terms of the
Indenture and delivered to and paid for by the Purchasers in
accordance with the terms of this Agreement, will be valid and binding
obligations of each of the Guarantors entitled to the benefits of the
Indenture and enforceable against each of the Guarantors in accordance
with their terms, except to the extent that enforcement thereof may be
limited by (x) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors'
rights generally and (y) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in
equity).
(vi) This Agreement has been duly authorized, executed and
delivered by each of the Issuers.
(vii) The Registration Rights Agreement has been duly authorized,
executed and delivered by each of the Issuers and, assuming the due
authorization, execution and delivery by the Purchasers, is a valid
and binding agreement of each of the Issuers, enforceable against each
of the Issuers in accordance with its terms, except to the extent that
enforcement thereof may be limited by (x) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (y) general
principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity), and except that any
rights of indemnity or contribution thereunder may be limited by
federal and state securities laws and public policy considerations.
(viii) The Exchange Securities and the guarantees to be endorsed
on the Exchange Securities have been duly authorized by the Issuers;
and when the Exchange Securities and such guarantees are executed and
issued in accordance with the terms of the Indenture and the Exchange
Securities are delivered in exchange for the Notes pursuant to the
Registration Rights Agreement, the Exchange Securities and such
guarantees will have been duly executed, issued and delivered and the
Exchange Notes and such guarantee will constitute valid and
<PAGE> 19
19
binding obligations of the Company and the Guarantors, respectively,
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to an affecting
creditors' rights and to general equity principles.
(ix) The Company is not an "investment company" within the
meaning of and subject to regulation under the 1940 Act.
(x) No approval, consent, order, authorization, registration or
qualification of or with any federal or New York State court or
governmental agency or body or any Delaware court or governmental
agency or body acting pursuant to the Delaware General Corporation Law
is required for the issue and sale of the Offered Securities by the
Issuers or the execution and delivery or the consummation by the
Issuers of the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Indenture, except for such
consents, approvals, authorizations, registrations or qualifications
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Offered
Securities by the Purchasers.
(xi) The Indenture, the Notes, the Guarantees and the
Registration Rights Agreement conform in all material respects to the
descriptions thereof in the Offering Document.
(xii) Such counsel does not know of any contracts or documents
required to be described in a prospectus pursuant to the Act and the
Rules and Regulations if the Offered Securities were registered
thereunder which are not so described in the Offering Document.
(xiii) Such counsel does not know of any material legal or
governmental proceedings pending or threatened against the Company or
any of the Subsidiaries of a character required to be described in a
prospectus pursuant to the Act and the Rules and Regulations if the
Offered Securities where registered thereunder except as set forth in
the Offering Document.
(xiv) The execution and delivery of this Agreement, the Indenture
and the Registration Rights Agreement, the consummation of the
transactions contemplated hereby and thereby and the issuance and sale
of the Offered Securities and compliance with the terms and provisions
thereof do not and will not (i) violate the charter or by-laws of any
of the Issuers or (ii) result in a breach or constitute a default
under or result in the creation or imposition of a lien pursuant to
any contract or agreement filed as an exhibit to the Exchange Act
Reports, or any statute, rule, regulation or order of any federal or
New York State governmental agency or body, having jurisdiction over
the Company or any Subsidiary or any of their respective properties,
except (in the case of (ii) only) where such violation, breach or
default would not have a material adverse effect
<PAGE> 20
20
on the Company and the Subsidiaries taken as a whole or the offer,
sale, delivery or trading of the Offered Securities.
(xv) It is not necessary in connection with the (i) offer, sale
and delivery of the Offered Securities by the Issuers to the
Purchasers pursuant to this Agreement or (ii) the resales of the
Offered Securities by the Purchasers in the manner contemplated by
this Agreement, to register the Offered Securities under the Act or to
qualify the Indenture under the Trust Indenture Act.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that the Offering Document, or any amendment
or supplement thereto, as of the date hereof or as of the Closing Date,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (except that such counsel need express no view as to
financial statements and related schedules included or incorporated by reference
therein).
(e) The Purchasers shall have received on the Closing Date the opinion
of Thomas M. Boudreau, Esq., Senior Vice President of Administration and General
Counsel of the Company, dated the Closing Date and addressed to the Purchasers,
to the effect that:
(i) Each of the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with corporate power and
authority to conduct its business as described in the Offering
Document; each of the Company and the Subsidiaries is duly qualified
to transact business in all jurisdictions deemed material to its
operations and listed on a schedule to such opinion; the outstanding
shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable
and are owned of record by the Company or a Subsidiary except as
described in Exhibit B hereto; and, to the best of such counsel's
knowledge, the outstanding shares of capital stock of each of the
Subsidiaries are owned free and clear of all liens, encumbrances,
equities and claims, and no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock or ownership
interests in the Subsidiaries are outstanding, except as otherwise
described in the Offering Document.
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Offering Document.
(iii) Except as described in or contemplated by the Offering
Document or as otherwise disclosed to the Purchasers, to the knowledge
of such counsel there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of capital stock
<PAGE> 21
21
of the Company and there are no outstanding or authorized options,
warrants or rights of any character obligating the Company to issue
any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for
any shares of such stock.
(iv) Such counsel does not know of any contracts or documents
required to be described in a prospectus pursuant to the Act and the
Rules and Regulations if the Offered Securities were registered
thereunder which are not so described in the Offering Documents; the
descriptions in the Offering Document of any material contract or
other material documents are accurate in all material respects and
fairly present the information shown therein.
(v) Such counsel does not know of any material legal or
governmental proceedings pending or threatened against the Company or
any of the Subsidiaries of a character required to be described in a
prospectus pursuant to the Act and the Rules and Regulations if the
Offered Securities where registered thereunder except as set forth in
the Offering Document.
(vi) The execution and delivery of this Agreement, the Indenture
and the Registration Rights Agreement and the consummation of the
transactions contemplated hereby and thereby and the issuance and sale
of the Offered Securities and the compliance with the terms and
provisions thereof, do not and will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default
under, any agreement or instrument known to such counsel to which the
Company or any of the Subsidiaries is a party or by which the Company
or any of the Subsidiaries may be bound or any decree or order known
to such counsel by any court, domestic or foreign, having jurisdiction
over the Company or any Subsidiaries or any of their respective
properties, except where such conflict or breach would not have a
material adverse effect on the Company or any of the Subsidiaries,
taken as a whole, or the offer, sale, delivery or trading of the
Offered Securities.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads him to believe that the Offering Document, or any amendment
or supplement thereto, as of the date hereof or as of the Closing Date,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (except that such counsel need express no view as to
financial statements and related schedules included or incorporated by reference
therein).
(f) The Purchasers shall have received from Cahill Gordon & Reindel,
counsel for the Purchasers, an opinion, dated the Closing Date, with respect to
the validity of the Offered Securities, the Offering Document, the exemption
from registration for the offer and sale of the Offered Securities by the
Company to the several Purchasers and the resales by the several
<PAGE> 22
22
Purchasers as contemplated hereby and other related matters as the Purchasers
may require, and the Company shall have furnished to such counsel such documents
as they request for the purpose of enabling them to pass upon such matters.
(g) The Purchasers shall have received on the Closing Date a
certificate or certificates of the Chief Executive Officer and the Chief
Financial Officer of each of the Issuers, dated as of the Closing Date, to the
effect that each of them severally represents in his capacity as an officer of
such Issuer as follows:
(i) The representations and warranties of the Issuers contained
in Section 2 hereof are true and correct in all material respects as
of the Closing Date and the Issuers have complied with all agreements
and satisfied all conditions on their part to be performed or
satisfied hereunder at or prior to the Closing Date;
(ii) He has carefully examined the Offering Document and, in his
opinion, as of the date thereof and as of the Closing Date, the
statements contained in the Offering Document were true and correct in
all material respects, and the Offering Document did not omit to state
a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, and since the date of the
Offering Document, no event has occurred which should have been set
forth in a supplement to or an amendment of the Offering Document
which has not been so set forth in such supplement or amendment; and
(iii) Since the date of the most recent financial statements of
the Company included in the Offering Document, there has been no
material adverse change, nor any development involving a prospective
material adverse change, in or affecting the condition, financial or
otherwise, of the Company and the Subsidiaries taken as a whole or the
earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company and the Subsidiaries taken as a whole, whether or not arising
in the ordinary course of business.
(h) The Company shall have furnished to the Purchasers such further
certificates and documents confirming the representations and warranties,
covenants and conditions contained herein and related matters as the Purchasers
may reasonably have requested.
(i) The Offered Securities shall have been designated for trading on
the PORTAL market.
(j) The Purchasers shall have received a letter, dated the Closing
Date, of each of PricewaterhouseCoopers LLP and Ernst & Young LLP which meets
the requirements of subsection (a) of this Section, except that the specified
date referred to in such subsection will be a date not more than three business
days prior to the Closing Date for the purposes of this subsection.
<PAGE> 23
23
(k) Each of the Issuers and the Trustee shall have executed and
delivered the Indenture in form and substance satisfactory to the Purchasers and
the Indenture shall be in full force and effect.
(l) Each of the Issuers shall have executed and delivered the
Registration Rights Agreement in form and substance satisfactory to the
Purchasers and the Registration Rights Agreement shall be in full force and
effect.
The Company will furnish the Purchasers with such conformed copies of such
opinions, certificates, letters and documents as the Purchasers reasonably
request. CSFBC may in its sole discretion waive on behalf of the Purchasers
compliance with any conditions to the obligations of the Purchasers hereunder.
7. Indemnification and Contribution. Each of the Issuers will, jointly
and severally, indemnify and hold harmless each Purchaser, its partners,
directors and officers and each person, if any, who controls such Purchaser
within the meaning of Section 15 of the Act, against any losses, claims, damages
or liabilities, joint or several, to which such Purchaser may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Offering Document, or any amendment or supplement thereto, or any related
preliminary offering circular, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Purchaser for any legal or other expenses reasonably incurred by such
Purchaser in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Issuers will not be liable (x) in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Purchaser through CSFBC specifically
for use therein, it being understood and agreed that the only such information
furnished by any Purchaser consists of the information described as such in
subsection (b) of this Section 7 or (y) to any Purchaser pursuant to this
Section 7(a) with respect to any preliminary offering circular to the extent
that any such loss, claim, damage or liability (or any actions or proceedings in
respect thereof) results from such Purchaser's sale of Offered Securities to a
person as to whom it shall be established that there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the Offering
Document in any case where such delivery is required by the Act if the Issuers
have previously furnished copies thereof to such Purchaser and the loss, claim,
damage or liability of such Purchaser results from an untrue statement or
omission of a material fact contained in such preliminary offering circular
which was corrected in the Offering Document.
(b) Each Purchaser will severally and not jointly indemnify and hold
harmless the Issuers, their respective directors and officers and each person,
if any, who controls the Company within the meaning of Section 15 of the Act,
against any losses, claims, damages or liabilities to which the Issuers may
become subject, under the Act or otherwise, insofar as such
<PAGE> 24
24
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Offering Document, or any amendment or supplement
thereto, or any related preliminary offering circular, or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Purchaser through CSFBC specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by the Issuers in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred, it being understood and
agreed that the only such information furnished by any Purchaser consists of the
following information in the Offering Document furnished on behalf of each
Purchaser: the information contained in paragraph nine under the caption "Plan
of Distribution."
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) and (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Issuers on the
one hand and the Purchasers on the other from the offering of the Offered
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Issuers on the one hand and the Purchasers on the other in
connection with
<PAGE> 25
25
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Issuers on the one hand and the Purchasers on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
discounts and commissions received by the Purchasers. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuers or the Purchasers
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The amount
paid by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Purchaser shall be required to contribute
any amount in excess of the amount by which the total price at which the Offered
Securities purchased by it were resold exceeds the amount of any damages which
such Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Purchasers' obligations in this subsection (d)
to contribute are several in proportion to their respective purchasing
obligations and not joint.
(e) The obligations of the Issuers under this Section shall be in
addition to any liability which the Issuers may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Purchaser within the meaning of the Act; and the obligations of the Purchasers
under this Section shall be in addition to any liability which the respective
Purchasers may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls the Company within the meaning
of the Act.
8. Default of Purchasers. If any Purchaser or Purchasers default in
their obligations to purchase Offered Securities hereunder and the aggregate
principal amount of Offered Securities that such defaulting Purchaser or
Purchasers agreed but failed to purchase does not exceed 10% of the total
principal amount of Offered Securities, CSFBC may make arrangements satisfactory
to the Company for the purchase of such Offered Securities by other persons,
including any of the Purchasers, but if no such arrangements are made by the
Closing Date, the non-defaulting Purchasers shall be obligated, severally, in
proportion to their respective commitments hereunder, to purchase the Offered
Securities that such defaulting Purchasers agreed but failed to purchase. If any
Purchaser or Purchasers so default and the aggregate principal amount of Offered
Securities with respect to which such default or defaults occur exceeds 10% of
the total principal amount of Offered Securities and arrangements satisfactory
to CSFBC and the Company for the purchase of such Offered Securities by other
persons are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Purchaser or the
Company, except as provided in Section 9. As used in this Agreement, the term
"Purchaser" includes any person substituted for a Purchaser under this Section.
Nothing herein will relieve a defaulting Purchaser from liability for its
default.
<PAGE> 26
26
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Issuers or their respective officers and of the several Purchasers set forth in
or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation, or statement as to the results thereof, made by
or on behalf of any Purchaser, the Issuers or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Offered Securities. If this Agreement is
terminated pursuant to Section 8 or if for any reason the purchase of the
Offered Securities by the Purchasers is not consummated, the Issuers shall
remain responsible for the expenses to be paid or reimbursed by them pursuant to
Section 5 and the respective obligations of the Issuers and the Purchasers
pursuant to Section 7 shall remain in effect, and if any Offered Securities have
been purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall also remain in effect. If the purchase of the
Offered Securities by the Purchasers is not consummated for any reason other
than solely because of the termination of this Agreement pursuant to Section 8
or the occurrence of any event specified in clause (iii), (iv) or (v) of Section
6(c), the Issuers will, jointly and severally, reimburse the Purchasers for all
out-of-pocket expenses (including fees and disbursements of counsel to the
Purchasers) reasonably incurred by them in connection with the offering of the
Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Purchasers, will be mailed, delivered or telegraphed and confirmed
to the Purchasers c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, New York 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to any of the Issuers, will
be mailed, delivered or telegraphed and confirmed to it at Express Scripts,
Inc., 13900 Riverport Drive, Maryland Heights, Missouri 63043, Attention: Chief
Financial Officer; provided, however, that any notice to a Purchaser pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to such
Purchaser.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder, except that holders of
Offered Securities shall be entitled to enforce the agreements for their benefit
contained in the second and third sentences of Section 5(b) hereof against the
Issuers as if such holders were parties thereto.
12. Representation of Purchasers. CSFBC will act for the several
Purchasers in connection with this financing, and any action under this
Agreement taken by it will be binding upon all the Purchasers.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 27
27
The Issuers hereby submit to the non-exclusive jurisdiction of the
federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
[Signature Page Follows]
<PAGE> 28
28
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Issuers one of the
counterparts hereof, whereupon it will become a binding agreement between the
Issuers and the several Purchasers in accordance with its terms.
Very truly yours,
EXPRESS SCRIPTS, INC.
By: /s/ George Paz
________________________________
Name: George Paz
Title: Senior Vice President and
Chief Financial Officer
DIVERSIFIED PHARMACEUTICAL SERVICES, INC.,
ESI/VRx SALES DEVELOPMENT CO., EXPRESS
SCRIPTS VISION CORPORATION, IVTx, INC.,
MANAGED PRESCRIPTION NETWORK, INC., MHI,
INC., VALUE HEALTH, INC., VALUERx, INC.,
VALUERx PHARMACY PROGRAM, INC.,
YOURPHARMACY.COM, INC., HEALTH CARE
SERVICES, INC.
By: /s/ George Paz
________________________________
Name: George Paz
Title: Senior Vice President and
Chief Financial Officer
<PAGE> 29
29
The foregoing Purchase Agreement is
hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
DEUTSCHE BANK SECURITIES INC.
Acting on behalf of themselves and the
several Purchasers
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ Colleen Burke
___________________________________
Name: Colleen Burke
Title: Director
<PAGE> 30
SCHEDULE A
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
PURCHASER OF NOTES
--------- --------
<S> <C>
Credit Suisse First Boston Corporation 162,500,000
Deutsche Bank Securities Inc. 87,500,000
------------
Total $250,000,000
============
</TABLE>
<PAGE> 31
EXHIBIT A
SUBSIDIARIES
1. Diversified Pharmaceutical Services, Inc. (Minnesota)
2. ESI/VRx Sales Development Co. (Delaware)
3. Express Scripts Vision Corp. (Delaware)
4. IVTx, Inc. (Delaware)
5. Managed Prescription Network, Inc. (Delaware)
6. MHI, Inc. (Nevada)
7. Value Health, Inc. (Delaware)
8. ValueRx, Inc. (Delaware)
9. Health Care Services, Inc. (Pennsylvania)
10. ValueRx Pharmacy Program, Inc. (Michigan)
11. Your Pharmacy.com, Inc. (Delaware)
<PAGE> 32
EXHIBIT B
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION D/B/A
- ---------- ---------------------- -----
<S> <C> <C>
Diversified Pharmaceutical Services, Inc. Minnesota None
Diversified NY IPA, Inc. New York None
Diversified Pharmaceutical Services (Puerto Rico) Puerto Rico None
Inc.
ESI Canada, Inc. New Brunswick, Canada None
ESI Canada Holdings, Inc. New Brunswick, Canada None
Express Scripts Vision Corporation Delaware ESI Vision Care
IVTx, Inc. Delaware None
ESI/VRx Sales Development Co. Delaware None
Great Plains Reinsurance Company Arizona None
Practice Patterns Science, Inc. Delaware None
(80% owned by ESI; 20% owned by management)
Managed Prescription Network, Inc. Delaware Columbia Pharmacy Solutions
Value Health, Inc. Delaware None
Health Care Services, Inc. Pennsylvania None
MHI, Inc. Nevada None
ValueRx, Inc. Delaware None
ValueRx of Michigan, Inc. Michigan None
ValueRx Pharmacy Program, Inc. Michigan None
YourPharmacy.com, Inc. Delaware None
</TABLE>
<PAGE> 1
Exhibit 4.1
================================================================================
EXPRESS SCRIPTS, INC.
as Issuer
The GUARANTORS
named herein as Guarantors
and
BANKERS TRUST COMPANY
as Trustee
INDENTURE
Dated as of June 16, 1999
9 5/8% Senior Notes due 2009
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310 (a)(1)................................................................................. 7.10
(a)(2)................................................................................. 7.10
(a)(3)................................................................................. N.A.
(a)(4)................................................................................. N.A.
(a)(5)................................................................................. 7.08; 7.10
(b).................................................................................... 7.08; 7.10
(c).................................................................................... N.A.
311 (a).................................................................................... 7.11
(b).................................................................................... 7.11
(c).................................................................................... N.A.
312 (a).................................................................................... 2.05
(b).................................................................................... N.A.
(c).................................................................................... N.A.
313 (a).................................................................................... 7.06
(b)(1)................................................................................. N.A.
(b)(2)................................................................................. 7.06
(c).................................................................................... 7.06
(d).................................................................................... 7.06
314 (a).................................................................................... 4.07; 4.08;
13.02
(b).................................................................................... N.A.
(c)(1)................................................................................. N.A.
(c)(2)................................................................................. N.A.
(c)(3)................................................................................. N.A.
(d).................................................................................... N.A.
(e).................................................................................... N.A.
(f).................................................................................... N.A.
315 (a).................................................................................... N.A.
(b).................................................................................... 7.05
(c).................................................................................... 7.01(a)
(d).................................................................................... 7.01(c)
(e).................................................................................... 6.11
316 (a)(last sentence)..................................................................... 2.09
(a)(1)(A).............................................................................. 6.05
(a)(1)(B).............................................................................. 6.04
(a)(2)................................................................................. N.A.
</TABLE>
-i-
<PAGE> 3
<TABLE>
TIA Indenture
Section Section
<S> <C>
(b).................................................................................... 6.07
(c).................................................................................... N.A.
317 (a)(1)................................................................................. 6.08
(a)(2)................................................................................. 6.09
(b).................................................................................... 2.04
318(a)................................................................................. N.A.
(c).................................................................................... N.A.
</TABLE>
- ------------------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose be deemed to be a
part of the Indenture.
-ii-
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE................................... 1
Section 1.01 Definitions........................................................................... 1
Section 1.02 Incorporation by reference of TIA..................................................... 23
Section 1.03 Rules of Construction................................................................. 23
Section 1.04 One Class of Securities............................................................... 24
ARTICLE II
THE NOTES................................................... 24
Section 2.01 Form and dating....................................................................... 24
Section 2.02 Execution and Authentication; Aggregate Principal Amount.............................. 25
Section 2.04 Paying agent to hold assets in trust.................................................. 26
Section 2.05 Noteholder Lists...................................................................... 26
Section 2.06 Replacement Notes..................................................................... 27
Section 2.07 Outstanding Notes..................................................................... 27
Section 2.08 Treasury Notes........................................................................ 27
Section 2.09 Temporary Notes....................................................................... 28
Section 2.10 Cancellation.......................................................................... 28
Section 2.11 Defaulted Interest.................................................................... 28
Section 2.12 CUSIP Number.......................................................................... 29
Section 2.13 Deposit of Moneys..................................................................... 29
Section 2.14 Issuance of Additional Notes.......................................................... 29
ARTICLE III
REDEMPTION................................................... 30
Section 3.01 Notices to Trustee.................................................................... 30
Section 3.02 Selection of Notes To Be Redeemed..................................................... 30
Section 3.03 Notice of Redemption.................................................................. 31
Section 3.04 Effect of Notice of Redemption........................................................ 32
Section 3.05 Deposit of Redemption Price........................................................... 32
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
Section 3.06 Notes Redeemed in Part................................................................ 32
Section 3.07 Optional Redemption................................................................... 32
ARTICLE IV
COVENANTS................................................... 33
Section 4.01 Payment of Notes...................................................................... 33
Section 4.02 Maintenance of Office or Agency....................................................... 33
Section 4.03 Corporate Existence................................................................... 33
Section 4.04 Payment of Taxes and Other Claims..................................................... 34
Section 4.05 Maintenance of Properties and Insurance............................................... 34
Section 4.06 Compliance Certificate; Notice of Default............................................. 34
Section 4.07 Compliance with Laws.................................................................. 35
Section 4.08 SEC Reports........................................................................... 35
Section 4.09 Waiver of Stay, Extension or Usury Laws............................................... 35
Section 4.10 Limitation on Restricted Payments..................................................... 36
Section 4.11 Limitation on restrictions on distributions from
Restricted Subsidiaries............................................................. 38
Section 4.12 Limitation on Transactions with Affiliates............................................ 39
Section 4.13 Limitation on Indebtedness............................................................ 40
Section 4.14 Change of Control..................................................................... 42
Section 4.15 Limitation on Sales of Assets and Subsidiary Stock.................................... 44
Section 4.16 Future Guarantors..................................................................... 47
Section 4.17 Limitation on Liens................................................................... 47
Section 4.18 Limitation on the sale or issuance of Capital Stock of
Restricted Subsidiaries............................................................. 48
Section 4.19 Covenant Removal...................................................................... 48
ARTICLE V
SUCCESSOR CORPORATION............................................. 48
Section 5.01 Merger, consolidation and sale of assets of the Company............................... 48
Section 5.02 Successor corporation substituted for the Company..................................... 49
Section 5.03 Merger, consolidation and sale of assets of any Guarantor............................. 49
Section 5.04 Successor Corporation Substituted for Guarantor....................................... 50
ARTICLE VI
DEFAULT AND REMEDIES.............................................. 50
Section 6.01 Events of Default..................................................................... 50
Section 6.02 Acceleration.......................................................................... 52
Section 6.03 Other Remedies........................................................................ 53
Section 6.04 Waiver of Past Defaults............................................................... 53
Section 6.05 Control by Majority................................................................... 53
</TABLE>
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<TABLE>
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Section 6.07 Rights of Holders to Receive Payment.................................................. 54
Section 6.08 Collection Suit by Trustee............................................................ 54
Section 6.10 Priorities............................................................................ 55
Section 6.11 Undertaking for Costs................................................................. 55
ARTICLE VII
TRUSTEE.................................................... 55
Section 7.01 Duties of Trustee..................................................................... 55
Section 7.02 Rights of Trustee.................................................................... 57
Section 7.03 Individual Rights of Trustee.......................................................... 58
Section 7.04 Trustee's Disclaimer.................................................................. 58
Section 7.05 Notice of Default..................................................................... 58
Section 7.06 Reports by Trustee to Holders......................................................... 58
Section 7.07 Compensation and Indemnity............................................................ 59
Section 7.08 Replacement of Trustee................................................................ 59
Section 7.09 Successor Trustee by Merger, Etc...................................................... 61
Section 7.10 Eligibility; Disqualification......................................................... 61
Section 7.11 Preferential Collection of Claims Against Company..................................... 61
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE....................................... 62
Section 8.01 Discharge of Liability on Notes; Defeasance........................................... 62
Section 8.02 Conditions to Defeasance.............................................................. 63
Section 8.03 Application of Trust Money............................................................ 64
Section 8.04 Repayment to Company.................................................................. 64
Section 8.05 Indemnity for Government Obligations.................................................. 65
Section 8.06 Reinstatement......................................................................... 65
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS...................................... 65
Section 9.01 Without Consent of Holders............................................................ 65
Section 9.02 With Consent of Holders............................................................... 66
Section 9.03 Compliance with TIA................................................................... 67
Section 9.04 Revocation and Effect of Consents..................................................... 68
Section 9.05 Notation on or Exchange of Notes...................................................... 68
Section 9.06 Trustee to Sign Amendments, Etc....................................................... 69
</TABLE>
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<TABLE>
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ARTICLE X
GUARANTEES................................................... 69
Section 10.01 Unconditional Guarantee............................................................... 69
Section 10.02 Severability.......................................................................... 70
Section 10.03 Release of Guarantor from the Guarantee............................................... 70
Section 10.04 Limitation on amount Guaranteed; contribution by Guarantor............................ 71
Section 10.05 Waiver of Subrogation................................................................. 72
Section 10.06 Execution of Guarantee................................................................ 73
Section 10.07 Waiver of Stay, Extension or Usury Laws............................................... 73
ARTICLE XI
MISCELLANEOUS................................................. 73
Section 11.01 TIA Controls.......................................................................... 73
Section 11.02 Notices............................................................................... 74
Section 11.03 Communications by Holders with other Holders.......................................... 75
Section 11.04 Certificate and Opinion as to Conditions Precedent.................................... 75
Section 11.05 Statements Required in Certificate or Opinion......................................... 75
Section 11.06 Rules by Trustee, Paying Agent, Registrar............................................. 76
Section 11.07 Legal Holidays........................................................................ 76
Section 11.08 Governing Law......................................................................... 76
Section 11.09 No Adverse Interpretation of Other Agreements......................................... 76
Section 11.10 No Recourse Against Others............................................................ 76
Section 11.11 Successors............................................................................ 77
Section 11.12 Multiple Originals.................................................................... 77
Section 11.13 Severability.......................................................................... 77
Section 11.14 Table of Contents; Cross-Reference Table and Headings................................. 77
SIGNATURES.................................................................................................... S-1
</TABLE>
APPENDICES
RULE 144A/REGULATION S APPENDIX
Exhibit 1 -- Legends
EXHIBITS
EXHIBIT A -- Form of Initial Note
EXHIBIT B -- Form of Exchange Note and Private Exchange Note
EXHIBIT C -- Form of Guarantee
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<PAGE> 8
INDENTURE, dated as of June 16, 1999, among EXPRESS SCRIPTS,
INC. a Delaware corporation (the "Company"), the Guarantors named herein (the
"Guarantors") and BANKERS TRUST COMPANY, a New York banking corporation, as
Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of
$250,000,000 in aggregate principal amount of its 9 5/8% Series A Senior Notes
due 2009 in the form of Initial Notes (as defined below) and, if and when issued
in connection with a registered exchange for such Initial Notes, 9 5/8% Series B
Senior Notes due 2009 in the form of Exchange Notes (as defined below) and, if
and when issued in connection with a Private Exchange for such Initial Notes,
9 5/8% Senior Private Exchange Notes due 2009 in the form of Private Exchange
Notes (as defined below), and such Additional Notes (as defined below) in
aggregate principal amount not to exceed $250,000,000 that the Company may from
time to time choose to issue pursuant to this Indenture, and, to provide
therefor, the Company and the Guarantors have duly authorized the execution and
delivery of this Indenture.
Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the Notes.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Capital Stock); (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or a Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary.
"Additional Notes" means, subject to the Company's compliance
with Section 4.13, 9 5/8% Series A, Series B or any other Series of Senior Notes
due 2009 issued from time to time after June 16, 1999 under the terms of this
Indenture (other than issuances pursuant to Section 2.06, 2.09, 3.06, 4.14, 4.15
or 9.05 of this Indenture or Section 2.3 of the Appendix and other than Exchange
Notes or Private Exchange Notes issued pursuant to an exchange offer for other
Notes outstanding under this Indenture).
"Adjusted Maximum Amount" has the meaning provided in Section
10.04(b).
"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
"controlling" and "controlled" have meanings correlative to the foregoing.
<PAGE> 9
2
"Affiliate Transaction" has the meaning provided in Section
4.12.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Aggregate Payments" has the meaning provided in Section
10.04(b).
"Asset Disposition" means any sale, lease, transfer or other
disposition (or Series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares or
shares required by applicable law to be held by a Person other than the Company
or a Restricted Subsidiary); (ii) all or substantially all the assets of any
division or line of business of the Company or any Restricted Subsidiary; or
(iii) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary.
Notwithstanding the foregoing, Asset Disposition shall not include: (i) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Restricted Subsidiary; (ii) for purposes of Section
4.15 only, a disposition that constitutes a Permitted Investment or a Restricted
Payment permitted by Section 4.10 or a disposition specifically excepted from
the definition of Restricted Payment; (iii) a transaction or Series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration less than or equal to $500,000; (iv) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of the Company as permitted under Section 5.01; (v) the disposition of
Temporary Cash Investments; (vi) a disposition of obsolete or worn out equipment
or equipment that is no longer useful in the conduct of the business of the
Company and its Restricted Subsidiaries and that is disposed of in each case in
the ordinary course of business; (vii) an issuance of Capital Stock by a
Restricted Subsidiary of the Company to the Company or to a Wholly-Owned
Subsidiary; (viii) a disposition of any Capital Stock of YourPharmacy.com, Inc.
or any corporation, partnership or limited liability company which is the
successor to the business conducted or contemplated to be conducted as of the
Issue Date by YourPharmacy.com, Inc.; (ix) a sale or lease-back transaction
involving property owned by the Company located at 4500 Alexander Blvd., NE in
Albuquerque, New Mexico; (x) a sale or disposition involving property owned by
the Company located at the Company's site in Plymouth, Minnesota; or (xi)
dispositions in connection with Permitted Liens.
"Authenticating Agent" has the meaning provided in Section
2.02.
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (x) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (y) the sum of all
such payments.
<PAGE> 10
3
"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 the Board of Directors of the
Company or any Guarantor, as applicable, or any committee thereof duly
authorized to act on behalf of such board.
"Board Resolution" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person and to
be in full force and effect on the date of such certification, and delivered to
the Trustee.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is
required to be classified and accounted for as a capital lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP; and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date upon which such lease may be terminated by the
lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt Securities convertible
into such equity.
"Change of Control" means the occurrence of any of the
following events:
(i) any "Person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) or any two or more such
Persons acting in concert, other than one or more Permitted
Holders, becomes the beneficial owner (within the meaning of
Rule 13d-3 of the Exchange Act), directly or indirectly, of
more than 35% of the total voting power of the then
outstanding Voting Stock of the Company and the Permitted
Holders beneficially own (within the meaning of Rule 13d-3 of
the Exchange Act), directly or indirectly, a lesser percentage
of the total voting power of the outstanding Voting Stock of
the Company than such Person or Persons; provided, that the
acquisition of beneficial ownership of shares of Voting Stock
of the Company beneficially owned (or which immediately prior
to such acquisition were beneficially owned) by a Permitted
Holder by one or more Persons from time to time shall not
constitute a Change of Control;
(ii) if the Permitted Holders do not beneficially own
(within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, more than
<PAGE> 11
4
50% of the total voting power of the then outstanding Voting
Stock of the Company, during any period of two consecutive
years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together
with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders
of the Company was approved by a vote of the majority of the
directors of the Company then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors
of the Company then in office;
(iii) the adoption by the Holders of Capital Stock of
the Company of any plan or proposal for the liquidation or
dissolution of the Company (whether or not otherwise in
compliance with this Indenture); or
(iv) the merger or consolidation of the Company with
or into another Person or the merger of another Person with or
into the Company, or the sale of all or substantially all the
assets of the Company and its Subsidiaries, taken as a whole,
to another Person (other than to a Wholly Owned Subsidiary of
the Company), and, in the case of any such merger or
consolidation, the Securities of the Company that are
outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting
Stock of the Company are changed into or exchanged for cash,
Securities or property, unless pursuant to such transaction
such Securities are changed into or exchanged for, in addition
to any other consideration, Securities of the surviving
corporation that represent immediately after such transaction
(a) at least 35% of the aggregate voting power of the Voting
Stock of the surviving corporation and (b) a greater
percentage of the aggregate voting power of the Voting Stock
of the surviving corporation than the percentage of the
aggregate voting power of the Voting Stock beneficially owned
by any other "Person" (as such term is used in Sections 13(d)
and 14(d) under the Exchange Act) or any other two or more
such Persons acting in concert.
"Change of Control Offer" has the meaning provided in Section
4.14.
"Change of Control Purchase Date" has the meaning provided in
Section 4.14.
"Change of Control Purchase Price" has the meaning specified
in Section 4.14.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor Statute.
"Company" means the party named as such in this Indenture
until a successor replaces it and thereafter means such successor.
<PAGE> 12
5
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (x) the aggregate amount of Consolidated EBITDA for the
period of the most recent four consecutive fiscal quarters ending with the most
recent fiscal quarter for which financial statements are available prior to the
date of such determination to (y) Consolidated Interest Expense Interest Expense
for such four fiscal quarters; provided, however, that
(i) If the Company or any Restricted Subsidiary (x)
has Incurred any Indebtedness since the beginning of such
period that remains outstanding or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, Consolidated EBITDA
and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the
first day of such period (and, if such Indebtedness is
revolving Indebtedness, the amount of Indebtedness deemed to
be outstanding for such period shall be the average
outstanding amount of such Indebtedness during such period)
and the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period or (y) has repaid,
repurchased, defeased or otherwise discharged any Indebtedness
since the beginning of the period (including, without
limitation, Indebtedness that has been repaid, repurchased,
defeased or otherwise discharged in connection with an Asset
Disposition) that is no longer outstanding on such date of
determination, or if the transaction giving rise to the need
to calculate the Consolidated Coverage Ratio involves a
discharge of Indebtedness (other than Indebtedness Incurred
for working capital purposes unless such Indebtedness has been
permanently repaid and has not been replaced), Consolidated
EBITDA and Consolidated Interest Expense for such period shall
be calculated after giving effect to such discharge of such
Indebtedness, including with the proceeds of such new
Indebtedness, as if such discharge had occurred on the first
day of such period;
(ii) If since the beginning of such period the
Company or any Restricted Subsidiary shall have made any Asset
Disposition, the Consolidated EBITDA for such period shall be
reduced by an amount equal to the Consolidated EBITDA (if
positive) directly attributable to the assets which are the
subject of such Asset Disposition for such period, or
increased by an amount equal to the Consolidated EBITDA (if
negative) directly attributable thereto for such period;
(iii) If since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise)
shall have made an Investment in any Restricted Subsidiary (or
any Person which becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets
occurring in connection with a transaction requiring a
calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business,
Consolidated
<PAGE> 13
6
EBITDA for such period shall be calculated after giving pro
forma effect thereto as if such Investment or acquisition
occurred on the first day of such period; and
(iv) If since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset
Disposition, Investment or acquisition of assets that would
have required an adjustment pursuant to clause (ii) or (iii)
above if made by the Company or a Restricted Subsidiary during
such period, Consolidated EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro
forma effect thereto as if such Asset Disposition, Investment
or acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is
to be given to an acquisition of assets, the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated with
any Indebtedness Incurred in connection therewith, the pro forma calculations
shall be made in accordance with Article 11 of Regulation S-X promulgated under
the Securities Act. If any Indebtedness bears a floating rate of interest and is
being given pro forma effect, the interest on such Indebtedness shall be
calculated as if the average rate in effect during the period had been the
applicable rate for the entire period (taking into account any fixed rate
established by an Interest Rate Agreement applicable to such Indebtedness if
such Interest Rate Agreement has a remaining term in excess of 12 months, in
which case such fixed rate shall be used).
"Consolidated EBITDA" means, for any period, the sum of
Consolidated Net Income plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) Consolidated Interest Expense; (ii) provisions
for taxes based on income; (iii) total depreciation expense; (iv) total
amortization expense; (v) other non-cash items Incurred in the ordinary course
of business reducing Consolidated Net Income less other non-cash items
increasing Consolidated Net Income; and (vi) for any period that includes fiscal
quarters ending on or prior to March 31, 2000, retention bonuses in an aggregate
amount up to $10.0 million to the extent actually paid or accrued in such period
to key employees of DPS, all of the foregoing as determined on a consolidated
basis for the Company and its Restricted Subsidiaries in conformity with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Restricted Subsidiary of
the Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income.
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its consolidated Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP, whether expensed directly or included as a component of cost of goods
sold, plus, to the extent not included in such total interest expense,
<PAGE> 14
7
and to the extent Incurred by the Company or its Restricted Subsidiaries,
without duplication, (i) interest expense attributable to Capital Lease
Obligations (which shall be in each case deemed to accrue at an interest rate
determined in good faith by the Company to be the rate of interest implicit in
each such capital lease obligation in accordance with GAAP); (ii) amortization
of debt discount and debt issuance costs; (iii) non-cash interest expense; (iv)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; (v) net costs associated with
Interest Rate Agreements and currency agreements; (vi) dividends paid or payable
in respect of any Disqualified Capital Stock of the Company (other than
dividends paid in qualified Capital Stock) and all dividends paid or payable by
Restricted Subsidiaries in respect of any Preferred Stock held by Persons other
than the Company or a Wholly Owned Subsidiary, in each case multiplied by a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective federal, state and local tax rate of the
Company, expressed as a decimal; and (vii) interest accruing on any Indebtedness
Incurred after the Issue Date of any other Person to the extent such
Indebtedness is Guaranteed by the Company or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net
income (or loss) of the Company and its Restricted Subsidiaries on a
consolidated basis for such period taken as a single accounting period
determined in conformity with GAAP; provided that there shall be excluded: (i)
the income (or loss) of any Person (other than a Restricted Subsidiary of the
Company) in which any other Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest, except to the extent of the
amount of dividends or other distributions actually paid to the Company or any
of its Restricted Subsidiaries (subject to the exclusion in clause (iii) below)
by such Person during such period; (ii) the income (or loss) of any Person
accrued prior to the date it becomes a Restricted Subsidiary of the Company or
is merged into or consolidated with the Company or any of its Restricted
Subsidiaries or that Person's assets are acquired by the Company or any of its
Restricted Subsidiaries; (iii) the income of any Restricted Subsidiary of the
Company to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, Rule or governmental regulation applicable to
that Restricted Subsidiary; and (iv) any after-tax gains or losses attributable
to Asset Dispositions or returned surplus assets.
"Corporate Trust Office" has the meaning assigned to such term
in Section 4.02.
"Covenant Defeasance Option" has the meaning provided in
Section 8.01.
"Currency Agreement" means in respect of a Person, any foreign
exchange contract, currency swap agreement or other similar agreement designed
to protect such Person against fluctuations in currency values.
"Custodian" means any receiver, Trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
<PAGE> 15
8
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Depository" means The Depository Trust Company, its nominees
and their respective successors.
"Disqualified Capital Stock" means, with respect to any
Person, any Capital Stock which by its terms (or by the terms of any Security
into which it is convertible or for which it is exchangeable) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise; (ii) is convertible or exchangeable for
Indebtedness or Disqualified Capital Stock (excluding Capital Stock converted or
exchanged solely at the option of the Company or a Restricted Subsidiary); or
(iii) is redeemable or must be repurchased at the option of the Holder thereof,
in whole or in part, in each case on or prior to the Stated Maturity of the
Notes; provided, however, that (1) any Capital Stock that would not constitute
Disqualified Capital Stock but for provisions thereof giving Holders thereof the
right to require such Person to purchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Notes shall not constitute Disqualified Capital Stock if
the "asset sale" or "change of control" provisions applicable to such Capital
Stock are not more favorable to the Holders of such Capital Stock than the
provisions described under Sections 4.14 and 4.15; (2) only the portion of
Capital Stock which so matures or is mandatorily redeemable, is so convertible
or exchangeable or is so redeemable at the option of the Holder thereof prior to
such date shall be deemed to be Disqualified Capital Stock; and (3) if such
Capital Stock is issued to any employee or to any plan for the benefit of
employees of the Company or its Subsidiaries or by any such plan to such
employees, such Capital Stock shall not constitute Disqualified Capital Stock
solely because it may be required to be repurchased by the Company in order to
satisfy applicable statutory or regulatory obligations or as a result of such
employee's termination, death or disability.
"DPS" means, collectively, Diversified Pharmaceutical
Services, Inc. and Diversified Pharmaceutical Services (Puerto Rico) Inc.
"Event of Default" has the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute.
"Exchange Notes" has the meaning provided in the Appendix.
"Fair Share" has the meaning provided in Section 10.04(b).
"Fair Share Shortfall" has the meaning provided in Section
10.04(c).
"Fraudulent Transfer Laws" has the meaning provided in Section
10.04(b).
<PAGE> 16
9
"Funding Guarantor" has the meaning provided in Section
10.04(b).
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Issue Date, including those set
forth in (i) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants of Certified Public
Accountants, (ii) statements and pronouncements of the Financial Accounting
Standards Board, and (iii) such other statements by such other entity as
approved by a significant segment of the accounting profession.
"guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly Guaranteeing any Indebtedness of any Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(1) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness of such Person
(whether arising by virtue of agreements to keep-well, to
take-or-pay or to maintain financial statement conditions or
otherwise) or
(2) entered into for the purpose of assuring in any other manner
the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole
or in part);
provided, however, that the term "guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "guarantee"
used as a verb has a corresponding meaning. The term "guarantor" shall mean any
Person Guaranteeing any obligation.
"Guarantee" means the Guarantee of the Guarantors pursuant to
Article Ten.
"Guarantors" means (1) each of the Company's domestic
Restricted Subsidiaries existing on the Issue Date (other than diversified NY
IPA, Inc. and Diversified Pharmaceutical Services (Puerto Rico), Inc.) And (2)
any Person that becomes a domestic Restricted Subsidiary of the Company that
pursuant to Section 4.16 or otherwise in the future executes a supplemental
Indenture in which such Restricted Subsidiary unconditionally Guarantees on a
senior basis the Company's obligations under the Notes and this Indenture;
provided that any Person constituting a Guarantor as described above shall cease
to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of this Indenture.
"Holder" or "Noteholder" means the Person in whose name a Note
is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise
become liable; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such
<PAGE> 17
10
Person becomes a Subsidiary (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to be Incurred by such Subsidiary at the time it
becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a
correlative meaning. The accretion of principal of a non-interest bearing or
other discount Security shall not be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date
of determination (without duplication),
(i) the principal of and premium (if any) in respect
of (a) Indebtedness of such Person for money borrowed and (b)
Indebtedness evidenced by Notes, debentures, bonds or other
similar instruments for the payment of which such Person is
responsible or liable;
(ii) all Capital Lease Obligations of such Person;
(iii) all obligations of such Person issued or
assumed as the deferred purchase price of property (which
purchase price is due more than one year after taking title of
such property), all conditional sale obligations of such
Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable
arising in the ordinary course of business not overdue by more
than 90 days);
(iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of
business of such Person to the extent such letters of credit
are not drawn upon, or, if and to the extent drawn upon, such
drawing is reimbursed no later than the 30th Business Day
following receipt by such Person of a demand for reimbursement
following payment on the letter of credit);
(v) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of
any Disqualified Capital Stock or, with respect to any
Restricted Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in
clauses (i) through (v) of other Persons and all dividends of
other Persons for the payment of which, in either case, such
Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any
guarantee (but only to the extent of the amount actually
guaranteed);
<PAGE> 18
11
(vii) all obligations of the type referred to in
clauses (i) through (vi) of other Persons secured by any Lien
on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured;
and
(viii) to the extent not otherwise included in this
definition, the net obligations of such Person under currency
agreements and interest swap agreements.
For purposes of the preceding sentence, the maximum fixed
repurchase price of any Disqualified Capital Stock that does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were
repurchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture; provided, however, that if such Disqualified Capital
Stock is not then permitted to be repurchased, the repurchase price shall be the
book value of such Disqualified Capital Stock. The amount of Indebtedness of any
Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date. The principal amount of any Indebtedness issued with
original issue discount shall be the face amount of such Indebtedness less than
remaining unamortized portion of the original issue discount of such
Indebtedness at the date of determination in accordance with GAAP.
"Indenture" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof.
"Initial Notes" has the meaning provided in the Appendix.
"Initial Purchaser" has the meaning provided in the Appendix.
"Interest Payment Date" means the stated maturity of an
installment of interest on the Notes.
"Interest Rate Agreement" means in respect of a Person any
interest rate swap agreement, interest rate cap agreement or other financial
agreement or arrangement designed to protect such Person against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of the
Person making the advance or loan) or other extensions of credit (including by
way of guarantee or similar arrangement) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the
<PAGE> 19
12
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person; provided, that
endorsements of negotiable instruments and documents in ordinary course of
business shall not be deemed an Investment. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and Section
4.10 (i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value as determined in
good faith by the Board of Directors of the Company of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that if such designation is made in
connection with the acquisition of such Subsidiary or the assets owned by such
Subsidiary, the "Investment" in such Subsidiary shall be deemed to be the
consideration paid in connection with such acquisition; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value as determined in good faith by the Board of Directors of the
Company at the time of such transfer.
"Investment Grade Rating" means (i) with respect to S&P, any
of the rating categories from and including "AAA" to and including "BBB--" and
(ii) with respect to Moody's, any of the rating categories from and including
"Aaa" to and including "Baa3".
"Issue Date" means the date on which the Notes are originally
issued.
"legal Defeasance Option" has the meaning provided in Section
8.01.
"Legal Holiday" means a Saturday, a Sunday, any day which is a
holiday under the laws of the State of New York or a day on which banking
institutions in the State of New York are authorized or required by law to
close. If a payment date is a Legal Holiday, payment shall be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular Record Date is a Legal Holiday, such Record
Date shall not be affected.
"Lien" means any Lien, mortgage, deed of trust, pledge,
Security interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof, and
any agreement to give any Security interest).
"Maturity Date" means June 15, 2009.
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash
payments received therefrom (including any cash payments received by way of
deferred payment of principal pursuant to a Note or installment receivable or
otherwise and proceeds from the sale or other disposition of any Securities
received as consideration, but only as and when received, but excluding any
other consideration received in the form of assumption by the acquiring Person
of
<PAGE> 20
13
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form) in each case net of:
(1) all legal, title and recording tax expenses,
brokerage commissions, underwriting discounts or commissions
or sales commissions and other reasonable fees and expenses
(including, without limitation, fees and expenses of counsel,
accountants and Investment bankers) related to such Asset
Disposition or converting to cash any other proceeds received,
and any relocation and severance expenses as a result thereof,
and all federal, state, provincial, foreign and local taxes
required to be accrued or paid as a liability under GAAP, as a
consequence of such Asset Disposition;
(2) all payments made on any Indebtedness or other
obligations which are secured by any assets subject to such
Asset Disposition or made in order to obtain a necessary
consent to such Asset Disposition or to comply with applicable
law;
(3) all distributions and other payments required to
be made to minority interest Holders in Subsidiaries or joint
ventures as a result of such Asset Disposition; and
(4) appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities
associated with the property or other assets disposed of in
such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition, including,
without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated
with such Asset Disposition.
The amounts in clauses (i) through (iv) above, to the extent
estimates are necessary, shall be estimated reasonably and in good faith by the
Company.
"Net Cash Proceeds" with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
Incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Notes" means the Initial Notes, the Exchange Notes and the
Private Exchange Notes treated as a single class of Securities, as amended or
supplemented from time to time in accordance with the terms hereof, that are
issued pursuant to this Indenture.
<PAGE> 21
14
"Offering" means (i) with respect to the Initial Notes issued
on June 16, 1999, the Offering Circular dated June 11, 1999, pursuant to which
the $250.0 million of 9 5/8% Series a Senior Notes due 2009 in the form of
Initial Notes were offered, and any supplement thereto and (ii) with respect to
each issuance of Additional Notes, the Offering Circular, prospectus or other
similar offering document pursuant to which such Additional Notes were or are to
be offered, and any supplement thereto.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the controller, the Treasurer, or the Secretary of such
Person, or any other officer designated by the Board of Directors serving in a
similar capacity.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two officers or by an Officer and either a Treasurer or
Assistant Treasurer or an Assistant Secretary of such Person and otherwise
complying with the requirements of Sections 11.04 and 11.05, to the extent they
relate to the making of an Officers' Certificate.
"Opinion of Counsel" means a written opinion from legal
counsel, who may be an employee or counsel for the Company, and who is
reasonably acceptable to the Trustee complying with the requirements of Sections
11.04 and 11.05, to the extent they relate to the giving of an Opinion of
Counsel.
"Other Senior Debt Pro Rata Share" means the amount of the Net
Available Cash obtained by multiplying the amount of such Net Available Cash by
a fraction, (i) the numerator of which is the lesser of the aggregate principal
face amount or accreted value of all Indebtedness (other than the Notes,
Subordinated Obligations, Indebtedness outstanding under the Senior Credit
Facility and any other Indebtedness owed to the Company or any Subsidiary of the
Company) of the Company or the applicable Restricted Subsidiary, as the case may
be, outstanding at the time of the applicable Asset Disposition with respect to
which the Company or the applicable Restricted Subsidiary, as the case may be,
is required to use Net Available Cash to repay or make an offer to purchase and
repay and (ii) the denominator of which is the sum of (a) the aggregate
principal amount of all Notes outstanding at the time of the applicable Asset
Disposition and (b) the lesser of the aggregate principal face amount or
accreted value of all other Indebtedness (other than Subordinated Obligations,
Indebtedness outstanding under the Senior Credit Facility and any other
Indebtedness owed to the Company or any Subsidiary of the Company) of the
Company or the applicable Restricted Subsidiary, as the case may be, outstanding
at the time of the applicable Asset Disposition with respect to which the
Company and the Restricted Subsidiaries is required to use the Net Available
Cash to repay or to offer to purchase and repay.
"Paying Agent" has the meaning provided in Section 2.03.
<PAGE> 22
15
"Permitted Holders" means NYLIFE Healthcare Management, Inc.,
an indirect Subsidiary of New York Life Insurance Company, a mutual insurance
company organized and existing under the laws of the State of New York, and its
Affiliates.
"Permitted Investments" means:
(i) Investments by the Company or any Restricted Subsidiary in any
Person that is or will become immediately after such
Investment a Restricted Subsidiary or that will merge or
consolidate into the Company or a Restricted Subsidiary;
(ii) Investments in cash and Temporary Cash Investments;
(iii) loans and advances to employees and officers of the Company
and its Restricted Subsidiaries in the ordinary course of
business;
(iv) currency agreements and Interest Rate Agreements entered into
in the ordinary course of the Company's or its Restricted
Subsidiaries' businesses and otherwise in compliance with the
terms of the Indenture;
(v) Investments in Securities of trade creditors or customers
received pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade
creditors or customers;
(vi) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an
Asset Disposition made in compliance with Section 4.15;
(vii) guarantees of Indebtedness permitted to be Incurred under
Section 4.13;
(viii) receivables owing to the Company or any Restricted Subsidiary
created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade
terms; provided, however, that such trade terms may include
such concessionary trade terms as the Company or any such
Restricted Subsidiary deems reasonable under the
circumstances;
(ix) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the
ordinary course of business;
(x) Investments for consideration consisting exclusively of common
stock of the Company; and
(xi) Investments in existence on the Issue Date.
<PAGE> 23
16
"Permitted Liens" means the following types of Liens:
(i) Liens securing Indebtedness under the Senior Credit Facility
permitted to be Incurred under clause (b)(i) of Section 4.13;
(ii) Liens securing Indebtedness of a Person existing at the time
that such Person is merged into or consolidated with the
Company or a Restricted Subsidiary; provided that such Liens
were not created in contemplation of such merger or
consolidation and do not extend to any assets or property of
the Company or any Restricted Subsidiary, other than the
surviving Person and its Subsidiaries;
(iii) Liens on assets or property acquired by the Company or a
Restricted Subsidiary; provided that such Liens were not
created in contemplation of such acquisition and do not extend
to any other assets or property (other than proceeds of such
acquired assets or property);
(iv) Liens in respect of Interest Rate Agreements and currency
agreements described in clause (b)(vi) of Section 4.13;
(v) Liens for taxes, assessments or governmental charges or claims
that either (a) are not yet delinquent or (b) are being
contested in good faith by appropriate proceedings and as to
which appropriate reserves have been established or other
provisions have been made in accordance with GAAP;
(vi) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's,
contractors' or other Liens imposed by law and arising in the
ordinary course of business;
(vii) Liens (other than any Lien imposed by the Employee Retirement
Income Security Act of 1974, as amended) Incurred or deposits
made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types
of social Security;
(viii) Liens Incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and
appeal bonds, progress payments, government contracts and
other obligations of like nature (exclusive of obligations for
the payment of borrowed money), in each case, Incurred in the
ordinary course of business;
(ix) attachment or judgment Liens not giving rise to a Default or
Event of Default;
<PAGE> 24
17
(x) easements, rights-of-way, restrictions and other similar
charges or encumbrances not materially interfering with the
ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries;
(xi) leases or subleases granted to others not materially
interfering with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries;
(xii) Liens securing Refinancing Indebtedness; provided that such
Liens only extend to the assets securing the Indebtedness
being Refinanced, such Refinanced Indebtedness was previously
secured and such Liens do not extend to any other assets of
the Company or the assets of any of the Company's other
Subsidiaries;
(xiii) Liens securing Purchase Money Obligations and Capital Lease
Obligations permitted to be Incurred under this Indenture;
(xiv) Liens existing on the Issue Date;
(xv) any contract to sell an asset provided such sale is otherwise
permitted under this Indenture;
(xvi) Liens on property or assets of any Restricted Subsidiary
securing Indebtedness of such Restricted Subsidiary owing to
the Company or one or more Restricted Subsidiaries of the
Company;
(xvii) Liens securing the Notes and the Guarantees; and
(xviii) other Liens securing Indebtedness permitted to be Incurred
under this Indenture in an aggregate amount not to exceed
$25.0 million at any time outstanding.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any
Person, means Capital Stock of any class or classes (however designated) which
is preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the
premium, if any, payable on the Note which is due or overdue or is to become due
at the relevant time.
"Private Exchange Notes" has the meaning provided in the
Appendix.
<PAGE> 25
18
"Public Equity Offering" means an underwritten primary public
offering of common stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Purchase Money Obligation" means any Indebtedness Incurred in
the ordinary course of business by a Person to finance the cost (including the
cost of construction) of an item of assets, the amount of which Indebtedness
does not exceed the sum of (x) 100% of the lesser of such cost or the fair
market value of such assets, as determined in good faith by the Board of
Directors of the Company, and (y) reasonable fees and expenses of such Person
Incurred in connection therewith, and which is Incurred concurrently with (or
within 270 days following) the purchase of such assets and is secured only by
the assets so purchased.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock or that is not Indebtedness that is convertible or
exchangeable into Capital Stock.
"Rating Agency" means each of (a) S&P and (b) Moody's.
"Record Date" means each Record Date specified in the Notes,
whether or not a Legal Holiday.
"Redemption Date," when used with respect to any Note to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Notes.
"Redemption Price," when used with respect to any Note to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Notes.
"Refinance" means, in respect of any Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that refinances
any Indebtedness of the Company or any Restricted Subsidiary existing on the
Issue Date or Incurred in compliance with this Indenture, including Indebtedness
that refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced; (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced; and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced, plus the reasonable
fees and expenses related to the issuance of
<PAGE> 26
19
such Refinancing Indebtedness; provided, further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary
(other than the Company) that Refinances Indebtedness of the Company or (y)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" has the meaning set forth in
the Appendix.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer" when used with respect to the Trustee,
means any officer assigned to the Corporate Trust Office, including any managing
director principal, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the Trustee customarily
performing functions which are similar to those performed by any of the above
designated officers having direct responsibility for the administration of this
Indenture and other similar matters, and with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject matter.
"Restricted Payment" means, with respect to any Person:
(i) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock
(including any payment in connection with any merger or
consolidation involving such Person), other than dividends or
distributions payable solely in its Capital Stock (other than
Disqualified Capital Stock) and dividends or distributions
payable solely to the Company or a Restricted Subsidiary, and
other than pro rata dividends or other distributions made by a
Restricted Subsidiary that is not a Wholly Owned Subsidiary to
minority stockholders (or owners of an equivalent interest in
the case of a Restricted Subsidiary that is an entity other
than a corporation);
(ii) the purchase, redemption or other acquisition or retirement
for value of any Capital Stock of the Company held by any
Person or of any Capital Stock of a Restricted Subsidiary held
by any affiliate of the Company (other than a Restricted
Subsidiary), including the exercise of any option to exchange
any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Capital Stock);
(iii) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund
payment, of any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated
Obligations purchased
<PAGE> 27
20
in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due
within one year of the date of acquisition); or
(iv) the making of any Investment in any Person (other than a
Permitted Investment), including by designating any Subsidiary
as an Unrestricted Subsidiary.
"Restricted Subsidiary" means any Subsidiary of the Company
that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means, the Securities Act of 1933, as
amended, or any successor statute or statutes thereto.
"Senior Credit Facility" means the credit agreement, dated
April 1, 1999 among the Company, Credit Suisse First Boston and the other agents
and lenders named therein, and any other bank credit agreement or similar
facility entered into in the future by the Company or any Restricted Subsidiary,
as any of the same, in whole or in part, may be amended, renewed, extended,
increased (but only so long as such increase is permitted under the terms of
this Indenture), substituted, Refinanced, restructured or replaced (including,
without limitation, any successive renewals, extensions, increases,
substitutions, refinancings, restructurings, replacements, supplements or other
modifications of the foregoing).
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "Significant Subsidiary" of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any Security, the
date specified in such Security as the fixed date on which the final payment of
principal of such Security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such Security at the option of the Holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the
Company or a Restricted Subsidiary (whether outstanding on the Issue Date or
thereafter Incurred) which is subordinate or junior in right of payment to any
other Indebtedness of the Company or any such Restricted Subsidiary, as the case
may be.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, association, joint venture
or other business entity of which more than 50% of the total voting power of
shares of stock or other ownership interests entitled (without
<PAGE> 28
21
regard to the occurrence of any contingency) to vote in the election of the
Person or Persons (whether directors, managers, Trustees or other Persons
performing similar functions) having the power to direct or cause the direction
of the management and policies thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof.
"Successor Company" shall have the meaning provided in Section
5.01.
"S&P" means Standard & Poor's Ratings Services, a division of
the McGraw-Hill companies, Inc.
"Temporary Cash Investments" means, as at any date of
determination:
(i) marketable Securities (a) issued or directly and
unconditionally Guaranteed as to interest and principal by the
United States or (b) issued by any agency of the United States
the obligations of which are backed by the full faith and
credit of the United States, in each case maturing within one
year after such date;
(ii) marketable direct obligations issued by any State of the
United States or any political subdivision of any such state
or any public instrumentality thereof, in each case maturing
within one year after such date and having, at the time of the
acquisition thereof, the highest rating obtainable from either
S&P or Moody's;
(iii) commercial paper maturing no more than one year from the date
of creation thereof and having, at the time of the acquisition
thereof, a rating of at least A-1 from S&P or at least P-1
from Moody's;
(iv) certificates of deposit or bankers' acceptances maturing
within one year after such date and issued or accepted by any
commercial bank organized under the laws of the United States
of America or any state thereof or the district of Columbia
that (a) is at least "adequately capitalized" (as defined in
the regulations of its primary federal banking regulator) and
(b) has Tier 1 capital (as defined in such regulations) of not
less than $100,000,000; and
(v) shares of any money market mutual fund that (a) has at least
95% of its assets invested continuously in the types of
Investments referred to in clauses (i) and (ii) above, (b) has
net assets of not less than $500,000,000, and (c) has the
highest rating obtainable from either S&P or Moody's.
"TIA" means the Trust Indenture Act of 1939, as amended (15
U.S.C. Sections 77aaa-77bbbb), as in effect on the date of this Indenture.
<PAGE> 29
22
"Trustee" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means such successor.
"Unrestricted Subsidiary" means
(i) Practice Patterns Science Inc., Great Plains Reinsurance
Company, Value Rx of Michigan, Inc. and any other Subsidiary
of the Company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of
Directors of the Company in the manner provided below; and
(ii) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of the Company may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on
any property of, the Company or any other Restricted Subsidiary of the Company;
provided, however, that either (a) the Subsidiary to be so designated has total
assets of $1,000 or less or (b) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under Section 4.10. The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (x) if such Unrestricted Subsidiary at such time has
Indebtedness, the Company could incur $1.00 of additional Indebtedness under
paragraph (a) of Section 4.13 and (y) no default shall have occurred and be
continuing or would arise therefrom. Any such designation by the Board of
Directors of the Company shall be evidenced by the Company to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means Securities that are (x)
direct obligations of the United States of America for the timely payment of
which its full faith and credit is pledged or (y) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America the timely payment of which is unconditionally
Guaranteed as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such U.S. Government Obligation held by such custodian for the account of
the Holder of such depository receipt; provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the Holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.
<PAGE> 30
23
"U.S. Legal Tender" means such coin or currency of the United
States of America as at the time of payment shall be Legal Tender for the
payment of public and private debts.
"Voting Stock" of a Person means all classes of Capital Stock
or other interests (including limited liability company or partnership
interests) of such Person then outstanding and normally entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or Trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all
the Capital Stock of which (other than directors' qualifying shares and shares
held by other Persons to the extent such shares are required by applicable law
to be held by a Person other than the Company or a Restricted Subsidiary) is
owned by the Company or one or more wholly owned Subsidiaries.
Section 1.02. Incorporation by reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder or a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company or any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC Rule and
not otherwise defined herein have the meanings assigned to them therein.
Section 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP as in effect from time to time;
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(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other subdivision; and
(6) reference to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
Section 1.04. One Class of Securities.
The Initial Notes, the Private Exchange Notes, if any, and the
Exchange Notes shall vote and consent together on all matters as one class and
none of the Initial Notes, the Private Exchange Notes, if any, or the Exchange
Notes shall have the right to vote or consent as a separate class on any matter.
ARTICLE II
THE NOTES
Section 2.01. Form and dating.
(a) Provisions relating to the Initial Notes, the Private
Exchange Notes and the Exchange Notes are set forth in the Rule 144A/Regulation
S Appendix attached hereto (the "Appendix"), which is hereby incorporated in and
expressly made a part of this Indenture. The Initial Notes and the corresponding
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A hereto. The Exchange Notes, the Private Exchange Notes and the
corresponding Trustee's certificate of authentication shall be substantially in
the form of Exhibit B hereto. The Notes may have notations, legends or
endorsements required by law, stock exchange Rule, agreements to which the
Company are subject, if any, or depository Rule or usage. The Company shall
approve the forms of the Notes and any notation, legend or endorsement on them.
Each Note shall be dated the date of its issuance and shall show the date of its
authentication.
(B) The terms and provisions contained in the Appendix and in
the forms of the Notes, annexed hereto as Exhibits A and B, shall constitute,
and are hereby expressly made, a part of this Indenture and, to the extent
applicable, the Company, the Guarantors and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
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Section 2.02. Execution and Authentication; Aggregate
Principal Amount.
Two Officers, or an Officer and an Assistant Secretary, shall
sign, 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, the Notes for the Company by manual or
facsimile signature.
If an Officer or Assistant Secretary whose signature is on a
Note was an Officer or Assistant Secretary at the time of such execution but no
longer holds that office or position at the time the Trustee authenticates the
Note, the Note shall nevertheless be valid.
On the Issue Date, the Trustee shall authenticate and deliver
$250.0 million of 9 5/8% Series A Senior Notes due 2009 in the form of Initial
Notes. In addition, at any time, and from time to time, the Trustee shall
authenticate and deliver Notes upon a written notice of the Company, for
original issuance in the aggregate principal amount specified in such order for
original; provided that Exchange Notes and Private Exchange Notes shall be
issuable only upon the valid surrender for cancellation of such Initial Notes of
a like aggregate principal amount. Additional Notes may be issued in an
aggregate principal amount not to exceed $250.0 million and in accordance with
Section 2.14. Any such order shall specify the amount of the Notes to be
authenticated and the date on which the original issue of Notes is to be
authenticated and, in the case of an issuance of Additional Notes pursuant to
Section 2.14 after the Issue Date shall certify that such issuance will not be
prohibited by Section 4.13.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee may appoint an Authenticating Agent (the
"Authenticating Agent") reasonably acceptable to the Company to authenticate
Notes. Unless otherwise provided in the appointment, an Authenticating Agent may
authenticate Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
Authenticating Agent. An Authenticating Agent has the same rights as an agent to
deal with the Company and Affiliates of the Company.
The Notes shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 and any integral multiple thereof.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain or designate an office or agency in
accordance with Section 4.02 (which shall be located in the Borough of Manhattan
in the City of New York, State of New York and which may be the office of the
Trustee) where Notes may be presented or
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surrendered for registration of transfer or for exchange ("Registrar") and Notes
may be presented or surrendered for payment ("Paying Agent"). The Registrar
shall keep a register of the Notes and of their transfer and exchange. The
Company may have one or more co-Registrars and one or more additional Paying
Agents. The term "Paying Agent" includes any additional Paying Agent. Either of
the Company or any of their Affiliates may act as Paying Agent or Registrar,
except that for purposes of Articles Three and Eight and Sections 4.14 and 4.15,
neither the Company nor any of the Guarantors or their respective Affiliates
shall act as Paying Agent. The Company may change any Paying Agent or Registrar
without notice to any Holder.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which agreement shall incorporate
the provisions of the TIA and implement the provisions of this Indenture that
relate to such agent. The Company shall notify the Trustee of the name and
address of any such agent. If the Company fail to maintain a Registrar or Paying
Agent, or fail to give the foregoing notice, the Trustee shall act as such.
The Company initially appoint the Trustee as Registrar and
Paying Agent, until such time as the Trustee has resigned or a successor has
been appointed. The Paying Agent or Registrar may resign upon 30 days notice to
the Company.
Section 2.04. Paying Agent To Hold Assets 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 the Holders or the Trustee all assets held by the Paying Agent for
the payment of principal of, or interest on, the Notes (whether such assets have
been distributed to it by the Company, the Guarantors or any other obligor on
the Notes), and the Company and the Paying Agent shall notify the Trustee of any
default by the Company or the Guarantors (or any other obligor on the Notes) in
making any such payment. The Company at any time may require a Paying Agent to
distribute all assets held by it to the Trustee and to account for any assets
disbursed. The Trustee may, and upon direction of a majority of the Holders
shall, 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, the Guarantors or any other obligor on the Notes to the Paying Agent,
the Paying Agent shall have no further liability for such assets.
Section 2.05. Noteholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of the Holders, and shall otherwise comply with TIA section 312(a). If
the Trustee is not the Registrar, the Company shall furnish or cause the
Registrar to furnish to the Trustee before each Record Date and at such other
times as the Trustee may request in writing a list as of such date and in such
form as the Trustee may
<PAGE> 34
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reasonably require of the names and addresses of the Holders, which list may be
conclusively relied upon by the Trustee and the Company shall otherwise comply
with TIA section 312(a).
Section 2.06. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the
Holder of a Note claims that the Note has been lost, destroyed or wrongfully
taken, subject to the terms of the next succeeding sentence, the Company shall
issue and the Trustee shall authenticate a replacement Note if the Trustee's
reasonable requirements for replacement Notes are met. If required by the
Trustee or the Company, such Holder must provide an affidavit of lost
certificate and an indemnity bond or other indemnity, sufficient in the judgment
of both the Company and the Trustee, to protect the Company, the Trustee, any
Agent or any Authenticating Agent from any loss which any of them may suffer if
a Note is replaced. The Company and the Trustee may charge such Holder for their
out-of-pocket expenses in replacing a Note, including reasonable fees and
expenses of counsel, and for any tax that may be imposed in replacing such
Notes. Every replacement Note shall constitute an additional obligation of the
Company and shall be entitled to all benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.07. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those cancelled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
to the provisions of Section 2.08, a Note does not cease to be outstanding
because the Company, any Guarantor or any of their respective Affiliates holds
the Note.
If a Note is replaced pursuant to Section 2.06 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.06.
Except as otherwise provided in Article 8 of this Indenture,
if on a Redemption Date or the Maturity Date the Paying Agent holds U.S. Legal
Tender or U.S. Government Obligations sufficient to pay all of the principal and
interest due on the Notes payable on that date and is not prohibited from paying
such money to the Holders thereof pursuant to the terms of this Indenture, then
on and after that date such Notes shall cease to be outstanding and interest on
them shall cease to accrue.
Section 2.08. Treasury Notes.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver, consent or notice,
Notes owned by the Company, any
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Guarantor or any of their respective Affiliates shall be considered as though
they are not outstanding, except that for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, waiver, consent
or notice, only Notes which a Responsible Officer of the Trustee actually knows
are so owned shall be so considered. The Company shall promptly give the Trustee
written notice upon the acquisition by the Company, any Guarantor or any of
their respective Affiliates of any Notes of which the Company or any Guarantor
has knowledge.
Section 2.09. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall, upon receipt of a written order by the Company,
authenticate temporary Notes. The Company's order to authenticate shall specify
the amount of temporary Notes to be authenticated and the date on which the
temporary Notes are to be authenticated. Temporary Notes shall be substantially
in the form of definitive Notes but may have variations that the Company
consider appropriate for temporary Notes. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate upon receipt of a
written order of the Company pursuant to Section 2.02 definitive Notes in
exchange for, and upon surrender of, temporary Notes. Until so exchanged, the
temporary Notes shall in all respects be entitled to the same benefits under
this Indenture as definitive Notes authenticated and delivered hereunder.
Section 2.10. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of the Company, shall dispose
of all Notes surrendered for transfer, exchange, payment or cancellation.
Subject to Section 2.06, the Company may not issue new Notes to replace Notes
that it has paid or delivered to the Trustee for cancellation. If the Company
shall acquire any of the Notes, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Notes unless
and until the same are surrendered to the Trustee for cancellation pursuant to
this Section 2.10.
Section 2.11. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes
(without regard to any grace period therefor), it shall pay the Defaulted
Interest, plus (to the extent lawful) any interest payable on the Defaulted
Interest to the Persons who are Holders on a subsequent special Record Date,
which date shall be no less than 10 days preceding the date fixed by the Company
for the payment of Defaulted Interest or the next succeeding Business Day if
such date is not a Business Day. At least 15 days before the subsequent special
Record Date, the Company shall mail to each Holder, as of a recent date selected
by the Company, with a copy to the Trustee, a
<PAGE> 36
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notice that states the subsequent special Record Date, the payment date and the
amount of Defaulted Interest, and interest payable on such Defaulted Interest,
if any, to be paid.
Alternatively, 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 Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company to
the Trustee and the Paying Agent of the proposed payment pursuant to this
clause, such manner shall be deemed practicable by the Trustee and the Paying
Agent.
Section 2.12. CUSIP Number.
The Company in issuing the Notes may use "CUSIP" numbers, and
if so, the Trustee shall use such CUSIP numbers in notices of redemption or
exchange as a convenience to Holders; provided that no representation is hereby
deemed to be made by the Trustee as to the correctness or accuracy of such CUSIP
numbers printed in the notice or on the Notes, and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company shall
promptly notify the Trustee of any change in a CUSIP number.
Section 2.13. Deposit of Moneys.
Prior to 9:00 a.m. New York City time on each Interest Payment
Date and on the Maturity Date, the Company shall deposit with the Paying Agent
in immediately available funds U.S. Legal Tender sufficient to make cash
payments, if any, due on such Interest Payment Date or Maturity Date, as the
case may be, in a timely manner which permits the Paying Agent to remit payment
to the Holders on such Interest Payment Date or Maturity Date, as the case may
be.
Section 2.14. Issuance of Additional Notes.
The Company shall be entitled to issue Additional Notes in
aggregate principal amount not to exceed $250.0 million under this Indenture
which shall have identical terms as the Notes issued on June 16, 1999, other
than with respect to the date of issuance, issue price, amount of interest
payable on the first payment date applicable thereto and, terms of optional
redemption, if any (and, if such Additional Notes shall be issued in the form of
Exchange Notes, other than with respect to transfer restrictions); provided that
such issuance is not prohibited by Section 4.13. The Initial Notes issued on
June 16, 1999, any Additional Notes and all Exchange Notes or Private Exchange
Notes issued in exchange therefor shall be treated as a single class for all
purposes under this Indenture.
With respect to any Additional Notes, the Company shall set
forth in a resolution of its respective Board of Directors and in an Officers'
Certificate, a copy of each of which shall be delivered to the Trustee, the
following information:
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(1) the aggregate principal amount of such Additional Notes to
be authenticated and delivered pursuant to this Indenture;
(2) the issue price, the Issue Date and the CUSIP number of
such Additional Notes and the amount of interest payable on the first
payment date applicable thereto; provided, however, that no Additional
Notes may be issued at a price that would cause such Additional Notes
to have "original issue discount" within the meaning of Section 1273 of
the code; and
(3) whether such Additional Notes shall be transfer restricted
Securities and issued in the form of Initial Notes or shall be
registered Securities issued in the form of Exchange Notes, each as set
forth in the Appendix.
ARTICLE III
REDEMPTION
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to Section 3.07
of this Indenture and paragraph 5 of the Notes, it shall notify the Trustee and
the Paying Agent in writing of the Redemption Date and the principal amount of
the Notes to be redeemed.
The Company shall give each notice provided for in this
Section 3.01 at least 45 days before the notice to Holders under Section 3.03 is
scheduled to be mailed (unless a shorter notice period shall be satisfactory to
the Trustee, as evidenced in a writing signed on behalf of the Trustee),
together with an Officers' Certificate stating that such redemption shall comply
with the conditions contained herein and in the Notes.
Section 3.02. Selection of Notes To Be Redeemed.
If fewer than all of the Notes are to be redeemed, selection
of the Notes to be redeemed will be made by the Trustee on a pro rata basis, by
lot or in such other fair and reasonable manner chosen at the discretion of the
Trustee; provided, however, that if a partial redemption is made with the
proceeds of a public equity offering, selection of the Notes or portion thereof
for redemption shall be made by the Trustee only on a pro rata basis, unless
such method is otherwise prohibited, or, in all cases, notice is given to the
Trustee that redemption must be in compliance with the requirements of the
principal national Securities exchange, if any, on which the Notes are listed.
The Trustee shall make the selection from the Notes
outstanding and not previously called for redemption and shall promptly notify
the Company in writing of the Notes
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selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes in denominations
of $1,000 may be redeemed only in whole. The Trustee may select for redemption
portions (equal to $1,000 or any integral multiple thereof) of the principal of
Notes that have denominations larger than $1,000. Provisions of this Indenture
that apply to Notes called for redemption also apply to portions of Notes called
for redemption.
Section 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail or cause to be mailed a notice of redemption by
first class mail, postage prepaid, to each Holder whose Notes are to be redeemed
at its registered address, with a copy to the Trustee and any Paying Agent. At
the Company's written request no less than 45 days prior to the Redemption Date
(or such shorter period as may be acceptable to the Trustee), the Trustee shall
give the notice of redemption in the Company's name and at the Company' expense.
Each notice for redemption shall identify the Notes to be
redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest,
if any, to be paid;
(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes and/or Section of this
Indenture pursuant to which such redemption is being made;
(5) that Notes called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price plus accrued interest,
if any;
(6) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on
and after the Redemption Date, and the only remaining right of the
Holders of such Notes is to receive payment of the Redemption Price
plus accrued interest, if any, upon surrender to the Paying Agent of
the Notes redeemed;
(7) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
Redemption Date, and upon surrender of such Note, a new Note or Notes
in the aggregate principal amount equal to the unredeemed portion
thereof will be issued;
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(8) if fewer than all the Notes are to be redeemed, the
aggregate principal amount of Notes to be redeemed and the aggregate
principal amount of Notes to be outstanding after such partial
redemption and, if the redemption is not made pro rata, the
identification of the particular Notes (or portion thereof) to be
redeemed; and
(9) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Notes.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.03, Notes called for redemption become due and payable on the Redemption Date
and at the Redemption Price plus accrued interest, if any. Upon surrender to the
Trustee or Paying Agent, such Notes called for redemption shall be paid at the
Redemption Price plus accrued interest to the Redemption Date payable thereon,
if any. Failure to give notice or any defect in the notice to any Holder shall
not affect the validity of the notice to any other Holder.
Section 3.05. Deposit of Redemption Price.
On or before 9:00 a.m. New York City time on the Redemption
Date, the Company shall deposit with Trustee or Paying Agent in immediately
available funds U.S. Legal Tender sufficient to pay the Redemption Price plus
accrued interest, if any, of all Notes to be redeemed on that date (other than
Notes or portions of Notes called for redemption which have been delivered by
the Company to the Trustee for cancellation). The Trustee or Paying Agent shall
promptly return to the Company any U.S. Legal Tender so deposited which is not
required for that purpose, except with respect to monies owed as obligations to
the Trustee pursuant to Article seven.
If the Company complies with the preceding paragraph, then,
unless the Company defaults in the payment of such Redemption Price plus accrued
interest, if any, interest on the Notes to be redeemed will cease to accrue on
and after the applicable Redemption Date, whether or not such Notes are
presented for payment.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is to be redeemed in part, the
Company shall execute and the Trustee shall authenticate for the Holder a new
Note or Notes equal in principal amount to the unredeemed portion of the Note
surrendered.
Section 3.07. Optional Redemption.
The Notes shall not be redeemable at the Company' option
except as set forth in the optional redemption provisions set forth in paragraph
5 of the Notes.
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ARTICLE IV
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of and
interest on the Notes on the dates and in the manner provided in the Notes and
in this Indenture. An installment of principal of or interest on the Notes shall
be considered paid on the date it is due if the Trustee or Paying Agent (other
than the Company, any Guarantor or any of their respective Affiliates) holds on
that date U.S. Legal Tender designated for and sufficient to pay the installment
in full and is not prohibited from paying such money to the Holders pursuant to
the terms of this Indenture.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the
City of New York, an the office or agency (which may be an office of the Trustee
or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company or the Guarantors in respect of the Notes and
this Indenture may be served. The Company shall give prompt 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 the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 11.02.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such additional
designations, provided that no such designation or recission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York. The Company shall give prompt
written notice to the Trustee of any such designation or recission and of any
change in the location of any such other office or agency.
The Company hereby designate the Corporate Trust Office of the
Trustee (the "Corporate Trust Office") as one such office or agency of the
Company in accordance with Section 2.03 hereof.
Section 4.03. Corporate Existence.
Except as otherwise permitted by this Article Four or Article
Five, the Company shall do or shall cause to be done, at its own cost and
expense, all things necessary to preserve
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and keep in full force and effect its corporate existence and the corporate,
limited liability company or partnership or other existence of each Restricted
Subsidiary in accordance with the respective organizational documents of each of
them (as the same may be amended from time to time) and the material rights
(charter and statutory) and franchises of the Company and the Restricted
Subsidiaries; provided, however, that the Company or any Restricted Subsidiary
shall not be required to preserve any right or franchise, or the corporate,
limited liability company, partnership or other existence of any Restricted
Subsidiary, if the Board of Directors of the Company shall in its sole
discretion determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Restricted Subsidiaries, taken as
a whole.
Section 4.04. 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, (i) all material 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 Restricted Subsidiaries or properties of it or any of its Restricted
Subsidiaries and (ii) 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
Restricted 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 whose amount, applicability or validity is being
contested in good faith by appropriate proceedings properly instituted and
diligently conducted for which reserves, to the extent required under and in
accordance with GAAP, have been taken.
Section 4.05. Maintenance of Properties and Insurance.
(a) The Company shall, and shall cause each of its Restricted
Subsidiaries to, maintain its or their material properties in good working order
and condition (subject to ordinary wear and tear) and make all necessary
repairs, renewals, replacements, additions, betterments and improvements
thereto; provided, however, that nothing in this Section 4.05 shall prevent the
Company or any of its Restricted Subsidiaries from discontinuing the operation
and maintenance of any of its or their properties, if such discontinuance is, in
the reasonable good faith judgment of the Company, desirable in the conduct of
the business of the Company and its Restricted Subsidiaries, taken as a whole.
(b) The Company shall provide, or cause to be provided, for
itself and each of its Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the reasonable,
good faith judgment of the Board of Directors of the Company is adequate and
appropriate for the conduct of the business of the Company and its Restricted
Subsidiaries.
Section 4.06. Compliance Certificate; Notice of Default.
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The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Restricted Subsidiaries during
the preceding fiscal year has been made under the supervision of the signing
officers with a view to determining whether the Company and the Guarantors have
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 or her knowledge, neither the Company nor any Guarantor is in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (or, if a Default or Event of Default shall have
occurred, describing all such defaults or events of default of which he or she
may have knowledge and what action the Company or such Guarantors is taking or
proposes to take with respect thereto).
Section 4.07. Compliance with Laws.
The Company shall comply, and shall cause each of its
Restricted 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 its and their respective businesses and
the ownership of its and their respective properties, except for such
noncompliances as are not in the aggregate reasonably likely to have a material
adverse effect on the financial condition or results of operations of the
Company and its Restricted Subsidiaries, taken as a whole.
Section 4.08. SEC Reports.
Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the sec (unless the sec will not accept such a filing, in which
case the Company will provide such documents to the Trustee) and provide within
15 days to the Trustee and Holders such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections, such
information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections. In addition, for so long as any Notes remain outstanding, the
Company will furnish to the Holders and to Securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act, and, to any beneficial owner of
Notes, if not obtainable from the sec, information of the type that would be
filed with the sec pursuant to the foregoing provisions, upon the request of any
such beneficial owner.
Section 4.09. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or
<PAGE> 43
36
advantage of, any stay or extension law or any usury law or other law that would
prohibit or forgive the Company from paying all or any portion of the principal
of or interest on the Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
the Company hereby expressly waives all benefit or advantage of any such law,
and covenant that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
Section 4.10. Limitation on Restricted Payments.
(a) the Company will not, and will not permit any Restricted
Subsidiary, directly or indirectly, to make a Restricted Payment if at the time
the Company or such Restricted Subsidiary makes such Restricted Payment: (i) a
Default shall have occurred and be continuing (or would result therefrom); (ii)
the Company is not able to incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) under Section 4.13; or (iii) the aggregate amount of such
Restricted Payment and all other Restricted Payments since the Issue Date would
exceed the sum of: (a) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the beginning of the fiscal
quarter immediately following the Issue Date to the end of the most recent
fiscal quarter for which financial statements are available ending prior to the
date of such Restricted Payment (or, in case such Consolidated Net Income shall
be a deficit, minus 100% of such deficit); (b) the aggregate net cash proceeds
and the fair market value (as determined in good faith by the Board of Directors
of the Company) of tangible property other than cash received by the Company
from capital contributions or the issuance or sale of its Capital Stock (other
than Disqualified Capital Stock) subsequent to the Issue Date (other than an
issuance or sale to a Subsidiary of the Company and other than an issuance or
sale to an employee stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their employees to the
extent such sale is financed by loans from or Guaranteed by the Company unless
such loans have been repaid with cash on or prior to the date of determination);
(c) the amount by which Indebtedness of the Company or its Restricted
Subsidiaries (other than Indebtedness owed to the Company or a Restricted
Subsidiary) is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company) subsequent to the Issue
Date of any Indebtedness of the Company or its Restricted Subsidiaries
convertible or exchangeable for Capital Stock (other than Disqualified Capital
Stock) of the Company (less the amount of any cash, or the fair value of any
other property, distributed by the Company upon such conversion or exchange);
and (d) an amount equal to the sum of (1) the net reduction in Investments made
after the Issue Date in Unrestricted Subsidiaries and other Persons constituting
Restricted Payments, excluding Investments made pursuant to clause (b)(vii) or
(b)(viii) below, resulting from dividends, repayments of loans or advances or
other transfers of assets, in each case to the Company or any Restricted
Subsidiary from such Unrestricted Subsidiaries or other Persons or received by
the Company or any Restricted Subsidiary from the disposition of any such
Investment, and (2) the portion, proportionate to the Company's equity interest,
of the fair market value of the net assets of an
<PAGE> 44
37
Unrestricted Subsidiary or other Person at the time such Unrestricted Subsidiary
is designated a Restricted Subsidiary or such other Person becomes a Restricted
Subsidiary, but only to the extent of Investments made in such Unrestricted
Subsidiary or other Person after the Issue Date and in any event excluding
Investments made pursuant to clause (b)(vii) or (b)(viii) below; provided,
however, that the foregoing sum shall not exceed the aggregate amount of
Investments made after the Issue Date and treated as Restricted Payments by the
Company or any Restricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not
prohibit:
(i) any redemption, repurchase or other acquisition
of any Capital Stock or Subordinated Obligations of the
Company made out of the proceeds of the substantially
concurrent sale of, or made by exchange for, Capital Stock of
the Company (other than Disqualified Capital Stock and other
than Capital Stock issued or sold to a Subsidiary of the
Company or an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the
benefit of their employees to the extent such sale is financed
by loans from or Guaranteed by the Company unless such loans
have been repaid with cash on or prior to the date of
determination); provided, however, that the net cash proceeds
from such sale shall be excluded from the calculation of
amounts under clause (iii)(b) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance
or other acquisition or retirement for value of Subordinated
Obligations made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Subordinated Obligations
of the Company which is permitted to be Incurred pursuant to
Section 4.13;
(iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such
dividend would have complied with this Section 4.10;
(iv) repurchases by the Company of its Capital Stock
(a) from employees of the Company or any of its Subsidiaries
or their authorized representatives upon the death, disability
or termination of employment of such employees or pursuant to
any employment agreement between the Company and such
employee, in an amount not to exceed $5.0 million in any
calendar year and $10.0 million in the aggregate, plus the
aggregate cash proceeds from any reissuance during such
calendar year of its Capital Stock by the Company to
employees, officers or directors of the Company and its
Subsidiaries (without duplication of amounts included in
clause (iii)(b) of paragraph (a) above) and (b) from its Chief
Executive Officer upon death, disability or termination of
employment of such Chief Executive Officer or pursuant to any
employment
<PAGE> 45
38
agreement between the Company and such Chief Executive Officer
but only up to the amount of the Capital Stock owned by such
Chief Executive Officer on the Issue Date;
(v) so long as no default or Event of Default has
occurred and is continuing, the declaration and payment of
dividends to Holders of any class or series of Disqualified
Capital Stock of the Company issued in compliance with the
terms of this Indenture to the extent such dividends are
included in the definition of "Consolidated Interest Expense";
(vi) repurchases of Capital Stock deemed to occur
upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price thereof;
(vii) so long as no default shall have occurred or be
continuing or would result therefrom, Investments in an
aggregate amount outstanding at any time not exceeding $25.0
million; and
(viii) so long as no default shall have occurred or
be continuing or would result therefrom, the making of
Restricted Payments in an aggregate amount not to exceed $50.0
million.
In determining the aggregate amount of Restricted Payments
made subsequent to the Issue Date in accordance with clause (a)(iii) above,
amounts expended pursuant to clauses (iii), (iv), (vii) and (viii) (but not
pursuant to clauses (i), (ii), (v) and (vi)) of the immediately preceding
paragraph shall be included in such calculation.
Section 4.11. Limitation on Restrictions on Distributions from
Restricted Subsidiaries.
The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any encumbrance or restriction on the ability of any Restricted Subsidiary to
(a) pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company
or a Restricted Subsidiary, (b) make any loans or advances to the Company or a
Restricted Subsidiary or (c) transfer any of its property or assets to the
Company or a Restricted Subsidiary, except: (i) any encumbrance or restriction
pursuant to an agreement in effect at or entered into on the Issue Date as in
effect on the Issue Date; (ii) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration of, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or Series of related
transactions pursuant to which such Restricted Subsidiary became
<PAGE> 46
39
a Restricted Subsidiary or was acquired by the Company) and outstanding on such
date; (iii) any encumbrance or restriction pursuant to an agreement effecting a
refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (i) or (ii) above or this clause (iii) or contained in any amendment to
an agreement referred to in clause (i) or (ii) above or this clause (iii);
provided, however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or amendment
are no less favorable in the aggregate to the Holders than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in such
predecessor agreements; (iv) any such encumbrance or restriction consisting of
customary non-assignment provisions in leases governing leasehold interests to
the extent such provisions restrict the transfer of the lease or the property
leased thereunder; (v) in the case of clause (c) above, restrictions contained
in Security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the property
subject to such Security agreements or mortgages; (vi) any restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered into
for the sale or disposition of all or substantially all the Capital Stock or
assets of such Restricted Subsidiary pending the closing of such sale or
disposition; (vii) Purchase Money Obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (c) above on the property so acquired; and (viii) encumbrances or
restrictions imposed by operation of any applicable law, Rule, regulation or
order.
Section 4.12. Limitation on Transactions with Affiliates.
(a) the Company will not, and will not permit any Restricted
Subsidiary to, enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any affiliate of the Company (an
"Affiliate Transaction") unless the terms thereof (i) are no less favorable to
the Company or such Restricted Subsidiary than those that could be obtained at
the time of such transaction in a comparable transaction on an arm's-length
basis with a Person who is not such an affiliate; (ii) if such affiliate
transaction (or Series of related affiliate transactions) involves an amount in
excess of $5.0 million (a) are set forth in writing and (b) have been approved
by a majority of the members of the Board of Directors having no Personal stake
in such affiliate transaction; and (iii) if such affiliate transaction (or
Series of related affiliate transactions) involves an amount in excess of $10.0
million, have been determined by a nationally recognized Investment banking firm
to be no less favorable in any material respect to the Company or such
Restricted Subsidiary than that which would have been obtained in a comparable
transaction with an unrelated Person.
(b) the provisions of the foregoing paragraph (a) shall not
prohibit:
(i) any Permitted Investment or Restricted Payment not
otherwise prohibited pursuant to Section 4.10;
<PAGE> 47
40
(ii) any issuance of Securities, or other payments, awards or
grants in cash, Securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
entered into in the ordinary course of business and approved by the
Board of Directors of the Company;
(iii) reasonable fees and compensation paid to and indemnity
provided on behalf of officers, directors, employees, agents or
consultants of the Company or any Restricted Subsidiary of the Company
as determined in good faith by the Company's Board of Directors;
(iv) any affiliate transaction exclusively between the Company
and a Restricted Subsidiary or exclusively between Restricted
Subsidiaries; and
(v) the issuance or sale of any Capital Stock (other than
Disqualified Capital Stock) of the Company.
Section 4.13. Limitation on Indebtedness.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, incur, directly or indirectly, any Indebtedness; provided,
however, that the Company and the Restricted Subsidiaries may incur Indebtedness
if, on the date of such incurrence and after giving effect thereto, the
Consolidated Coverage Ratio exceeds 2.50 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company
and the Restricted Subsidiaries may incur any or all of the following
Indebtedness:
(i) Indebtedness of the Company and the Guarantors Incurred
pursuant to the Senior Credit Facility; provided, however, that, after
giving effect to any such incurrence, the aggregate principal amount of
such Indebtedness then outstanding does not exceed (a) in the case of
the term loan facilities, $406 million at any one time outstanding and
(b) in the case of the revolving loan facility, the sum of (x) the
greater of (i) $300 million at any one time outstanding and (ii) the
sum of (a) 50% of the book value of the inventory of the Company and
its Restricted Subsidiaries and (b) 75% of the book value of the
accounts receivables of the Company and its Restricted Subsidiaries and
(y) any amount permitted to be Incurred pursuant to clause (a) of this
paragraph (i) but not outstanding thereunder;
(ii) Indebtedness owed to and held by the Company or any
Restricted Subsidiary; provided, however, that (i) any subsequent
issuance or transfer of any Capital Stock which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or
a Restricted Subsidiary) shall be deemed, in each case, to constitute
the incurrence of such Indebtedness by the obligor thereon and (ii) if
the Company is the obligor on such
<PAGE> 48
41
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the Notes;
(iii) the Notes and the Exchange Notes (other than Additional
Notes) and the Guarantees (other than in respect of Additional Notes);
(iv) Indebtedness of the Company or any of its Restricted
Subsidiaries outstanding on the Issue Date (other than Indebtedness
described in clause (i), (ii) or (iii) of this Section 4.13) other than
Indebtedness to be repaid from the proceeds of the sale of the Notes as
described in the offering memorandum with respect to the Initial Notes;
(v) Refinancing Indebtedness in respect of Indebtedness
Incurred pursuant to paragraph (a) or pursuant to clause (iii) or (iv)
or this clause (v);
(vi) Indebtedness under Interest Rate Agreements or currency
agreements directly related to Indebtedness permitted to be Incurred by
the Company pursuant to this covenant;
(vii) Indebtedness of the Company or any of its Restricted
Subsidiaries arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn
against insufficient funds in the ordinary course of business;
provided, however, that such Indebtedness is extinguished within ten
Business Days of incurrence;
(viii) Indebtedness of the Company or any of its Restricted
Subsidiaries in order to finance insurance premiums and other
Indebtedness represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, in order to
provide Security for workers' compensation claims or payment
obligations in connection with self-insurance or similar requirements,
all in the ordinary course of business and so long as such Indebtedness
is not an obligation for money borrowed;
(ix) obligations in respect of performance and surety bonds
and completion Guarantees provided by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in
accordance with customary industry practice in amounts and for purposes
customary in the Company's industry and so long as not an obligation
for money borrowed;
(x) Indebtedness arising from agreements of the Company or any
of its Restricted Subsidiaries providing for adjustment of purchase
price, earnout or other similar obligations, in each case, Incurred or
assumed in connection with the disposition of any business, assets or a
Restricted Subsidiary of the Company or any of its Restricted
Subsidiaries, other than Guarantees of Indebtedness Incurred by any
Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of
<PAGE> 49
42
financing such acquisition; provided, however, that the maximum
assumable liability in respect of all such Indebtedness shall at no
time exceed the gross proceeds actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(xi) Capital Lease Obligations of the Company or any of its
Restricted Subsidiaries Incurred pursuant to sale-leaseback
transactions in the ordinary course of business in respect of property
or assets owned by the Company or its Restricted Subsidiaries as of the
Issue Date in an aggregate principal amount not to exceed $60.0 million
at any one time outstanding under this clause (xi);
(xii) Purchase Money Obligations and Capital Lease Obligations
of the Company or any of its Restricted Subsidiaries in respect of
property or assets acquired or leased after the Issue Date Incurred in
the ordinary course of business; and
(xiii) Indebtedness (other than Indebtedness permitted to be
Incurred pursuant to the foregoing paragraph (a) or any other clause of
this paragraph (b)) of the Company or any Restricted Subsidiary in an
aggregate principal amount which does not exceed $50.0 million at any
one time outstanding under this clause (xiii).
(c) Notwithstanding the foregoing, neither the Company nor any
Restricted Subsidiary shall incur any Indebtedness pursuant to the foregoing
paragraph (b) if the proceeds thereof are used, directly or indirectly, to
refinance any Subordinated Obligations unless such Indebtedness shall be
subordinated to the Notes or the Guarantees, as applicable, to at least the same
extent as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing
covenant, (i) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described above, the Company, in its
sole discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above. A Guarantee of Indebtedness permitted
by this Section 4.13 to be Incurred by the Company or a Restricted Subsidiary is
not considered a separate incurrence for purposes of this covenant.
(e) Notwithstanding paragraphs (a) and (b) above, neither the
Guarantors nor the Company shall incur any subordinated obligation unless such
subordinated obligation is expressly subordinated in right of payment to the
Notes and/or the Guarantees, as the case may be.
Section 4.14. Change of Control.
<PAGE> 50
43
(a) Upon a Change of Control, each Holder shall have the right
to require that the Company repurchase all or a part of such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, thereon to the date of purchase, in
accordance with the terms contemplated in Section 4.14(b).
(b) Within 30 days following any Change of Control, unless the
Company shall have provided an irrevocable notice of redemption to the Trustee
with respect to a redemption of all the outstanding Notes at a time when such
redemption is permitted under this Indenture pursuant to the provisions of
Sections 3.03 and 3.04, the Company shall mail a notice to each Holder with a
copy to the Trustee (the "Change of Control Offer") stating:
(i) that a Change of Control has occurred and that such Holder
has the right to require the Company to purchase such Holder's Notes at
a purchase price in cash equal to 101% of the principal amount (the
"Change of Control Purchase Price") thereof plus accrued and unpaid
interest, if any, thereon to the date of purchase;
(ii) the circumstances and relevant facts regarding such
Change of Control;
(iii) the purchase date (the "Change of Control Purchase
Date") (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed);
(iv) the instructions determined by the Company, consistent
with the covenant described hereunder, that a Holder must follow in
order to have its Notes purchased; and
(v) information concerning the business of the Company, the
most recent annual and quarterly reports of the Company filed with the
sec pursuant to the Exchange Act (or, if the Company is not permitted
to file any such reports with the sec, the comparable reports prepared
pursuant to Section 4.08), a description of material developments in
the Company's business, information with respect to pro forma
historical financial position and results of operations after giving
effect to such Change of Control and such other information concerning
the circumstances and relevant facts regarding such Change of Control
and Change of Control offer as would, in the good faith judgment of the
Company, be material to a Holder in connection with the decisions of
such Holder as to whether or not it should tender Notes pursuant to the
Change of Control offer.
The Company will not be required to make a Change of Control
offer upon a Change of Control if a third party makes the Change of Control
offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control offer
made by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control offer.
<PAGE> 51
44
(c) On or before the Change of Control purchase date, the
Company shall, to the extent lawful, (i) accept for payment Notes or portions
thereof properly tendered and not validly withdrawn pursuant to the Change of
Control offer (together with the appropriate form as provided for in Exhibit A
or B), (ii) deposit with the Trustee or Paying Agent an amount in U.S. Legal
Tender sufficient to pay the Change of Control purchase price (together with
accrued and unpaid interest, if any), of all Notes so tendered and (iii) deliver
or cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate listing the Notes or portions thereof being purchased by
the Company. The Trustee or Paying Agent promptly will pay the Holders of Notes
so accepted an amount equal to the Change of Control purchase price (together
with accrued and unpaid interest, if any), and the Trustee promptly will
authenticate and deliver to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered. Any Notes not so accepted will
be delivered promptly by the Company to the Holders thereof.
(d) On the purchase date, all Notes purchased by the Company
under this Section 4.14 shall be delivered to the Trustee for cancellation, and
the Company shall pay or cause to be paid the purchase price plus accrued and
unpaid interest, if any, to the Holders entitled thereto.
(e) At the time the Company deliver Notes to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Notes are to be accepted by the Company pursuant
to and in accordance with the terms of this Section 4.14. A Note shall be deemed
to have been accepted for purchase at the time the Trustee, directly or through
an agent, mails or delivers payment therefor to the surrendering Holder.
(f) The Company shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other Securities
laws or regulations in connection with the repurchase of Notes pursuant to this
Section. To the extent that the provisions of any Securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable Securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
Section 4.15. Limitation on Sales of Assets and Subsidiary
Stock.
(a) The company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset Disposition unless
(i) the Company or such Restricted Subsidiary receives consideration at the time
of such Asset Disposition at least equal to the fair market value (including the
value of all non-cash consideration), as determined in good faith by the Board
of Directors of the Company or such Restricted Subsidiary, as the case may be,
of the shares and assets subject to such Asset Disposition; (ii) at least 75% of
the consideration thereof received by the Company or such Restricted Subsidiary
is in the form of cash or cash equivalents; and (iii) an amount equal to 100% of
the Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be)
<PAGE> 52
45
(a) first, to either (x) (i) prepay the Senior Credit Facility (and permanently
reduce the commitments thereunder) and/or (ii) prepay, repay, redeem or purchase
(and permanently reduce the commitments under) any other Indebtedness (other
than any Disqualified Capital Stock) of the Company which ranks equally in right
of payment with the Notes or Indebtedness (other than Disqualified Capital
Stock) of a Restricted Subsidiary (in each case other than Indebtedness owed to
the Company or a Subsidiary of the Company) in an amount not to exceed the other
senior debt pro rata share or (y) acquire additional assets, in each case within
one year from the later of the date of such Asset Disposition or the receipt of
such Net Available Cash; (b) second, to the extent of the balance of such Net
Available Cash after application in accordance with clause (a) of this
paragraph, to make an offer pursuant to paragraph (b) below to the Holders to
purchase Notes pursuant to and subject to the conditions contained in this
Indenture; and (c) third, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (a) or (b) of this paragraph,
to any other application or use not prohibited by this Indenture.
Notwithstanding the foregoing provisions of this Section, the
Company and the Restricted Subsidiaries shall not be required to apply any Net
Available Cash in accordance with paragraph (b) below except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which is not
applied in accordance with paragraph (b) below exceeds $20.0 million (at which
time, the entire unutilized Net Available Cash, and not just the amount in
excess of $20.0 million, shall be applied pursuant to paragraph (b) below).
For the purposes of this Section 4.15, the following are
deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the
Company or any Restricted Subsidiary (other than Subordinated Obligations) and
the release of the Company or such Restricted Subsidiary from all liability on
such Indebtedness in connection with such Asset Disposition and (y) Securities
received by the Company or any Restricted Subsidiary from the transferee that
are converted by the Company or such Restricted Subsidiary into cash within 90
days of closing the transaction.
(b) In the event of an Asset Disposition that requires the
purchase of the Notes pursuant to clause (a)(iii)(b) above, the Company will be
required to purchase Notes tendered pursuant to an offer by the Company for the
Notes at a purchase price of 100% of their principal amount (without premium)
plus accrued but unpaid interest, if any, in accordance with the procedures
(including prorating in the event of over subscription) set forth below (the
"Asset Disposition Offer").
(c) With respect to any Asset Disposition offer effected
pursuant to this Section 4.15, among the Notes, to the extent the aggregate
principal amount of Notes tendered pursuant to such Asset Disposition offer
exceeds the Net Available Cash to be applied to the repurchase thereof, such
Notes shall be purchased pro rata based on the aggregate principal amount of
such Notes tendered by each Holder.
<PAGE> 53
46
Notice of an Asset Disposition shall be mailed by the Company
not more than 20 days after the obligation to make such Asset Disposition offer
arises to the Holders of Notes at their last registered addresses with a copy to
the Trustee and the Paying Agent. The Asset Disposition offer shall remain open
from the time of mailing for at least 30 days or such longer period as may be
required by applicable law. The notice, which shall govern the terms of the
Asset Disposition offer, shall include such disclosures as are required by law
and shall state:
(i) that an Asset Disposition has occurred and that such Holder
has the right to require the Company to purchase such Holder's
Notes at a purchase price in cash equal to 100% of the
principal amount (the "Asset Disposition Purchase Price")
thereof plus accrued and unpaid interest, if any, thereon to
the date of the purchase (subject to proration as described
above)
(ii) the circumstances and relevant facts regarding such Asset
Disposition;
(iii) the purchase date (the "Asset Disposition Purchase Date")
(which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed);
(iv) the instructions determined by the Company, consistent with
the covenant described hereunder, that a Holder must follow in
order to have its Notes purchase; and
(v) information concerning the business of the Company, the most
recent annual and quarterly reports of the Company filed with
the sec pursuant to the Exchange Act (or, if the Company is
not permitted to file any such reports with the sec, the
comparable reports prepared pursuant to Section 4.08), a
description of material developments in the Company's
business, information with respect to pro forma historical
financial position and results of operations after giving
effect to such Asset Disposition and such other information
concerning the circumstances and relevant facts regarding such
Asset Disposition and Asset Disposition offer as would, in the
good faith judgment of the Company, be material to a Holder in
connection with the decisions of such Holder as to whether or
not it should tender Notes pursuant to the Asset Disposition
offer.
(d) On or before the Asset Disposition purchase date, the
Company shall, to the extent lawful, (i) accept for payment (subject to
proration as described above) Notes or portions thereof properly tendered and
not validly withdrawn pursuant to the Asset Disposition offer (together with the
appropriate form as provided for in Exhibit A or B), (ii) deposit with the
Trustee or Paying Agent an amount in U.S. Legal Tender sufficient to pay the
Asset Disposition purchase price (together with accrued and unpaid interest, if
any), of all Notes so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate listing the
Notes or portions thereof being purchased by the Company. The Trustee or Paying
Agent promptly will pay the Holders of Notes so accepted an amount equal to
<PAGE> 54
47
the Asset Disposition purchase price (together with accrued and unpaid interest,
if any), and the Trustee promptly will authenticate and deliver to such Holders
a new Note equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted will be delivered promptly by the Company
to the Holders thereof.
(e) On the purchase date, all Notes purchased by the Company
under this Section 4.15 shall be delivered to the Trustee for cancellation, and
the Company shall pay or cause to be paid the purchase price plus accrued and
unpaid interest, if any, to the Holders entitled thereto.
(f) The company shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other Securities
laws or regulations in connection with the repurchase of Notes pursuant to this
Section 4.15. To the extent that the provisions of any Securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable Securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Section 4.16. Future Guarantors.
If the Company or any of its Restricted Subsidiaries transfers
or causes to be transferred, in one transaction or a Series of related
transactions, any property to any domestic Restricted Subsidiary that is not the
Company or a Guarantor, or if the Company or any of its Restricted Subsidiaries
shall organize, acquire or otherwise invest in another domestic Restricted
Subsidiary, then such transferee or acquired or other Restricted Subsidiary will
(1) by a supplemental Indenture executed and delivered to the Trustee, in form
satisfactory to the Trustee, unconditionally Guarantee on a senior basis
pursuant to Article ten all of the Company's obligations under the Notes and
this Indenture; and (2) deliver to the Trustee an Officers Certificate and an
Opinion of Counsel each stating that such supplemental Indenture complies with
this Indenture. Thereafter, such Restricted Subsidiary shall be a Guarantor for
all purposes of this Indenture.
Section 4.17. Limitation on Liens.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit to exist any Lien upon or with respect to any of the assets of the
Company or any such Restricted Subsidiary, whether now owned or hereafter
acquired, or on any income or profits therefrom, other than Liens which
constitute Permitted Liens at the date such Liens are created, unless
contemporaneously therewith or prior thereto all payments due under this
Indenture and the Notes are secured on an equal and ratable basis with the
obligation or liability so secured until such time as such obligation or
liability is no longer secured by a lien.
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Section 4.18. Limitation on the sale or issuance of Capital
Stock of Restricted Subsidiaries.
The Company will not sell or otherwise dispose of any Capital
Stock of a Restricted Subsidiary, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell or otherwise dispose of any of its
Capital Stock except: (i) to the Company or a Restricted Subsidiary; (ii)
directors' qualifying shares or shares required by applicable law to be held by
a Person other than the Company or a Restricted Subsidiary; (iii) in compliance
with or to the extent not restricted by Section 4.15 and immediately after
giving effect to such issuance or sale, such Restricted Subsidiary either
continues to be a Restricted Subsidiary or if such Restricted Subsidiary would
no longer be a Restricted Subsidiary, then the Investment of the Company in such
Person (after giving effect to such issuance or sale) would have been permitted
to be made under Section 4.10 as if made on the date of such issuance or sale.
Notwithstanding the preceding paragraph, the Company may sell
all the Voting Stock of a Restricted Subsidiary as long as the Company complies
with the terms of Section 4.15.
Section 4.19. Covenant Removal.
Notwithstanding the foregoing, from and after the time that
(a) the Notes have Investment grade ratings from both rating agencies and (b)
there shall not exist a Default or Event of Default under this Indenture, the
Company and the Restricted Subsidiaries will not be subject to the provisions of
Sections 4.10, 4.11, 4.12, 4.13 (including the application of paragraph (a)
thereof pursuant to clause (x) to the proviso to the third sentence in the
definition of "Unrestricted Subsidiary"), 4.15, 4.16 and 4.18, clauses (ii) and
(iii) of Section 5.01 and clause (ii) of Section 5.03. In addition, the
Restricted Subsidiaries shall be released from their Guarantees at the time
referred to in the preceding sentence.
ARTICLE V
SUCCESSOR CORPORATION
Section 5.01. Merger, consolidation and sale of assets of the
Company.
The Company will not consolidate with or merge with or into,
or convey, transfer or lease, in one transaction or a Series of transactions,
its assets substantially as an entirety to, any Person, unless:
(i) either the Company shall be the surviving Person, or the
resulting, surviving or transferee Person (the "Successor Company")
shall be a corporation organized and existing under the laws of the
United States of America, any state thereof
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or the District of Columbia and the Successor Company (if not the
Company) shall expressly assume, by an Indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes, this
Indenture and the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Restricted Subsidiary as a result of such transaction as
having been Incurred by such Successor Company or such Restricted
Subsidiary at the time of such transaction), no default shall have
occurred and be continuing; and
(iii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Restricted Subsidiary as a result of such transaction as
having been Incurred by such Successor Company or such Restricted
Subsidiary at the time of such transaction), the Successor Company
would be able to incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of Section 4.13.
Notwithstanding the foregoing, (i) any Restricted Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (ii) the Company may merge with an affiliate
incorporated for the purpose of reincorporating the Company in another
jurisdiction to realize tax or other benefits.
Section 5.02. Successor Corporation Substituted for the
Company.
Upon any consolidation, combination or merger or any transfer
of all or substantially all of the assets of the Company in accordance with
Section 5.01, in which the Company is not the continuing corporation, the
Successor Company formed by such consolidation or into which the Company is
merged or to which such conveyance, lease or transfer is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture and the Notes with the same effect as if such surviving
entity had been named as such, and the predecessor company, other than in the
case of a conveyance, transfer or lease, shall be released from the obligation
to pay the principal of and interest on the Notes.
Section 5.03. Merger, consolidation and sale of assets of any
Guarantor.
The Company will not permit any Guarantor to consolidate with
or merge with or into, or convey, transfer, lease, in one transaction or a
Series of transactions, all or substantially all of its assets to, any Person
unless:
(i) the resulting, surviving or transferee Person shall be a
corporation organized and existing under the laws of the jurisdiction
under which such Guarantor was
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organized or under the laws of the United States of America, any state
thereof or the District of Columbia, and such Person (if not the
Guarantor) shall expressly assume, by a supplemental Indenture,
executed and delivered to the Trustee, in a form satisfactory to the
Trustee, all the obligations of the Guarantor, if any, under its
Guarantee, the Indenture and the Registration Rights Agreement; and
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the resulting,
surviving or transferee Person as a result of such transaction as
having been Incurred by such Person at the time of such transaction),
no default shall have occurred and be continuing.
The provisions of this Section shall not apply to any
transactions that constitute an Asset Disposition if the Company complied with
the applicable provisions of Section 4.15 and such Asset Disposition shall not
be to an affiliate of the Company.
Notwithstanding the foregoing, any Guarantor may merge into or
transfer all or part of its properties and assets to the Company or another
Guarantor.
Section 5.04. Successor Corporation Substituted for Guarantor.
Upon any consolidation, combination or merger or any transfer
of all or substantially all of the assets of any Guarantor in accordance with
Section 5.03, in which such Guarantor is not the continuing corporation, the
successor Person formed by such consolidation or into which such Guarantor is
merged or to which such conveyance, lease or transfer is made shall succeed to,
and be substituted for, and may exercise every right and power of, such
Guarantor under this Indenture with the same effect as if such surviving entity
had been named as such, and the predecessor company, other than in the case of a
conveyance, transfer or lease, shall be released from the obligation to pay the
principal of and interest on the Notes.
ARTICLE VI
DEFAULT AND REMEDIES
Section 6.01. Events of Default.
Each of the following is an "Event of Default":
(i) a default in the payment of interest on the Notes when
due, continued for 30 days,
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(ii) a default in the payment of principal of any Note when
due at its Stated Maturity, upon optional redemption, upon required
repurchase, upon acceleration or otherwise;
(iii) the failure by the Company to comply with its
obligations under 5.01 or of any Guarantor to comply with its
obligations under Section 5.03;
(iv) the failure by the Company to comply for 30 days after
notice with any of its obligations under Section 4.14 (other than a
failure to purchase Notes) or under Sections 4.10, 4.11, 4.12, 4.13,
4.15, 4.17 or 4.18;
(v) the failure by the Company or any Guarantor to comply for
60 days after notice with their other agreements contained in this
Indenture;
(vi) Indebtedness of the Company or any Restricted Subsidiary
is not paid within any applicable grace period after final maturity or
is accelerated by the Holders thereof because of a Default and the
total amount of such Indebtedness unpaid or accelerated exceeds $15.0
million;
(vii) the company, any Guarantor or any Significant Subsidiary
of the Company (a) commences a voluntary case or proceeding under any
Bankruptcy Law with respect to itself, (b) consents to the entry of a
judgment, decree or order for relief against it in an involuntary case
or proceeding under any Bankruptcy Law, (c) consents to the appointment
of a custodian of it or for substantially all of its property, or (d)
makes a general assignment for the benefit of its creditors;
(viii) a court of competent jurisdiction enters a judgment,
decree or order for relief in respect of the Company, any Guarantor or
any Significant Subsidiary of the Company in an involuntary case or
proceeding under any Bankruptcy Law, which shall (a) order
reorganization, arrangement, adjustment or composition in respect of
the Company, any Guarantor or any such Significant Subsidiary, (b)
appoint a custodian of the Company, any Guarantor or any such
Significant Subsidiary or for substantially all of its property or (c)
order the winding-up or liquidation of its affairs; and such judgment,
decree or order shall remain unstayed and in effect for a period of 60
consecutive days;
(ix) any judgment or decree for the payment of money in excess
of $15.0 million in the aggregate (net of any amounts with respect to
which a reputable and creditworthy insurance company has acknowledged
liability in writing) is entered against the Company, any Guarantor or
any Significant Subsidiary, remains outstanding for a period of 60 days
following entry of such judgment and is not discharged, bonded, waived
or stayed within 30 days after notice; or
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(x) a Guarantee ceases to be in full force and effect or is
declared to be null and void and unenforceable or the Guarantee is
found to be invalid or a Guarantor denies its liability under its
Guarantee (other than by reason of release of the Guarantor in
accordance with the terms of this Indenture).
However, a Default under clause (iv) or (v) will not
constitute an Event of Default until the Trustee or the Holders of 25% in
principal amount of the outstanding Notes notify the Company of the default and
the Company or the applicable Guarantor does not cure such default within the
time specified after receipt of such notice.
The Company shall deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any Event of Default under clause (vi)
or (x) and any event which with the giving of notice or the lapse of time would
become an Event of Default under clause (iv), (v) or (ix), its status and what
action the Company is taking or proposes to take with respect thereto.
Section 6.02. Acceleration.
(a) If an Event of Default (other than an Event of Default
specified in Section 6.01(vii) or (viii) with respect to the Company) occurs and
is continuing, and has not been waived pursuant to Section 6.04, then the
Trustee, by written notice to the Company, or the Holders of at least 25% in
principal amount of outstanding Notes, by notice in writing to the Company and
the Trustee, may declare the principal of and accrued but unpaid interest on all
the Notes to be due and payable. All such notices shall specify the respective
Event of Default and that it is a "notice of acceleration". Upon any such
declaration, such amount shall be immediately due and payable.
(b) If an Event of Default specified in Section 6.01(vii) or
(viii) with respect to the Company occurs and is continuing, the principal of
and interest on all the Notes will ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holders.
(c) The Holders of a majority in principal amount of the Notes
may, on behalf of the Holders of all of the Notes, rescind and cancel an
acceleration and its consequences (i) if the rescission would not conflict with
any judgment or decree, (ii) if all existing events of default have been cured
or waived except nonpayment of principal or interest that has become due solely
because of the acceleration, (iii) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (iv) in the event of the cure or waiver of an
Event of Default of the type described in Section 6.01(vii) or (viii), the
Trustee shall have received an Officers' Certificate and an Opinion of Counsel
that such Event of Default has been cured or waived. No such rescission shall
affect any subsequent default or impair any right consequent thereto.
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Section 6.03. Other Remedies.
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 Notes or to enforce the performance
of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes 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 6.04. Waiver of Past Defaults.
Subject to Sections 2.08, 6.07 and 9.02, the Holders of a
majority in principal amount of the then outstanding Notes by notice to the
Trustee may, on behalf of the Holders of all of the Notes, waive an existing
default or Event of Default and its consequences, except a Default in the
payment of principal of or interest on any Note as specified in clauses (i) and
(ii) of Section 6.01. When a Default or Event of Default is waived, it is cured
and ceases to exist for every purpose of this Indenture.
Section 6.05. Control by Majority.
Subject to Section 2.08, the Holders of a majority in
principal amount of the then outstanding Notes 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, including, without limitation,
any remedies provided for in Section 6.03. Subject to Section 7.01, however, the
Trustee may refuse to follow any direction that conflicts with any law or this
Indenture, that the Trustee determines is unduly prejudicial to the rights of
another Holder, or that may involve the Trustee in Personal liability and the
Trustee may take any other action it deems proper that is not inconsistent with
any such direction received from Holders of the Notes.
Section 6.06. Limitation on Suits.
Subject to Article Seven, if an Event of Default occurs and is
continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under this Indenture at the request or direction of any of the
Holders unless such Holders have offered to the Trustee reasonable indemnity or
Security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no Holder
of a Note may pursue any remedy with respect to this Indenture or the Notes
unless (i) such Holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) Holders of at least
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25% in principal amount of the outstanding Notes have requested the Trustee to
pursue the remedy, (iii) such Holders have offered the Trustee reasonable
Security or indemnity against any loss, liability or expense, (iv) the Trustee
has not complied with such request within 60 days after the receipt thereof and
the offer of Security or indemnity and (v) the Holders of a majority in
principal amount of the outstanding Notes have not given the Trustee a direction
inconsistent with such request within such 60-day period.
Section 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal of and interest on a Note,
on or after the respective due dates expressed in such Note, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest
specified in clause (i) or (ii) of Section 6.01 occurs and is continuing, the
Trustee may recover judgment in its own name and as Trustee of an express trust
against the Company, any Guarantor or any other obligor on the Notes 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 at the rate set forth in
Section 4.01 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, consultants and counsel.
Section 6.09. 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, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relating to the Company, any
Guarantor or any other obligor upon the Notes, 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 such judicial
proceedings is hereby authorized by each Holder to make such payments to the
Trustee and, if 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, taxes, disbursements and advances of the
Trustee, its agents, consultants and counsel, and any other amounts due the
Trustee under Section 7.07. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf of
any Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes
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or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for
principal and interest, respectively; and
Third: the balance, if any, to the Company or any other
obligor on the Notes.
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
6.10.
Section 6.11. 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 6.11 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than
10% in principal amount of the outstanding Notes.
ARTICLE VII
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing and
is known to the Trustee, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in its exercise thereof as a prudent Person would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
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(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture against the Trustee.
(2) 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. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) Notwithstanding anything to the contrary herein contained,
the Trustee may not be relieved from liability for its own negligent action, its
own negligent failure to act, or its own wilful misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01.
(ii) The Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.02, 6.04 or 6.05 hereof.
(d) 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 adequate indemnity against such risk or liability is
not assured to it.
(e) Whether or not herein expressly provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money
or assets received by it except as the Trustee may agree in writing with the
Company or any Guarantor. Assets held in trust by the Trustee need not be
segregated from other assets except to the extent required by law.
(g) 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 and to the provisions of the TIA.
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Section 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, Note or other paper or document reasonably
believed by it to be genuine and to have been signed or presented by
the proper Person. The Trustee need not investigate any fact or matter
stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate, an
Opinion of Counsel or both, which shall conform to Sections 11.04 and
11.05. The Trustee shall not be liable for any action it takes or omits
to take in good faith in reliance on such Officers' Certificate or
Opinion of Counsel.
(c) The Trustee may act through agents or attorneys and shall
not be responsible for the misconduct or negligence of any agent or
attorney appointed with due care.
(d) The Trustee shall not be liable for any action that it
takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers; provided, however that the
Trustee's conduct does not constitute wilful misconduct, negligence or
bad faith.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent,
order, bond, debenture, 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, upon reasonable notice to the Company, to examine the books,
records, and premises of the Company, Personally or by agent or
attorney.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Holders pursuant to the provisions of
this Indenture, unless such Holders shall have offered to the Trustee
Security or indemnity satisfactory to the Trustee against the costs,
expenses and liabilities which may be Incurred by it in compliance with
such request, order or direction.
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(g) The Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties
hereunder.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company, any
Guarantor or their respective Affiliates with the same rights it would have if
it were not Trustee. However, if the Trustee acquires any conflicting interest
within the meaning of Section 3.10(b) of the TIA, it must eliminate such
conflict within 90 days, apply to the sec for permission to continue as Trustee
or resign. Any agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
Section 7.04. Trustee's Disclaimer.
The Offering Circular and the recitals contained herein and in
the Notes shall be taken as statements of the Company and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representation as to
the validity or adequacy of this Indenture, the Notes or any Guarantee, and it
shall not be accountable for the Company' use of the proceeds from the Notes,
and it shall not be responsible for any statement of either of the Company or
any Guarantor in this Indenture, the Notes or any Guarantee other than the
Trustee's certificate of authentication.
Section 7.05. Notice of Default.
If a Default occurs and is continuing and if it is known to
the Trustee, the Trustee shall mail to each Holder notice of the default within
90 days after such default occurs. Except in the case of a Default in payment of
principal of, or interest on, any Note, the Trustee may withhold notice if and
so long as a committee of its Responsible Officers determines that withholding
notice is not opposed to the interest of the Holders.
Section 7.06. 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 date that complies with TIA section 313(a). The Trustee also shall comply
with TIA section 313(b) and (c).
The Company shall promptly notify the Trustee if the Notes
become listed on, or delisted from, any exchange and the Trustee shall comply
with TIA section 313(d).
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Section 7.07. Compensation and Indemnity.
The Company and any Guarantors shall pay to the Trustee from
time to time reasonable compensation for its services. The Trustee's
compensation shall not be limited by any law on compensation of a Trustee of an
express trust. The Company and the Guarantors shall reimburse the Trustee upon
request for all reasonable fees and expenses, including out-of-pocket expenses
Incurred or made by it in connection with the performance of its duties under
this Indenture. Such expenses shall include the reasonable fees and expenses of
the Trustee's agents, consultants, experts and counsel, except such
disbursements, advances and expenses as may be attributable to its negligence,
bad faith or willful misconduct.
The Company and any Guarantors shall, jointly and severally,
indemnify the Trustee and its agents, employees, stockholders and directors and
officers for, and hold them harmless against, any loss, liability or expense
Incurred by them, arising out of or in connection with the administration of
this trust including the reasonable costs and expenses of defending themselves
against any claim or liability in connection with the exercise or performance of
any of their rights, powers or duties hereunder. The Company and any Guarantors
need not reimburse any expense or indemnify against any loss, liability or
expense Incurred by the Trustee through the Trustee's own willful misconduct,
negligence or bad faith. The Trustee shall notify the Company and any Guarantors
promptly of any claim asserted against the Trustee for which it may seek
indemnity. The Company and the Guarantors need not pay for any settlement made
without their written consent.
To secure the Company's and the Guarantors' payment
obligations in this Section 7.07, the Company, the Guarantors and the Holders
agree that the Trustee shall have a lien prior to the Notes on all assets or
money held or collected by the Trustee, in its capacity as Trustee, except
assets or money held in trust to pay principal of or interest on particular
Notes. Such lien shall survive the satisfaction and discharge of the Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(vii) or (viii) occurs, such expenses
and the compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law; provided, however, that this shall not
affect the Trustee's rights as set forth in the preceding paragraph or Section
6.10.
Section 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company
and the Guarantors in writing at least 30 days prior to the date of the proposed
resignation. The Holders of a majority in principal amount of the outstanding
Notes may remove the Trustee by so notifying the Company and the Trustee and may
appoint a successor Trustee. The Company may remove the Trustee if:
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(A) the Trustee fails to comply with Section 7.10;
(B) the Trustee is adjudged bankrupt or insolvent or an order for
relief is entered with respect to the Trustee under any
Bankruptcy Law;
(C) a custodian or other public officer takes charge of the
Trustee or its property; or
(D) the Trustee becomes incapable of acting.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
If the Trustee resigns or is removed as Trustee or if a
vacancy exists in the office of Trustee for any reason, the Company shall notify
each Holder of such event and shall promptly appoint a successor Trustee. Within
one year after the successor Trustee takes office, the Holders of a majority in
principal amount of the Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's and Guarantors' obligations under Section 7.07 shall
continue for the benefit of the retiring Trustee.
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Section 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
If at the time such successor or successors by merger,
conversion, consolidation or transfer of assets to the Trustee shall succeed to
the trust created by this Indenture any of the Notes shall have been
authenticated but not delivered, any successor to the Trustee may adopt a
certificate of authentication of any predecessor Trustee, and deliver such Notes
so authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee may authenticate such Notes either
in the name of any predecessor hereunder or in the name of the successor to the
Trustee; and in all such cases such certificates shall have the full force which
is anywhere in the Notes or in this Indenture provided that the certificate of
the Trustee shall have.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA sections 310(a)(1), (2) and (5). The Trustee (or, in the
case of a Trustee included in a bank holding company system, the related bank
holding company) shall have a combined capital and surplus of at least $50
million as set forth in its most recent published annual report of condition. In
addition, if the Trustee is a corporation included in a bank holding company
system, the Trustee, independently of such bank holding company, shall meet the
capital requirements of TIA section 310(a)(2). The Trustee shall comply with TIA
section 310(b); provided, however, that there shall be excluded from the
operation of TIA section 310(b)(1) any Indenture or Indentures under which other
Securities, or certificates of interest or participation in other Securities, of
the Company are outstanding, if the requirements for such exclusion set forth in
TIA section 310(b)(1) are met. The provisions of TIA section 310 shall apply to
the Company, as obligor of the Notes.
Section 7.11. Preferential Collection of Claims Against
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 therein.
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ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
Section 8.01. Discharge of Liability on Notes; Defeasance.
(a) The Indenture will cease to be of further effect (except
as to surviving rights of registration of transfer or exchange of the Notes, as
expressly provided for in this Indenture) as to all outstanding Notes when:
(i) either (a) all the Notes theretofore authenticated and
delivered (except lost, stolen or destroyed Notes which have
been replaced or paid) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the
Trustee for cancellation have become due and payable or shall
become due and payable within one year and the Company has
irrevocably deposited or caused to be deposited with the
Trustee an amount in U.S. Legal Tender sufficient to pay and
discharge the entire Indebtedness on the Notes not theretofore
delivered to the Trustee for cancellation, for the principal
of, premium, if any, and interest to the date of deposit,
(ii) the company has paid or caused to be paid all other sums
payable under this Indenture by the Company; and
(iii) the company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel.
(b) subject to Sections 8.01(c) and 8.02, the Company and the
Guarantors at any time may terminate (i) all their obligations under the Notes,
the Guarantees and this Indenture ("Legal Defeasance Option") or (ii) their
obligations under Sections 4.04, 4.05, 4.08 and 4.10 through 4.17 and the
operation of Section 6.01(iii), (iv), (v), (vi), (vii) and (viii) (with respect
only to Significant Subsidiaries) and (ix) and the limitations contained in
Sections 5.01(ii) and (iii) and 5.03(ii) ("Covenant Defeasance Option"). The
Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment
of the Notes may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Notes may not
be accelerated because of an Event of Default specified in Section 6.01(iii),
(iv), (vi), (vii) and (viii) (with respect only to Significant Subsidiaries),
(ix) and (x), or because of the failure of the Company to comply with Sections
5.01(ii) and (iii) and 5.03(ii). If the Company exercises its legal defeasance
option or its covenant defeasance option, each Guarantor, if any, shall be
released from all its obligations under its Guarantee.
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Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company and the Guarantors terminate.
(c) Notwithstanding clauses (a) and (b) above, the obligations
of the Company and the Guarantors in Sections 2.03, 2.04, 2.05, 2.06, 2.07,
7.07, 7.08, 8.05, 8.06 and the Appendix shall survive until the Notes have been
paid in full. Thereafter, the obligations of the Company and the Guarantors, if
any, in Sections 7.07, 8.05 and 8.06 shall survive.
Section 8.02. Conditions to Defeasance.
The following shall be the conditions to the application of
Section 8.01 hereof to the outstanding Notes:
(1) the company irrevocably deposits in trust with the Trustee
U.S. Legal Tender or U.S. Government Obligations, or a combination
thereof, for the payment of principal of, interest and premium, if any,
on the outstanding Notes on the stated date for payment thereof or on
the applicable Redemption Date, as the case may be, and the Company
must specify whether the Notes are being defeased to maturity or to a
particular Redemption Date;
(2) the company delivers to the Trustee a certificate from a
nationally recognized firm of independent public accountants or a
nationally recognized Investment banking firm expressing their opinion
that the payments of principal and interest when due on the deposited
U.S. Government Obligations plus any deposited U.S. Legal Tender will
provide cash at such times and in such amounts as will be sufficient to
pay principal, premium, if any, and interest when due on all
outstanding Notes to maturity or redemption, as the case may be;
(3) no default or Event of Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit) or insofar as events of default
from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(4) the company delivers 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;
(5) neither the deposit nor the defeasance shall result in a
Default or Event of Default under any other material agreement to which
the Company is a party or by which the Company is bound;
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(6) the company delivers to the Trustee an Opinion of Counsel
to the effect that the trust resulting from the deposit does not
constitute, or is qualified as, a regulated Investment company under
the Investment company act of 1940;
(7) in the case of the legal defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel stating 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 Noteholders will not recognize
income, gain or loss for federal income tax purposes as a result of
such 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 defeasance had not occurred;
(8) in the case of the covenant defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Noteholders 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; and
(9) the company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Notes as contemplated
by this Article 8 have been complied with.
Section 8.03. Application of Trust Money.
The Trustee shall hold in trust U.S. Legal Tender or U.S.
Government Obligations deposited with it pursuant to this Article eight. It
shall apply the deposited U.S. Legal Tender and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest on the Notes.
Section 8.04. Repayment to Company.
The Trustee and the Paying Agent shall promptly turn over to
the Company (or the appropriate Guarantors), upon delivery of an Officers'
Certificate stating that such payment does not violate the terms of this
Indenture, any excess money or Securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Company and the Guarantors upon this
written request any money held by them for the payment of principal or interest
that remains unclaimed for two years, and, thereafter, Noteholders entitled to
the money must look to the Company and the Guarantors for
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payment as general creditors and all liability of the Trustee or Paying Agent
with respect to such money shall thereupon cease.
Section 8.05. Indemnity for Government Obligations.
The Company and the Guarantors shall pay and shall indemnify
the Trustee against any tax, fee or other charge imposed on or assessed against
deposited U.S. Government Obligations or the principal and interest received on
such U.S. Government Obligations.
Section 8.06. Reinstatement.
If the funds deposited with the Trustee to effect covenant
defeasance are insufficient to pay the principal of, premium and interest on the
Notes when due, then the obligations of the Company and the Guarantors under
this Indenture will be revived and no such defeasance will be deemed to have
occurred.
If the Trustee or Paying Agent is unable to apply any U.S.
Legal Tender or U.S. Government Obligations in accordance with this Article
eight by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the obligations of the Company and the Guarantors
under this Indenture, the Notes and the Guarantees shall be revived and
reinstated as though no deposit had occurred pursuant to this Article eight
until such time as the Trustee or Paying Agent is permitted to apply all such
U.S. Legal Tender or U.S. Government Obligations in accordance with this Article
8; provided, however, that, if the Company or the Guarantors have made any
payment of interest on or principal of any Notes because of the reinstatement of
its obligations, the Company or the Guarantors, as the case may be, shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01. Without Consent of Holders.
The Company and the Guarantors, when authorized by a Board
Resolution of each of them, and the Trustee, together, may amend or supplement
this Indenture or the Notes or the Guarantees without notice to or consent of
any Holder:
(i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to comply with Article five;
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(iii) to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the code,
or in a manner such that the uncertificated Notes are described in
Section 163(f)(2)(b) of the code);
(iv) to comply with any requirements of the sec in order to
effect or maintain the qualification of this Indenture under the TIA;
(v) to add to the covenants of the Company for the benefit of
the Holders or to surrender a right or power conferred upon the
Company;
(vi) to add Guarantees with respect to the Notes;
(vii) to secure the Notes; or
(viii) to make any other change that does not adversely affect
in any material respect the rights of any Holders hereunder;
provided that the Company have delivered to the Trustee an Opinion of Counsel
stating that such amendment or supplement is permitted or authorized under the
terms of this Indenture and that all conditions precedent have been complied
with.
After an amendment, supplement or waiver under this Section
9.01 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 amendment, supplement or
waiver.
Section 9.02. With Consent of Holders.
Subject to Section 6.07, the Company, the Guarantors when
authorized by a Board Resolution of each of them, and the Trustee, together,
with the written consent of the Holder or Holders of at least a majority in
aggregate principal amount of the then outstanding Notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, the Notes), may amend or supplement this Indenture or the
Notes, without notice to any other Holders. The Holder or Holders of at least a
majority in aggregate principal amount of the then outstanding Notes may waive
compliance by the Company or the Guarantors with any provision of this Indenture
or the Notes without notice to any other Holder. Notwithstanding the above, no
amendment, supplement or waiver, including a waiver pursuant to Section 6.04,
shall, without the consent of each Holder of each Note affected thereby:
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(i) reduce the amount of Notes whose Holders must consent to
an amendment or waiver;
(ii) reduce the rate of or change the time for payment of
interest on any Note;
(iii) reduce the principal of or change the Stated Maturity of
any Note;
(iv) reduce the amount payable upon the redemption of any Note
or change the time at which any Note may be redeemed in accordance with
Article 3;
(v) make any Note payable in money other than that stated in
the Note;
(vi) impair the right of any Holder to receive payment of
principal of and interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment
on or with respect to such Holder's Notes;
(vii) make any change in Section 6.04 or Section 6.07 or the
third sentence of this Section;
(viii) affect the ranking of the Notes or Guarantees in any
material respect; or
(ix) release any Guarantor from any of its obligations under
its Guarantee or this Indenture other than in accordance with the terms
of this Indenture.
It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 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 amendment, supplement or
waiver.
Section 9.03. Compliance with TIA.
If at the time of an amendment to this Indenture or the Notes,
this Indenture shall be qualified under the TIA, every amendment, waiver or
supplement of this Indenture or the Notes shall comply with the TIA as then in
effect.
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Section 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
notice to the Trustee or the Company received before the date the amendment,
supplement or waiver becomes effective.
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 (i) the later of 30
days prior to the first solicitation of such consent or the date of the most
recent list of Holders furnished to the Trustee prior to such solicitation
pursuant to Section 2.05 above or (ii) such other date as the Company may
designate. 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 180 days after such Record Date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder, unless it makes a change described in any of clauses
(i) through (ix) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note; provided that, without the consent of a Holder,
any such waiver shall not impair or affect the right of such Holder to receive
payment of principal of and interest on a Note, on or after the respective due
dates expressed in such Note, or to bring suit for the enforcement of any such
payment on or after such respective dates.
Section 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a
Note, the Trustee may require the Holder of such Note to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Note 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 Note shall issue, the
Guarantors shall endorse and the Trustee shall authenticate a new Note that
reflects the changed terms. Any such notation or exchange shall be made at the
sole cost and expense of the Company. Failure to make the appropriate notation
or to issue a new Note shall not affect the validity of such amendment,
supplement or waiver.
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Section 9.06. Trustee to Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; 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 and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article nine is authorized or permitted by this
Indenture and that all conditions precedent have been complied with. Such
Opinion of Counsel shall not be an expense of the Trustee.
ARTICLE X
GUARANTEES
Section 10.01. Unconditional Guarantee.
Each Guarantor unconditionally jointly and severally
Guarantees to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, that: (i) the principal of
and interest on the Notes 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 Notes and all other obligations of the Company to the
Holders or the Trustee under this Indenture or the Notes will be promptly paid
in full or performed, all in accordance with the terms hereof and thereof and
(ii) in case of any extension of time of payment or renewal of any Notes 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.
Each Guarantor agrees that, as between such Guarantor on the
one hand, and the Holders and the Trustee on the other hand, (x) the maturity of
the obligations Guaranteed hereby may be accelerated as provided in Article six
for the purposes of the Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
Guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article six, such obligations (whether or not due and payable)
shall forthwith become due and payable by such Guarantor for the purposes of the
Guarantee.
Each Guarantor agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes 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
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equitable discharge or defense of a Guarantor. Each Guarantor 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 the Guarantee will not be discharged except by complete performance of the
obligations contained in the Notes, this Indenture and in the Guarantee. If any
Noteholder or the Trustee is required by any court or otherwise to return to the
Company, any Guarantor, or any custodian acting in relation to the Company or
any Guarantor, any amount paid by the Company or such Guarantor to the Trustee
or such Noteholder, the Guarantee, to the extent theretofore discharged, shall
be reinstated in full force and effect. Each Guarantor agrees that, in the Event
of Default in the payment of principal (or premium, if any) or interest on such
Notes, whether at their Stated Maturity, by acceleration, upon redemption,
purchase or otherwise, legal proceedings may be instituted by the Trustee on
behalf of, or by, the Holder of such Notes, subject to the terms and conditions
set forth in this Indenture, directly against each of the Guarantors to enforce
the Guarantee without first proceeding against the Company. Each Guarantor
agrees that if, after the occurrence and during the continuance of an Event of
Default, the Trustee or any Holders are prevented by applicable law from
exercising their respective rights to accelerate the maturity of the Notes, to
collect interest on the Notes, or to enforce any other right or remedy with
respect to the Notes, the Guarantors will pay to the Trustee for the account of
the Holders, upon demand therefor, the amount that would otherwise have been due
and payable had such rights and remedies been permitted to be exercised by the
Trustee or any of the Holders.
Section 10.02. Severability.
In case any provision of the 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 10.03. Release of Guarantor from the Guarantee.
Upon the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of all of the Capital Stock of a Guarantor
(or all or substantially all of its assets) to an entity which is not the
Company or a Subsidiary or affiliate of the Company and which sale or
disposition is otherwise in compliance with the terms of this Indenture, such
Guarantor shall be deemed released from all obligations under this Article ten
without any further action required on the part of the Trustee or any Holder;
provided, however, that if the lenders under the Senior Credit Facility release
the Guarantee of YourPharmacy.com, Inc. under the Senior Credit Facility,
YourPharmacy.com, Inc. will be automatically released and relieved of all its
obligations under this Indenture and its Guarantee and such Guarantee will
terminate; provided, further, however, if at any time after such release
YourPharmacy.com, Inc. again becomes a Guarantor under the Senior Credit
Facility, the Company shall cause YourPharmacy.com, Inc. to unconditionally
Guarantee on a senior basis all of the Company's obligations under the Notes and
this Indenture as provided in this Article ten to the same extent as it
Guarantees the Company's
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obligations under the Senior Credit Facility. In addition, at the time referred
to in Section 4.19 when certain of the covenants in Article four of this
Indenture are no longer applicable, the Guarantors shall be deemed released from
all obligations under this Article ten without any further action required on
the part of the Trustee or any Holder.
The Trustee shall deliver an appropriate instrument evidencing
such release upon receipt of a request by the Company accompanied by an
Officers' Certificate certifying as to the compliance with this Section 10.03.
Section 10.04. Limitation on amount Guaranteed; contribution
by Guarantor.
(a) Anything contained in this Indenture or the Guarantee to
the contrary notwithstanding, if any Fraudulent Transfer Law (as hereinafter
defined) is determined by a court of competent jurisdiction to be applicable to
the obligations of any Guarantor under the Guarantee, such obligations of such
Guarantor under the Guarantee shall be limited to a maximum aggregate amount
equal to the largest amount that would not render its obligations under the
Guarantee subject to avoidance as a fraudulent transfer or conveyance under
Section 548 of title 11 of the United States code or any applicable provisions
of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each
case after giving effect to all other liabilities of such Guarantor, contingent
or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically
excluding, however, any liabilities of such Guarantor (x) in respect of
intercompany Indebtedness to the Company or other Subsidiaries of the Company to
the extent that such Indebtedness would be discharged in an amount equal to the
amount paid by such Guarantor under the Guarantee and (y) under any Guarantee of
Subordinated Obligations which Guarantee contains a limitation as to maximum
amount similar to that set forth in this subsection 10.04(a), pursuant to which
the liability of such Guarantor under the Guarantee is included in the
liabilities taken into account in determining such maximum amount) and after
giving effect as assets to the value (as determined under the applicable
provisions of the Fraudulent Transfer Laws) of any rights to subrogation,
reimbursement, indemnification or contribution of such Guarantor pursuant to
applicable law or pursuant to the terms of any agreement (including without
limitation any such right of contribution under subsection 10.04(b)).
(b) the Guarantors together may desire to allocate among
themselves in a fair and equitable manner, their obligations arising under the
Guarantee. Accordingly, if any payment or distribution is made on any date by
any Guarantor under the Guarantee (a "Funding Guarantor") that exceeds its fair
share (as defined below) as of such date, that funding Guarantor will be
entitled to a contribution from each of the other Guarantors in the amount of
such other Guarantor's fair share shortfall (as defined below) as of such date,
with the result that all such contributions will cause each Guarantor's
aggregate payments (as defined below) to equal its fair share as of such date.
"Fair Share" means, with respect to a Guarantor as of any date of determination,
an amount equal to (i) the ratio of (x) the adjusted maximum amount (as defined
below) with respect to such Guarantor to (y) the aggregate of the adjusted
maximum amounts
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with respect to all Guarantors, multiplied by (ii) the aggregate amount paid or
distributed on or before such date by all funding Guarantors under the Guarantee
in respect of the obligations guaranteed. "Fair Share Shortfall" means, with
respect to a Guarantor as of any date of determination, the excess, if any, of
the fair share of such Guarantor over the aggregate payments of such Guarantor.
"Adjusted Maximum Amount" means, with respect to a Guarantor as of any date of
determination, the maximum aggregate amount of the obligations of such Guarantor
under the Guarantee, determined as of such date in accordance with subsection
10.04(a); provided that, solely for purposes of calculating the adjusted maximum
amount with respect to any Guarantor for purposes of this subsection 10.05(b),
any assets or liabilities of such Guarantor arising by virtue of any rights to
subrogation, reimbursement or indemnification or any rights to or obligations of
contribution hereunder shall not be considered as assets or liabilities of such
Guarantor. "Aggregate Payments" means, with respect to a Guarantor as of any
date of determination, an amount equal to (i) the aggregate amount of all
payments and distributions made on or before such date by such Guarantor in
respect of the Guarantee (including, without limitation, in respect of this
subsection 10.04(b) minus (ii) the aggregate amount of all payments received on
or before such date by such Guarantor from the other Guarantors as contributions
under this subsection 10.05(b)). The amounts payable as contributions hereunder
shall be determined as of the date on which the related payment or distribution
is made by the applicable funding Guarantor. The allocation among Guarantors of
their obligations as set forth in this subsection 10.04(b) shall not be
construed in any way to limit the liability of any Guarantor under this
Indenture or under the Guarantee.
Section 10.05. Waiver of Subrogation.
Until payment in full is made of the Notes and all other
obligations of the Company to the Holders or the Trustee hereunder and under the
Notes, each Guarantor irrevocably waives any claim or other rights it acquires
against the Company that arise from the existence, payment, performance or
enforcement of such 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 Notes 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 any
other manner, payment or Security on account of such claim or other rights. If
any amount shall be paid to any Guarantor in violation of the preceding sentence
and the Notes shall not have been paid in full, such amount shall have been
deemed to have been paid to such Guarantor for the benefit of, and held in trust
for the benefit of, the Holders of the Notes, and shall forthwith be paid to the
Trustee for the benefit of such Holders to be credited and applied upon the
Notes, whether matured or unmatured, in accordance with the terms of this
Indenture. Each 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 10.05 is knowingly made in contemplation of
such benefits.
<PAGE> 80
73
Section 10.06. Execution of Guarantee.
To evidence its Guarantee to the Noteholders set forth in this
Article ten, each Guarantor will execute the Guarantee in substantially the form
attached to this Indenture as Exhibit C, which shall be endorsed on each Note
ordered to be authenticated and delivered by the Trustee. Each Guarantor agrees
that the Guarantee set forth in this Article ten shall remain in full force and
effect notwithstanding any failure to endorse on each Note a notation of the
Guarantee. The Guarantee shall be signed on behalf of each Guarantor by one
officer of such Guarantor (each of whom shall, in each case, have been duly
authorized by all requisite corporate actions), and the delivery of such Note by
the Trustee, after the authentication thereof hereunder, shall constitute due
delivery of the Guarantee on behalf of such 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
Note on which the Guarantee is endorsed shall have been authenticated and
delivered by the Trustee or disposed of by the Company, such Note 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 such Guarantor.
Section 10.07. Waiver of Stay, Extension or Usury Laws.
Each Guarantor covenants (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury law or other law that would prohibit or forgive such Guarantor from
performing the Guarantee as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Indenture; and (to the extent that it may lawfully do so) each Guarantor
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE XI
MISCELLANEOUS
Section 11.01. TIA Controls.
This Indenture is subject to the provisions of the TIA that
are required to be a part of this Indenture, and shall, to the extent
applicable, be governed by such provisions. If any provision of this Indenture
modifies any TIA provision that may be so modified, such TIA provision shall be
deemed to apply to this Indenture as so modified. If any provision of this
Indenture excludes any TIA provisions that may be so excluded, such TIA
provision shall be excluded from this Indenture.
<PAGE> 81
74
The provision of TIA Sections 310 through 317 that
imposes duties on any Person (including the provisions automatically deemed
included unless expressly excluded by this Indenture) are part of and govern
this Indenture, whether or not physically contained therein.
Section 11.02. Notices.
Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by commercial courier service, by telex, by telecopier or registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
if to the Company or any Guarantor:
Express Scripts, Inc.
13900 Riverport Drive
Maryland Heights, MO 63043
Facsimile No.: (314) 702-7037
Telephone: (314) 770-1666
Attn: Chief Financial Officer
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue New York, NY 10017-3954
Facsimile no.: (212) 455-2502
Telephone: (212) 455-2000
Attn: Vincent Pagano, Jr., Esq.
if to the Trustee:
Bankers Trust Company
4 Albany Street, 4th Floor
New York, NY 10004
Facsimile No.: (212) 250-6392/6961
Telephone No.: (212) 250-2500
Attn: Corporate Trust and Agency Services
Each of the Company, the Guarantors and the Trustee by written
notice to each other such Person may designate additional or different addresses
for notices to such Person. Any notice or communication to the Company, the
Guarantors and the Trustee shall be deemed to have been given or made as of the
date so delivered if Personally delivered; when receipt is confirmed if
delivered by commercial courier service; when receipt is acknowledged, if faxed;
and five (5) calendar days after mailing if sent by registered or certified
mail, postage prepaid.
<PAGE> 82
75
Any notice or communication mailed to a Holder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 11.03. Communications by Holders with other Holders.
Holders may communicate pursuant to the TIA section 312(b)
with other Holders with respect to their rights under this Indenture or the
Notes. The Company, the Guarantors, the Trustee, the Registrar and any other
Person shall have the protection of the TIA section 312(c).
Section 11.04. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company or any
Guarantor to the Trustee to take or refrain from taking any action under this
Indenture, the Company or such Guarantor shall furnish to the Trustee:
(i) an Officers' Certificate, in form and substance
satisfactory to the Trustee, stating that, in the opinion of the
signers, all conditions precedent to be performed by the Company, if
any, provided for in this Indenture relating to the proposed action
have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent to be performed by the
Company, if any, provided for in this Indenture relating to the
proposed action have been complied with.
Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.06, shall include:
(i) a statement that the Person making such certificate or
opinion has read such covenant or condition and the definitions
relating thereto;
(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;
<PAGE> 83
76
(iii) a statement that, in the opinion of such Person, he has
made such examination or investigation as is reasonably necessary to
enable him 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 or not, in the opinion of each
such Person, such condition or covenant has been complied with;
provided, that with respect to matters of fact, an Opinion of Counsel may rely
on an Officers' Certificate or a certificate of an appropriate public official.
Section 11.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable Rules in accordance with the
Trustee's customary practices for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable Rules for their respective
functions.
Section 11.07. Legal Holidays.
If a payment date is a Legal Holiday, payment may be made at
such place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
Section 11.08. Governing Law.
This Indenture, the Notes and the Guarantees shall be governed
by and construed in accordance with the laws of the State of New York, as
applied to contracts made and performed within the State of New York. Each of
the parties hereto agrees to submit to the jurisdiction of the courts of the
State of New York in any action or proceeding arising out of or relating to this
Indenture.
Section 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another Indenture,
loan or debt agreement of the Company, any Guarantor or any of their
Subsidiaries or of any other Person. Any such Indenture, loan or debt agreement
may not be used to interpret this Indenture.
Section 11.10. No Recourse Against Others.
No past, present or future member of the Board of Directors,
officer, employee, equityholder or incorporator or controlling Persons, as such,
of the Company, any Guarantor or of the Trustee shall have any liability for any
obligations of the Company or any Guarantor under the Notes, any Guarantee or
this Indenture or for any claim based on, in respect of or by reason
<PAGE> 84
77
of such obligations or their creation. Each Holder by accepting a Note waives
and releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes.
Section 11.11. Successors.
All agreements of the Company and the Guarantors in this
Indenture and the Notes shall bind their respective successors. All agreements
of the Trustee in this Indenture shall bind its successors.
Section 11.12. Multiple Originals.
All parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together shall represent
the same agreement.
Section 11.13. Severability.
In case any one or more of the provisions in this Indenture or
in the Notes shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
Section 11.14. Table of Contents; Cross-Reference Table and
Headings.
The table of contents, cross-reference table and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms of provisions hereof.
[Signature Pages Follow]
<PAGE> 85
SIGNATURES
In witness whereof, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
EXPRESS SCRIPTS, INC.
By: /s/ George Paz
________________________________
Name: George Paz
Title: Senior Vice President and
Chief Financial Officer
DIVERSIFIED PHARMACEUTICAL
SERVICES, INC., ESI/VRX SALES
DEVELOPMENT CO., EXPRESS SCRIPTS
VISION CORPORATION, IVTX, INC.,
MANAGED PRESCRIPTION NETWORK, INC.,
MHI, INC., VALUE HEALTH, INC.,
VALUERX, INC., VALUERX PHARMACY
PROGRAM, INC., YOURPHARMACY.COM,
INC., HEALTH CARE SERVICES, INC.
By: /s/ George Paz
________________________________
Name: George Paz
Title: Senior Vice President and
Chief Financial Officer
Trustee:
BANKERS TRUST COMPANY,
as Trustee
By: /s/ Susan Johnson
________________________________
Name: Susan Johnson
Title: Assistant Vice President
<PAGE> 86
RULE 144A/REGULATION S APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL
BUYERS PURSUANT TO RULE 144A AND TO
CERTAIN PERSONS IN OFFSHORE
TRANSACTIONS IN RELIANCE
ON REGULATION S
PROVISIONS RELATING TO INITIAL NOTES,
PRIVATE EXCHANGE NOTES,
AND EXCHANGE NOTES
1. Definitions.
1.1 Certain Definitions.
For the purposes of this Appendix the following terms shall
have the meanings indicated below, provided that all capitalized terms used but
not defined shall have the meanings given such terms in the Indenture:
"Depositary" means The Depository Trust Company, its nominees
and their respective successors and assigns.
"Exchange Notes" means (i) the 9 5/8% Series B Senior Notes
due 2009 to be issued pursuant to this Indenture in connection with a Registered
Exchange Offer pursuant to a Registration Rights Agreement and (ii) Additional
Notes, if any, issued in the form of 9 5/8% Series B or other Series of Senior
Notes due 2009 pursuant to a registration statement filed with the sec under the
Securities Act.
"Initial Purchasers" means Credit Suisse Boston Corporation
and Deutsche Bank Securities Inc.
"Initial Notes" means (i) $250,000,000 principal amount of 9
5/8% Series A Senior Notes due 2009, issued on June 16, 1999 and (ii) Additional
Notes, if any, issued in the form of 9 5/8% Series A or other Series of Senior
Notes due 2009 in a transaction exempt from the registration requirements of the
Securities Act.
"Private Exchange" means the offer by the Company, pursuant to
a Registration Rights Agreement, to the Initial Purchasers to issue and deliver
to the Initial Purchasers, in exchange for the Initial Notes held by the Initial
Purchasers as part of its initial distribution, a like aggregate principal
amount of Private Exchange Notes.
<PAGE> 87
2
"Private Exchange Notes" means the 9 5/8% Senior Private
Exchange Notes due 2009, if any, to be issued pursuant to this Indenture to the
Initial Purchaser in a Private Exchange.
"Purchase Agreement" means (i) with respect to the Initial
Notes issued on June 16, 1999, the Purchase Agreement dated June 11, 1999, among
the Company, the Guarantors and the Initial Purchasers and (ii) with respect to
each issuance of Additional Notes, the Purchase Agreement or underwriting
agreement among the Company, the Guarantors, if any, and the Persons purchasing
Additional Notes.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registered Exchange Offer" means the offer by the Company,
pursuant to a Registration Rights Agreement, to certain Holders of Initial
Notes, to issue and deliver to such Holders, in exchange for such Initial Notes,
a like aggregate principal amount of Exchange Notes registered under the
Securities Act.
"Registration Rights Agreement" means (i) with respect to the
Initial Notes issued on June 16, 1999, the Registration Rights Agreement dated
June 11, 1999 among the Company and the Initial Purchasers, and (ii) with
respect to each issuance of Additional Notes issued in a transaction exempt from
the registration requirements of the Securities Act, the Registration Rights
Agreement, if any, among the Company, the Guarantors, if any, and the Persons
purchasing such Additional Notes under the related Purchase Agreement.
"Securities" means the Initial Notes, the Exchange Notes and
the Private Exchange Notes, treated as a single class.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to a
Global Security (as appointed by the Depositary), or any successor Person
thereto and shall initially be the Trustee.
"Shelf Registration Statement" means the shelf registration
statement issued by the Company, in connection with the offer and sale of
Initial Notes, Exchange Notes or Private Exchange Notes, pursuant to a
Registration Rights Agreement.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.3(b) hereto.
1.2 Other Definitions.
Defined
Term In Section:
"Agent members"............................................. 2.1(b)
<PAGE> 88
3
"Global Security"........................................... 2.1(a)
"Regulation S".............................................. 2.1(a)
"Rule 144A"................................................. 2.1(a)
2. The Securities.
2.1 Form and Dating.
On the Issue Date, $250,000,000 of the Initial Notes are being
offered and sold by the Company pursuant to the Purchase Agreement.
(a) Global Securities. Initial Notes offered and sold to a QIB
in reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance
on Regulation S under the Securities Act ("Regulation S"), in each case as
provided in the Purchase Agreement, and Additional Notes, if any, shall be
issued initially in the form of one or more permanent Global Securities in
definitive, fully registered form without interest coupons with the Global
Securities legend and, in the case of Initial Notes, the Restricted Securities
Legend set forth in Exhibit 1 hereto (each, a "Global Security"), which shall be
deposited on behalf of the purchasers of the Initial Notes or Additional Notes,
as applicable, represented thereby with the Trustee as custodian for the
Depositary (or with such other custodian as the Depositary may direct), and
registered in the name of the Depositary or a nominee of the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depositary or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply
only to a Global Security deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depositary for such
Global Security or Global Securities or the nominee of such Depositary and (b)
shall be delivered by the Trustee to such Depositary or pursuant to such
Depositary's instructions or held by the Trustee as custodian for the
Depositary.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary or by the Trustee as the
custodian of the Depositary or under such Global Security, and the Depositary
may be treated by the Company, the Guarantors, the Trustee and any Agent of the
Company, the Guarantors or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Guarantors, the Trustee or any Agent of
the Company, the Guarantors or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depositary or
impair, as between the Depositary and its agent members, the operation of
<PAGE> 89
4
customary practices of such Depositary governing the exercise of the rights of a
Holder of a beneficial interest in any Global Security.
(c) Certificated Securities. Except as provided in this
Section 2.1 or Section 2.3 or 2.4 of this Appendix, owners of beneficial
interests in Global Securities will not be entitled to receive physical delivery
of certificated Securities.
2.2 Authentication. The Trustee shall authenticate and
deliver: (1) on the Issue Date, $250.0 million 9 5/8% Series A Senior Notes due
2009, (2) any Additional Notes for original issue in an aggregate principal
amount specified in the written order of the Company pursuant to Section 2.14 of
this Indenture and (3) Exchange Notes or Private Exchange Notes for issue in a
Registered Exchange Offer or a Private Exchange, respectively, in exchange for a
like principal amount of Initial Notes, in each case upon a written order of the
Company. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Notes is to be
authenticated and whether the Securities are to be Initial Notes, Exchange
Notes, Private Exchange Notes or Additional Notes.
2.3 Transfer and Exchange.
(a) Transfer and Exchange of Global Securities.
(i) The transfer and exchange of Global Securities or
beneficial interests therein shall be effected through the Depositary,
in accordance with this Indenture (including applicable restrictions on
transfer set forth herein, if any) and the procedures of the Depositary
therefor. A transferor of a beneficial interest in a Global Security
shall deliver to the Registrar a written order given in accordance with
the Depositary's procedures containing information regarding the
participant account of the Depositary to be credited with a beneficial
interest in the Global Security. The Registrar shall, in accordance
with such instructions instruct the Depositary to credit to the account
of the Person specified in such instructions a beneficial interest in
the Global Security and to debit the account of the Person making the
transfer the beneficial interest in the Global Security being
transferred.
(ii) Notwithstanding any other provisions of this Appendix
(other than the provisions set forth in Section 2.4 of this Appendix),
a Global Security may not be transferred as a whole except by the
Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by
the Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary.
(iii) in the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section 2.4 of
this Appendix or Section 2.09 of the Indenture, prior to the
consummation of a Registered Exchange Offer or the effectiveness of a
shelf
<PAGE> 90
5
registration statement with respect to such Securities, such Securities
may be exchanged only in accordance with such procedures as are
substantially consistent with the provisions of this Section 2.3
(including the certification requirements set forth on the reverse of
the Initial Notes intended to ensure that such transfers comply with
Rule 144A or Regulation S, as the case may be) and such other
procedures as may from time to time be adopted by the Company.
(b) Legend.
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Security Certificate evidencing Initial Notes and
Private Exchange Notes (and all Securities issued in exchange therefor
or in substitution thereof, other than Exchange Notes) shall bear a
legend in substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS NOTE
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT
THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF EXPRESS
SCRIPTS, INC. THAT (A) THIS NOTE MAY BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED ONLY (I) INSIDE THE UNITED STATES TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (II) OUTSIDE THE UNITED STATES IN A TRANSACTION IN
ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE)
OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES; AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO,
<PAGE> 91
6
NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE
RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act, the
Registrar shall permit the Holder thereof to exchange such Transfer
Restricted Security for a certificated Security that does not bear the
legend set forth above and rescind any restriction on the transfer of
such Transfer Restricted Security, if the Holder certifies in writing
to the Registrar that its request for such exchange was made in
reliance on Rule 144 (such certification to be in the form set forth on
the reverse of the Security).
(iii) After a transfer of any Initial Notes or Private
Exchange Notes pursuant to, and during the period of the effectiveness
of, a shelf registration statement with respect to such Initial Notes
or Private Exchange Notes, as the case may be, all requirements
pertaining to legends on such Initial Notes or such Private Exchange
Notes will cease to apply, but the requirements requiring such Initial
Notes or such Private Exchange Notes issued to certain Holders be
issued in global form will continue to apply, and Initial Notes or
Private Exchange Notes in global form without legends will be available
to the transferee of the Holder of such Initial Notes or Private
Exchange Notes upon exchange of such transferring Holder's Initial
Notes or Private Exchange Notes or directions to transfer such Holder's
interest in the Global Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Notes pursuant to which Holders of such Initial
Notes are offered Exchange Notes in exchange for their Initial Notes,
all requirements pertaining to such Initial Notes that Initial Notes
issued to certain Holders be issued in global form will continue to
apply and Initial Notes in global form with the restricted securities
legend set forth in Exhibit 1 hereto will be available to Holders of
such Initial Notes that do not exchange their Initial Notes, and
Exchange Notes in global form without the Restricted Securities Legend
set forth in Exhibit 1 hereto will be available to Holders that
exchange such Initial Notes in such Registered Exchange Offer.
(v) Upon the consummation of a Private Exchange with respect
to the Initial Notes pursuant to which Holders of such Initial Notes
are offered Private Exchange Notes in exchange for their Initial Notes,
all requirements pertaining to such Initial Notes that Initial Notes
issued to certain Holders be issued in global form will still apply,
and Private Exchange Notes in global form with the Restricted
Securities Legend set forth in Exhibit 1 hereto will be available to
Holders that exchange such Initial Notes in such Private Exchange.
(c) Cancellation or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been exchanged
for certificated Securities,
<PAGE> 92
7
redeemed, repurchased or canceled, such Global Security shall be returned to the
Depositary for cancellation or retained and canceled by the Trustee. At any time
prior to such cancellation, if any beneficial interest in a Global Security is
exchanged for certificated Securities, redeemed, repurchased or canceled, the
principal amount of Securities represented by such Global Security shall be
reduced and an adjustment shall be made on the books and records of the Trustee
(if it is then the Securities Custodian for such Global Security) with respect
to such Global Security, by the Trustee or the Securities Custodian, to reflect
such reduction.
(d) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate certificated
Securities and Global Securities at the Registrar's or any
co-Registrar's request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith (other than any
such transfer taxes, assessments or similar governmental charge payable
upon exchange or transfer pursuant to Sections 2.09, 3.06, 4.14, 4.15
and Section 9.05 of the Indenture).
(iii) The Registrar or any co-Registrar shall not be required
to register the transfer of or exchange of (a) any certificated
Security selected for redemption in whole or in part pursuant to
Article iii of the Indenture, except the unredeemed portion of any
certificated Security being redeemed in part, or (b) any Security for a
period beginning 15 days before the mailing of a notice of an offer to
repurchase or redeem Securities or 15 days before an Interest Payment
Date.
(iv) Prior to the due presentation for registration of
transfer of any Security, the Company, the Trustee, the Paying Agent,
the Registrar or any co-Registrar may deem and treat the Person in
whose name a Security is registered as the absolute owner of such
Security for the purpose of receiving payment of principal of and
interest on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and none of the Company, the
Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange
pursuant to the terms of the Indenture shall evidence the same debt and
shall be entitled to the same benefits under the Indenture as the
Securities surrendered upon such transfer or exchange.
<PAGE> 93
8
(e) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to
any beneficial owner of a Global Security, a member of, or a
participant in the Depositary or other Person with respect to the
accuracy of the records of the Depositary or its nominee or of any
participant or member thereof, with respect to any ownership interest
in the Securities or with respect to the delivery to any participant,
member, beneficial owner or other Person (other than the Depositary) of
any notice (including any notice of redemption) or the payment of any
amount, under or with respect to such Securities. All notices and
communications to be given to the Holders and all payments to be made
to Holders under the Securities shall be given or made only to or upon
the order of the registered Holders (which shall be the Depositary or
its nominee in the case of a Global Security). The rights of beneficial
owners in any Global Security shall be exercised only through the
Depositary subject to the applicable Rules and procedures of the
Depositary. The Trustee may rely and shall be fully protected in
relying upon information furnished by the Depositary with respect to
its members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under the Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers
between or among Depositary participants, members or beneficial owners
in any Global Security) other than to require delivery of such
certificates and other documentation or evidence as are expressly
required by, and to do so if and when expressly required by, the terms
of the Indenture and the Securities, and to examine the same to
determine substantial compliance as to form with the express
requirements hereof.
2.4 Certificated Securities.
(a) A Global Security deposited with the Depositary or with
the Trustee as custodian for the Depositary pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary for such Global
Security or if at any time such Depositary ceases to be a "clearing agency"
registered under the Exchange Act and a successor Depositary is not appointed by
the Company within 90 days of such notice, (ii) the Company, in its sole
discretion, notifies the Trustee in writing that it elects to cause the issuance
of certificated Securities under the Indenture or (iii) if there shall have
occurred and be continuing an Event of Default with respect to the Securities.
(b) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section shall be surrendered by the Depositary
to the Trustee, to be so
<PAGE> 94
9
transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Security, an equal aggregate principal amount of certificated
Securities of authorized denominations. Any portion of a Global Security
transferred pursuant to this Section shall be executed, authenticated and
delivered only in denominations of $1,000 and any integral multiple thereof and
registered in such names as the Depositary shall direct. Any certificated
initial Note delivered in exchange for an interest in the Global Security shall,
except as otherwise provided by Section 2.3(b), bear the Restricted Securities
Legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the
registered Holder of a Global Security may grant proxies and otherwise authorize
any Person, including agent members and Persons that may hold interests through
agent members, to take any action which a Holder is entitled to take under the
Indenture or the Securities.
(d) In the event of the occurrence of any of the events
specified in Section 2.4(a) above, the Company will promptly make available to
the Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
<PAGE> 95
EXHIBIT 1
TO RULE 144A/REGULATION S APPENDIX
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE ISSUERS OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN,
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE
SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF EXPRESS
SCRIPTS, INC. THAT (A) THIS NOTE MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (I) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (II) OUTSIDE THE UNITED STATES IN A TRANSACTION IN ACCORDANCE WITH RULE
904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
<PAGE> 96
2
AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS
NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
<PAGE> 97
3
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<CAPTION> PRINCIPAL
SIGNATURE OF AMOUNT OF AMOUNT OF AMOUNT OF
AUTHORIZED DECREASE IN INCREASE IN THIS GLOBAL
OFFICER PRINCIPAL PRINCIPAL SECURITY
OF TRUSTEE OR AMOUNT OF AMOUNT OF FOLLOWING
DATE OF SECURITIES THIS GLOBAL THIS GLOBAL SUCH DECREASE
EXCHANGE CUSTODIAN SECURITY SECURITY OR INCREASE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 98
Exhibit A
[FORM OF INITIAL NOTE]
CUSIP NO.:
EXPRESS SCRIPTS, INC.
9 5/8% SERIES A SENIOR NOTE DUE 2009
No. $
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"),
which term includes any successor entity), for value received, promises to pay
to __________ or registered assigns, the principal sum of ________________, on
June 15, 2009.
Interest Payment Dates: June 15 and December 15
Record Dates: June 1 and December 1
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
<PAGE> 99
2
In witness whereof, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officer.
EXPRESS SCRIPTS, INC.
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
Dated: [ ], [ ]
Certificate of Authentication
This is one of the 9 5/8% Series a Senior Notes due 2009
referred to in the within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
Dated: [ ], [ ] By:___________________________
Authorized Signatory
<PAGE> 100
(REVERSE OF SECURITY)
9 5/8% SERIES A SENIOR NOTE DUE 2009
1. Interest. EXPRESS SCRIPTS, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above; provided, however, that if a registration default
(as defined in the Registration Rights Agreement) occurs, additional interest
will accrue on this Note at a rate of 0.25% per annum for the first 90-day
period immediately following the occurrence of such registration default
regardless of the number of such registration defaults (such rate increasing by
an additional 0.25% per annum with respect to each subsequent 90-day period) up
to a maximum additional interest rate of 0.50% per annum, from and including the
date on which any such registration default shall occur to but excluding the
date on which all registration defaults have been cured, calculated on the
principal amount of this Note as of the date on which such interest is payable.
Such interest is payable in addition to any other interest payable from time to
time with respect to this Note. The Trustee will not be deemed to have notice of
a registration default until it shall have received actual notice of such
registration default. Interest on the Notes will accrue from the most recent
date on which interest has been paid or, if no interest has been paid, from June
16, 1999. The Company will pay interest semi-annually in arrears on each
Interest Payment Date, commencing December 15, 1999. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal at the rate borne
by the Notes plus 1% per annum and on overdue installments of interest (without
regard to any applicable grace periods) at such higher rate to the extent
lawful.
2. Method of Payment. The Company shall pay interest on the Notes
(except Defaulted Interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are cancelled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest by wire transfer in money of the United States that at the time of
payment is Legal Tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal and interest by its check
payable in such U.S. Legal Tender. The Company may deliver any such interest
payment to the Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, bankers trust company (the
"Trustee") will act as Paying Agent and Registrar. The Company may change any
Paying Agent, Registrar or co-Registrar without notice to the Holders.
4. Indenture and Guarantees. The Company issued the Notes under an
Indenture, dated as of June 16, 1999 (the "Indenture"), among the Company and
the Trustee.
<PAGE> 101
A-2
This Note is one of a duly authorized issue of Initial Notes of the Company
designated as their 9 5/8% Series A Senior Notes due 2009. The Company shall be
entitled to issue Additional Notes pursuant to Section 2.14 of the Indenture.
The Initial Notes, any Additional Notes, and any Private Exchange Notes and
Exchange Notes issued pursuant to the Indenture are treated as a single class of
Securities under the Indenture. Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S. code Sections 77aaa-77bbbb)
(the " TIA"), as in effect on the date of the Indenture. Notwithstanding
anything to the contrary herein, the Notes are subject to all such terms, and
Holders of Notes are referred to the Indenture and the TIA for a statement of
them. The Notes are general unsecured obligations of the Company. To the extent
of any conflict between the terms of the Notes and the Indenture, the applicable
terms of the Indenture shall govern. The Notes are entitled to the benefits of
the Guarantees by the Guarantors made for the benefit of the Holders. Reference
is hereby made to the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations thereunder of the Trustee, the
Holders and the Guarantors.
5. Redemption.
(a) Optional Redemption. Except as set forth below, the Notes will
not be redeemable at the option of the Company prior to June 15, 2004. On and
after June 15, 2004, the Notes will be redeemable, at the Company's option, in
whole or in part, at any time or from time to time, upon not less than 30 nor
more than 60 days' prior notice mailed by first-class mail to each Holder's
registered address, at the following Redemption Prices (expressed in percentages
of principal amount), plus accrued interest to the Redemption Date, if redeemed
during the 12-month period commencing on June 15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Period price
------ -----
<S> <C>
2004 104.8125%
2005 103.2083%
2006 101.6042%
2007 and thereafter 100.0000%
</TABLE>
(b) Optional Redemption Upon Public Equity Offerings. In addition, at
any time and from time to time prior to June 15, 2002, the Company may redeem in
the aggregate up to 35% of the original principal amount of the Notes (including
the original principal amount of any Additional Notes) with the net cash
proceeds from one or more public equity offerings, at a Redemption Price
(expressed as a percentage of principal amount) of 109.625% plus accrued and
unpaid interest to the Redemption Date; provided, however, that at least 65% of
the aggregate principal amount of the Notes originally outstanding (including
the original principal amount of
<PAGE> 102
A-3
any Additional Notes) must remain outstanding after each such redemption (other
than Notes held, directly or indirectly, by the Company or any of its
Affiliates).
In order to effect the foregoing redemption with the net cash proceeds
from any public equity offering, such redemption must occur within 120 days
after the consummation of any such public equity offering.
6. Notice of Redemption. Notice of redemption will be mailed at least
30 days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
of $1,000 may be redeemed only in whole. Notes in denominations larger than
$1,000 may be redeemed in part but only in multiples of $1,000.
Except as set forth in the Indenture, if monies for the redemption of
the Notes called for redemption shall have been deposited with the Paying Agent
for redemption on such Redemption Date, then, unless the Company default in the
payment of such Redemption Price plus accrued and unpaid interest, if any, the
Notes called for redemption will cease to bear interest from and after such
Redemption Date and the only right of the Holders of such Notes will be to
receive payment of the Redemption Price plus accrued and unpaid interest, if
any.
7. Offers to Purchase. Sections 4.14 and 4.15 of the Indenture
provide that, in the event of certain Asset Dispositions and upon the occurrence
of a Change of Control, and subject to further limitations contained therein,
the Company will make an offer to purchase certain amounts of the Notes in
accordance with the procedures set forth in the Indenture.
8. Registration Rights. Pursuant to the terms, and subject to the
provisions of the Registration Rights Agreement, the Company will be obligated
to consummate an exchange offer pursuant to which the Holder of this Note shall
have the right to exchange this Note for the Company's 9 5/8% Series B Senior
Notes due 2009 in the form of Exchange Notes, which shall have been registered
under the Securities Act, or the Company's 9 5/8% Senior Private Exchange Notes
due 2009 (the " Private Exchange Notes"), in each case in like principal amount
and having terms identical in all material respects to the Initial Notes. The
Holders of the Initial Notes shall be entitled to receive certain additional
interest payments if such exchange offer is not consummated and upon certain
other conditions, all pursuant to and in accordance with the terms of the
Registration Rights Agreement. The Company shall notify the Trustee of the
amount of any such payments.
9. Denominations; Transfer; Exchange. The Notes are in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange of Notes in
accordance with the terms, and subject to the provisions of the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
<PAGE> 103
A-4
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer of or exchange of any
Notes or portions thereof selected for redemption (except, in the case of Notes
to be redeemed in part, the portion of such Notes not to be redeemed) or any
Note for a period beginning 15 days before the mailing of a notice of an offer
to repurchase or a notice of redemption or 15 days before any Interest Payment
Date.
10. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
11. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company (subject to any applicable abandoned property
law). After that, all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company and the Guarantors will be discharged from certain
provisions of the Indenture and the Notes and the Guarantees (including certain
covenants, but excluding the Company's obligation to pay the principal of and
interest on the Notes).
13. Amendment; Supplement; Waiver. Subject to certain exceptions, the
Indenture or the Notes or the Guarantees may be amended or supplemented with the
written consent of the Holders of at least a majority in aggregate principal
amount of the Notes then outstanding, and any existing default or Event of
Default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in aggregate principal amount of the Notes
then outstanding. Without notice to or consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, omission, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, or comply
with Article five of the Indenture or make any other change that does not
adversely affect in any material respect the rights of any Holder of a Note.
14. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, enter into transactions with Affiliates, create
dividend or other payment restrictions affecting Restricted Subsidiaries, merge
or consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. The Company must annually report to the Trustee
on compliance with such limitations.
<PAGE> 104
A-5
15. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those obligations.
16. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Certain events of bankruptcy and insolvency are events of default which will
result in the Notes being due and payable immediately upon the occurrence of
such events of default. Holders of Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Notes unless it has received indemnity reasonably
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Notes then outstanding to direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of Notes notice of any continuing
default or Event of Default (except a Default in payment of principal or
interest) if it determines that withholding notice is in their interest.
17. Trustee Dealings with Company. The Trustee under the Indenture,
in its individual or any other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Company, the Guarantors or their
respective Affiliates as if it were not the Trustee.
18. No Recourse Against Others. No past, present or future member of
the Board of Directors, officer, employee, equityholder or incorporator or
controlling Persons, as such, of the Company, any Guarantor or of the Trustee
shall have any liability for any obligations of the Company or any Guarantor
under this Note, any Guarantee or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. Each Holder by
accepting this Note waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of this Note.
19. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
20. Governing Law. The Laws of the State of New York shall govern
this Note and the Indenture (and the Guarantees relating thereto).
21. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
<PAGE> 105
A-6
22. CUSIP Numbers. Pursuant to a recommendation promulgated by the
committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
23. Indenture. Each Holder, by accepting a Note, agrees to be bound
by all of the terms and provisions of the Indenture, as the same may be amended
from time to time.
24. Holders' Compliance with Registration Rights Agreement. Each
Holder of a Note, by acceptance hereof, acknowledges and agrees to the
provisions of the Registration Rights Agreement, including, without limitation,
the obligations of the Holders with respect to a registration and the
indemnification of the Company to the extent provided therein.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture. Requests may be made to: Express
Scripts, Inc., 13900 Riverport Drive, Maryland Heights, Missouri, 63043,
attention: General Counsel.
<PAGE> 106
A-7
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and
have your signature Guaranteed:
I or we assign and transfer this Note to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code
and social security or tax ID number of assignee)
and irrevocably appoint _______________________________, agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
Date:_______________ Signed:___________________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:_______________________
(Signature must be Guaranteed by an "eligible guarantor institution,"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities transfer agents medallion program ("stamp")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended).
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the sec of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) two years from date of original issuance, the undersigned
confirms that it has not utilized any general solicitation or general
advertising in connection with the transfer and that this Note is being
transferred:
<PAGE> 107
A-8
[check one]
(1)__ to the Company or a Subsidiary thereof; or
(2)__ pursuant to and in compliance with Rule 144A under the Securities Act;
or
(3)__ outside the United States to a "foreign Person" in compliance with Rule
904 of Regulation S under the Securities Act; or
(4)__ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act; or
(5)__ pursuant to an effective registration statement under the Securities
Act; or
(6)__ pursuant to another available exemption from the registration
requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any Person other than the
registered Holder thereof; provided that if box (3), (4) or (6) is checked, the
Company or the Trustee may require, prior to registering any such transfer of
the Notes, in its sole discretion, such legal opinions, certifications and other
information as the Trustee or the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any Person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in the Appendix to the Indenture shall have been satisfied.
Date:_______________ Signed: _______________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee: __________________________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
<PAGE> 108
A-9
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
Investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Date:_______________ Signed: __________________________________________________
NOTICE: To be executed by
an executive officer
<PAGE> 109
A-10
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.14 or Section 4.15 of the Indenture, check the appropriate
box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$______________________
Dated: _______________ _____________________________________
Notice: the signature on this
assignment must correspond with the name
as it appears upon the face of the within
Note in every particular without
alteration or enlargement or any change
whatsoever and be guaranteed by the
endorser's bank or broker.
Signature Guarantee:__________________________
(Signature must be Guaranteed by an "eligible guarantor institution,"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities transfer agents medallion program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended).
<PAGE> 110
EXHIBIT B
[FORM OF EXCHANGE NOTE AND PRIVATE EXCHANGE NOTE]
CUSIP NO.:
EXPRESS SCRIPTS, INC.
9 5/8% SERIES B SENIOR NOTE DUE 2009
No. $
Express scripts, Inc., a Delaware corporation (the "Company", which
term includes any successor entity), for value received, promises to pay to
_________, or registered assigns, the principal sum of ________________, on June
15, 2009.
Interest Payment Dates: June 15 and December 15
Record Dates: June 1 and December 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
<PAGE> 111
B-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officer.
EXPRESS SCRIPTS, INC.
By: ________________________________
Name:
Title:
By: ________________________________
Name:
Title:
Dated: [ ], [ ]
Certificate of Authentication
This is one of the 9 5/8% Series a Senior Notes due 2009 referred to in
the within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
Dated: [ ], [ ] By: _______________________________
Authorized Signatory
<PAGE> 112
B-3
(REVERSE OF SECURITY)
9 5/8% SERIES B SENIOR NOTE DUE 2009
1. Interest. Express scripts, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from June 16, 1999. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing December 15, 1999. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal at the rate borne
by the Notes plus 1% per annum and on overdue installments of interest (without
regard to any applicable grace periods) at such higher rate to the extent
lawful.
2. Method of Payment. The Company shall pay interest on the Notes
(except Defaulted Interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are cancelled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest by wire transfer in money of the United States that at the time of
payment is Legal Tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal and interest by its check
payable in such U.S. Legal Tender. The Company may deliver any such interest
payment to the Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, bankers trust company (the
"Trustee") will act as Paying Agent. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders.
4. Indenture and Guarantees. The Company issued the Notes under an
Indenture, dated as of June 16, 1999 (the "Indenture"), among the Company, the
Guarantors and the Trustee. This Note is one of a duly authorized issue of
Initial Notes of the Company designated as their 9 5/8% Series B Senior Notes
due 2009. The Company shall be entitled to issue Additional Notes pursuant to
Section 2.14 of the Indenture, and any Additional Notes are treated as a single
class of Securities under the Indenture. Capitalized terms herein are used as
defined in the Indenture unless otherwise defined herein. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. code Sections
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and the TIA for a
statement of them. The Notes are general unsecured obligations of the Company.
To the extent of any conflict
<PAGE> 113
B-4
between the terms of the Notes and the Indenture, the applicable terms of the
Indenture shall govern. The Notes are entitled to the benefits of the Guarantees
by the Guarantors made for the benefit of the Holders. Reference is hereby made
to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Trustees, the Holders and any
Guarantors.
5. Redemption.
(a) Optional Redemption. Except as set forth below, the Notes will
not be redeemable at the option of the Company prior to June 15, 2004. On and
after June 15, 2004, the Notes will be redeemable, at the Company's option, in
whole or in part, at any time or from time to time, upon not less than 30 nor
more than 60 days' prior notice mailed by first-class mail to each Holder's
registered address, at the following Redemption Prices (expressed in percentages
of principal amount), plus accrued and unpaid interest to the Redemption Date,
if redeemed during the 12-month period commencing on June [ ] of the years set
forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
- ------ -----
<S> <C>
2004 104.8125%
2005 103.2083%
2006 101.6042%
2007 and thereafter 100.0000%
</TABLE>
(b) Optional Redemption Upon Public Equity Offerings. In addition, at
any time and from time to time prior to June 15, 2002, the Company may redeem in
the aggregate up to 35% of the original principal amount of the Notes (including
the original principal amount of any Additional Notes) with the net cash
proceeds from one or more public equity offerings, at a Redemption Price
(expressed as a percentage of principal amount) of 109.625% plus accrued and
unpaid interest to the Redemption Date; provided, however, that at least 65% of
the aggregate principal amount of the Notes originally outstanding (including
the original principal amount of any Additional Notes) must remain outstanding
after each such redemption (other than Notes held, directly or indirectly, by
the Company or any of its Affiliates).
In order to effect the foregoing redemption with the net cash proceeds
of any public equity offering, such redemption must occur within 120 days after
the consummation of any such public equity offering.
6. Notice of Redemption. Notice of redemption will be mailed at least
30 days but not more than 60 days before the Redemption Date to each Holder of
Notes to be
<PAGE> 114
B-5
redeemed at such Holder's registered address. Notes in denominations of $1,000
may be redeemed only in whole. Notes in denominations larger than $1,000 may be
redeemed in part but only in multiples of $1,000.
Except as set forth in the Indenture, if monies for the redemption of
the Notes called for redemption shall have been deposited with the Paying Agent
for redemption on such Redemption Date, then, unless the Company default in the
payment of such Redemption Price plus accrued and unpaid interest, if any, the
Notes called for redemption will cease to bear interest from and after such
Redemption Date and the only right of the Holders of such Notes will be to
receive payment of the Redemption Price plus accrued and unpaid interest, if
any.
7. Offers to Purchase. Sections 4.14 and 4.15 of the Indenture
provide that, in the event of certain Asset Dispositions (and upon the
occurrence of a Change of Control, and subject to further limitations contained
therein, the Company will make an offer to purchase certain amounts of the Notes
in accordance with the procedures set forth in the Indenture.
8. Denominations; Transfer; Exchange. The Notes are in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange of Notes in
accordance with the terms, and subject to the provisions of the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer of or exchange of any
Notes or portions thereof selected for redemption (except, in the case of Notes
to be redeemed in part, the portion of such Notes not to be redeemed) or any
Note for a period beginning 15 days before the mailing of a notice of an offer
to repurchase or a notice of redemption or 15 days before any Interest Payment
Date.
9. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
10. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company (subject to any applicable abandoned property
law). After that, all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company and the Guarantors will be discharged from certain
provisions of the Indenture, the Notes and the Guarantees (including certain
covenants, but excluding the Company's obligation to pay the principal of and
interest on the Notes).
<PAGE> 115
B-6
12. Amendment; Supplement; Waiver. Subject to certain exceptions, the
Indenture, the Notes or the Guarantees may be amended or supplemented with the
written consent of the Holders of at least a majority in aggregate principal
amount of the Notes then outstanding, and any existing default or Event of
Default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in aggregate principal amount of the Notes
then outstanding. Without notice to or consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, omission, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, or comply
with Article five of the Indenture or make any other change that does not
adversely affect in any material respect the rights of any Holder of a Note.
13. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, enter into transactions with Affiliates, create
dividend or other payment restrictions affecting Restricted Subsidiaries, merge
or consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. The Company must annually report to the Trustee
on compliance with such limitations.
14. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those obligations.
15. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Certain events of bankruptcy and insolvency are events of default which will
result in the Notes being due and payable immediately upon the occurrence of
such events of default. Holders of Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Notes unless it has received indemnity reasonably
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Notes then outstanding to direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of Notes notice of any continuing
default or Event of Default (except a Default in payment of principal or
interest) if it determines that withholding notice is in their interest.
16. Trustee Dealings with Company. The Trustee under the Indenture,
in its individual or any other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Company, the Guarantors or their
respective Affiliates as if it were not the Trustee.
<PAGE> 116
B-7
17. No Recourse Against Others. No past, present or future member of
the Board of Directors, officer, employee, equityholder or incorporator or
controlling Persons, as such, of the Company, any Guarantor or of the Trustee
shall have any liability for any obligations of the Company or any Guarantor
under this Note, any Guarantee or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. Each Holder by
accepting this Note waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of this Note.
18. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
19. Governing Law. The laws of the State of New York shall govern
this Note and the Indenture (and the Guarantees relating thereto).
20. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM com (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
21. CUSIP Numbers. Pursuant to a recommendation promulgated by the
committee on uniform Security identification procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
22. Indenture. Each Holder, by accepting a Note, agrees to be bound by
all of the terms and provisions of the Indenture, as the same may be amended
from time to time.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture. Requests may be made to: Express
Scripts, Inc., 13900 Riverport Drive, Maryland Heights, Missouri 63043,
Attention: General Counsel.
<PAGE> 117
B-8
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and
have your signature Guaranteed:
I or we assign and transfer this Note to:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type name, address and zip code
and social security or tax ID number of assignee)
and irrevocably appoint _______________________________, agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
Date:_______________ Signed:___________________________________
(sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:_______________________
(Signature must be Guaranteed by an "eligible Guarantor institution,"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities transfer agents medallion program ("STAMP")
or such other "signature Guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended).
[In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the sec of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) two years from date of original issuance, the undersigned
confirms that it has not utilized any general solicitation or general
advertising in connection with the transfer and that this Note is being
transferred:
<PAGE> 118
B-9
[Check One]
(1)__ to the Company or a Subsidiary thereof; or
(2)__ pursuant to and in compliance with Rule 144A under the Securities Act;
or
(3)__ outside the United States to a "foreign Person" in compliance with Rule
904 of Regulation S under the Securities Act; or
(4)__ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act; or
(5)__ pursuant to an effective registration statement under the Securities
Act; or
(6)__ pursuant to another available exemption from the registration
requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any Person other than the
registered Holder thereof; provided that if box (3), (4) or (6) is checked, the
Company or the Trustee may require, prior to registering any such transfer of
the Notes, in its sole discretion, such legal opinions, certifications and other
information as the Trustee or the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any Person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in the Appendix to the Indenture shall have been satisfied.
Date:_______________ Signed:___________________________________
(sign exactly as your name appears
on the other side of this Security)
Signature Guarantee: __________________________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
Investment discretion and that it and
<PAGE> 119
B-10
any such account is a "qualified institutional buyer" within the meaning of Rule
144A under the Securities Act and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Date:_______________ Signed:___________________________________
NOTICE: To be executed by
an executive officer](a)
__________
(a) To be included in Private Exchange Notes only.
<PAGE> 120
B-11
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.14 or Section 4.15 of the Indenture, check the appropriate
box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$________________________
Dated: _______________ ______________________________________
Notice: the signature on this assignment
must correspond with the name as
it appears upon the face of the
within Note in every particular
without alteration or enlargement or
any change whatsoever and be
Guaranteed by the endorser's bank or
broker.
Signature Guarantee:__________________________
(Signature must be Guaranteed by an "eligible guarantor institution,"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities transfer agents medallion program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended).
<PAGE> 121
EXHIBIT C
[FORM OF GUARANTEE]
GUARANTEE
Each of the undersigned (the "Guarantors"), jointly and severally
unconditionally Guarantee on a senior basis (such Guarantee by each Guarantor
being referred to herein as the "Guarantee") (i) the due and punctual payment of
the principal of and interest on the Notes, subject to any applicable grace
period, whether at maturity, by acceleration or otherwise, the due and punctual
payment of interest on the overdue principal and interest, if any, on the Notes,
to the extent lawful, and the due and punctual performance of all other
obligations of the Company to the Holders or the Trustee all in accordance with
the terms set forth in Article ten of the Indenture and (ii) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at Stated
Maturity, subject to any applicable grace period, by acceleration or otherwise.
The obligations of each Guarantor to the Holders of Notes and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth in
Article ten of the Indenture, and reference is hereby made to such Indenture for
the precise terms of the Guarantee therein made.
No stockholder, officer, director, employee or incorporator, as such,
past, present or future, of each Guarantor shall have any liability under the
Guarantee by reason of his or its status as such stockholder, officer, director,
employee or incorporator.
<PAGE> 122
C-2
The Guarantee shall not be valid or obligatory for any purpose until
this certificate of authentication on the Notes 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.
DIVERSIFIED PHARMACEUTICAL SERVICES, INC.,
ESI/VRX SALES DEVELOPMENT CO., EXPRESS
SCRIPTS VISION CORPORATION, IVTX, INC.,
MANAGED PRESCRIPTION NETWORK, INC., MHI,
INC., VALUE HEALTH, INC., VALUERX, INC.,
VALUERX PHARMACY PROGRAM, INC.,
YOURPHARMACY.COM, INC., HEALTH CARE
SERVICES, INC.
By: _______________________________________
Name:
Title:
<PAGE> 1
Exhibit 4.2
$250,000,000
EXPRESS SCRIPTS, INC.
9 5/8% Senior Notes due 2009
REGISTRATION RIGHTS AGREEMENT
<PAGE> 2
June 11, 1999
Credit Suisse First Boston Corporation
Deutsche Bank Securities Inc.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
Ladies and Gentlemen:
Express Scripts, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to Credit Suisse First Boston Corporation and
Deutsche Bank Securities Inc. (collectively, the "Initial Purchasers"), upon the
terms set forth in a purchase agreement of even date herewith (the "Purchase
Agreement"), $250,000,000 aggregate principal amount of its 9 5/8% Senior Notes
due 2009 (the "Initial Securities") to be guaranteed (the "Guarantees") by the
persons listed on the signature pages hereto (collectively, the "Guarantors"
and, together with the Company, the "Issuers"). The Initial Securities will be
issued pursuant to an Indenture, dated as of June 16, 1999, (the "Indenture"),
among the Issuers and Bankers Trust Company, as trustee (the "Trustee"). As an
inducement to the Initial Purchasers to enter into the Purchase Agreement, the
Issuers agree with the Initial Purchasers, for the benefit of the Initial
Purchasers and the holders of the Securities (as defined below) (collectively
the "Holders"), as follows:
1. Registered Exchange Offer. Unless not permitted by
applicable law, the Issuers shall prepare and, not later than 60 days (such 60th
day being a "Filing Deadline") after the date on which the Initial Purchasers
purchase the Initial Securities pursuant to the Purchase Agreement (the "Closing
Date"), file with the Securities and Exchange Commission (the "Commission") a
registration statement (the "Exchange Offer Registration Statement") on an
appropriate form under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to a proposed offer (the "Registered Exchange Offer") to the
Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who
are not prohibited by any law or policy of the Commission from participating in
the Registered Exchange Offer, to issue and deliver to such Holders, in exchange
for the Initial Securities, a like aggregate principal amount of debt securities
of the Company issued under the Indenture and guaranteed by the Guarantors,
identical in all material respects to the Initial Securities and registered
under the Securities Act (the "Exchange Securities"). The Issuers shall (i) use
their reasonable best efforts to cause such Exchange Offer Registration
Statement to become effective under the Securities Act within 180 days after the
Closing Date (such 180th day being an "Effectiveness Deadline"), (ii) as soon as
practicable after the effectiveness of the Exchange Offer Registration
Statement, commence the Registered Exchange Offer and (iii) keep the Registered
Exchange Offer open for not less than 30 days (or longer, if required by
applicable law) after the date notice of the Registered Exchange Offer is mailed
to the Holders (such period being called the "Exchange Offer Period").
If the Issuers commence the Registered Exchange Offer, the
Issuers (i) will be entitled to consummate the Registered Exchange Offer 30 days
after such commencement
<PAGE> 3
2
(provided that the Issuers have accepted all the Initial Securities theretofore
validly tendered in accordance with the terms of the Registered Exchange Offer)
and (ii) will consummate the Registered Exchange Offer no later than 220 days
after the Closing Date (such 220th day being the "Consummation Deadline").
Following the declaration of the effectiveness of the Exchange
Offer Registration Statement, the Issuers shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder of Transfer Restricted Securities electing to exchange the
Initial Securities for Exchange Securities (assuming that such Holder is not an
affiliate of the Company within the meaning of the Securities Act, acquires the
Exchange Securities in the ordinary course of such Holder's business and has no
arrangements with any person to participate in the distribution of the Exchange
Securities and is not prohibited by any law or policy of the Commission from
participating in the Registered Exchange Offer) to trade such Exchange
Securities from and after their receipt without any limitations or restrictions
under the Securities Act and without material restrictions under the securities
laws of the several states of the United States.
The Issuers acknowledge that, pursuant to current
interpretations by the Commission's staff of Section 5 of the Securities Act, in
the absence of an applicable exemption therefrom, (i) each Holder which is a
broker-dealer electing to exchange Initial Securities, acquired for its own
account as a result of market making activities or other trading activities, for
Exchange Securities (an "Exchanging Dealer"), is required to deliver a
prospectus containing the information set forth in (a) Annex A hereto on the
cover of such prospectus, (b) Annex B hereto in the "Exchange Offer Procedures"
section and the "Purpose of the Exchange Offer" section of such prospectus, and
(c) Annex C hereto in the "Plan of Distribution" section of such prospectus in
connection with a sale of any such Exchange Securities received by such
Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial
Purchaser that elects to sell Securities (as defined below) acquired in exchange
for Initial Securities constituting any portion of an unsold allotment, is
required to deliver a prospectus containing the information required by Items
507 or 508 of Regulation S-K under the Securities Act, as applicable, in
connection with such sale.
The Issuers shall use their reasonable best efforts to keep
the Exchange Offer Registration Statement effective and to amend and supplement
the prospectus contained therein, in order to permit such prospectus to be
lawfully delivered by all persons subject to the prospectus delivery
requirements of the Securities Act for such period of time as such persons must
comply with such requirements in order to resell the Exchange Securities;
provided, however, that (i) in the case where such prospectus and any amendment
or supplement thereto must be delivered by an Exchanging Dealer or an Initial
Purchaser, such period shall be the lesser of 180 days and the date on which all
Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities
held by them (unless such period is extended pursuant to Section 3(j) below) and
(ii) the Issuers shall make such prospectus and any amendment or supplement
thereto available to any broker-dealer for use in connection with any resale of
any Exchange Securities for a period of not less than 180 days after the
consummation of the Registered Exchange Offer.
<PAGE> 4
3
If, upon consummation of the Registered Exchange Offer, any
Initial Purchaser holds Initial Securities acquired by it as part of its initial
distribution, the Issuers, simultaneously with the delivery of the Exchange
Securities pursuant to the Registered Exchange Offer, shall issue and deliver to
such Initial Purchaser upon the written request of such Initial Purchaser, in
exchange (the "Private Exchange") for the Initial Securities held by such
Initial Purchaser, a like principal amount of debt securities of the Company
issued under the Indenture and guaranteed by the Guarantors, identical in all
material respects to the Initial Securities (the "Private Exchange Securities").
The Initial Securities, the Exchange Securities and the Private Exchange
Securities are herein collectively called the "Securities".
In connection with the Registered Exchange Offer, the Issuers
shall:
(a) mail to each Holder a copy of the prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than
30 days (or longer, if required by applicable law) after the date
notice thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of
New York, which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Initial Securities at
any time prior to the close of business, New York City time, on the
last business day on which the Registered Exchange Offer shall remain
open; and
(e) otherwise comply with all applicable laws.
As soon as practicable after the close of the Registered
Exchange Offer or the Private Exchange, as the case may be, the Issuers shall:
(x) accept for exchange all the Initial Securities validly
tendered and not withdrawn pursuant to the Registered Exchange Offer
and the Private Exchange;
(y) deliver to the Trustee for cancellation all the Initial
Securities so accepted for exchange; and
(z) cause the Trustee to authenticate and deliver promptly to
each Holder of the Initial Securities, Exchange Securities or Private
Exchange Securities, as the case may be, equal in principal amount to
the Initial Securities of such Holder so accepted for exchange.
<PAGE> 5
4
The Indenture will provide that the Exchange Securities will
not be subject to the transfer restrictions set forth in the Indenture and that
all the Securities will vote and consent together on all matters as one class
and that none of the Securities will have the right to vote or consent as a
class separate from one another on any matter.
Interest on each Exchange Security and Private Exchange
Security issued pursuant to the Registered Exchange Offer and in the Private
Exchange will accrue from the last interest payment date on which interest was
paid on the Initial Securities surrendered in exchange therefor or, if no
interest has been paid on the Initial Securities, from the date of original
issue of the Initial Securities.
Each Holder participating in the Registered Exchange Offer
shall be required to represent to the Issuers that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate in the distribution of the Securities or the Exchange Securities
within the meaning of the Securities Act, (iii) such Holder is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company or if
it is an affiliate, such Holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable, (iv) if
such Holder is not a broker-dealer, that it is not engaged in, and does not
intend to engage in, the distribution of the Exchange Securities and (v) if such
Holder is a broker-dealer, that it will receive Exchange Securities for its own
account in exchange for Initial Securities that were acquired as a result of
marketmaking activities or other trading activities and that it will be required
to acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Securities.
Notwithstanding any other provisions hereof, the Issuers will
ensure that (i) any Exchange Offer Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement thereto
complies in all material respects with the Securities Act and the rules and
regulations thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, does not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2. Shelf Registration. If, (i) because of any change in law or
in applicable interpretations thereof by the staff of the Commission, the
Issuers are not permitted to effect a Registered Exchange Offer, as contemplated
by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated by
the 220th day after the Closing Date, (iii) any Initial Purchaser so requests
with respect to the Initial Securities (or the Private Exchange Securities) not
eligible to be exchanged for Exchange Securities in the Registered Exchange
Offer and held by it following consummation of the Registered Exchange Offer
within 10 business days following
<PAGE> 6
5
consummation of the Registered Exchange Offer or (iv) any Holder is not eligible
to participate in the Registered Exchange Offer or, in the case of any Holder
that participates in the Registered Exchange Offer, such Holder may not resell
to the public the Exchange Securities without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate for such resales by such Holder, or any Holder that is a
broker-dealer holds Initial Securities that are part of an unsold allotment from
the original sale of the Initial Securities, and any such Holder so requests,
the Issuers shall take the following actions (the date on which any of the
conditions described in the foregoing clauses (i) through (iv) occur, including
in the case of clauses (iii) or (iv) the receipt of the required notice, being a
"Trigger Date"):
(a) The Issuers shall as promptly as practicable (but in no
event more than 60 days after the Trigger Date (such 60th day being a
"Filing Deadline")) file with the Commission and thereafter use their
reasonable best efforts to cause to be declared effective no later than
180 days after the Trigger Date (such 180th day being an "Effectiveness
Deadline") a registration statement (the "Shelf Registration Statement"
and, together with the Exchange Offer Registration Statement, a
"Registration Statement") on an appropriate form under the Securities
Act relating to the offer and sale of the Transfer Restricted
Securities by the Holders thereof from time to time in accordance with
the methods of distribution set forth in the Shelf Registration
Statement and Rule 415 under the Securities Act (hereinafter, the
"Shelf Registration"); provided, however, that no Holder (other than an
Initial Purchaser) shall be entitled to have the Securities held by it
covered by such Shelf Registration Statement unless such Holder agrees
in writing to be bound by all the provisions of this Agreement
applicable to such Holder.
(b) The Issuers shall use their reasonable best efforts to
keep the Shelf Registration Statement continuously effective in order
to permit the prospectus included therein to be lawfully delivered by
the Holders of the relevant Securities, for a period of two years (or
for such longer period if extended pursuant to Section 3(j) below) from
the date of its effectiveness or such shorter period that will
terminate when all the Securities covered by the Shelf Registration
Statement (i) have been sold pursuant thereto or (ii) can be sold
pursuant to Rule 144(k) under the Securities Act (the "Shelf
Registration Period"). The Issuers shall be deemed not to have used
their reasonable best efforts to keep the Shelf Registration Statement
effective during the requisite period if they voluntarily take any
action that would result in Holders of Securities covered thereby not
being able to offer and sell such Securities during that period, unless
such action is required by applicable law.
(c) Notwithstanding any other provisions of this Agreement to
the contrary, the Issuers shall cause the Shelf Registration Statement
and the related prospectus and any amendment or supplement thereto, as
of the effective date of the Shelf Registration Statement, amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission and (ii) not to contain any untrue statement of a material
fact or omit to state
<PAGE> 7
6
a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
3. Registration Procedures. In connection with any Shelf
Registration contemplated by Section 2 hereof and, to the extent applicable, any
Registered Exchange Offer contemplated by Section 1 hereof, the following
provisions shall apply:
(a) The Issuers shall (i) furnish to each Initial Purchaser,
prior to the filing thereof with the Commission, a copy of the
Registration Statement and each amendment thereof and each supplement,
if any, to the prospectus included therein and, in the event that an
Initial Purchaser (with respect to any portion of an unsold allotment
from the original offering) is participating in the Registered Exchange
Offer or the Shelf Registration Statement, the Issuers shall use their
reasonable best efforts to reflect in each such document, when so filed
with the Commission, such comments as such Initial Purchaser reasonably
may propose; (ii) include the information set forth in Annex A hereto
on the cover of the prospectus forming a part of the Exchange Offer
Registration Statement, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section of
the prospectus forming a part of the Exchange Offer Registration
Statement and in Annex C hereto in the "Plan of Distribution" section
of the prospectus forming a part of the Exchange Offer Registration
Statement and include the information set forth in Annex D hereto in
the Letter of Transmittal delivered pursuant to the Registered Exchange
Offer; (iii) if requested by an Initial Purchaser, include the
information required by Items 507 or 508 of Regulation S-K under the
Securities Act, as applicable, in the prospectus forming a part of the
Exchange Offer Registration Statement; (iv) include within the
prospectus contained in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution," reasonably acceptable to the
Initial Purchasers, which shall contain a summary statement of the
positions taken or policies made by the staff of the Commission with
respect to the potential "underwriter" status of any broker-dealer that
is the beneficial owner (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of Exchange
Securities received by such broker-dealer in the Registered Exchange
Offer (a "Participating Broker-Dealer"), whether such positions or
policies have been publicly disseminated by the staff of the Commission
or such positions or policies, in the reasonable judgment of the
Initial Purchasers based upon advice of counsel (which may be in-house
counsel), represent the prevailing views of the staff of the
Commission; and (v) in the case of a Shelf Registration Statement,
include the names of the Holders who propose to sell Securities
pursuant to the Shelf Registration Statement as selling
securityholders.
(b) The Issuers shall give written notice to the Initial
Purchasers, the Holders of the Securities and any Participating
Broker-Dealer from whom the Company has received prior written notice
that they will be Participating Broker-Dealers in the Registered
Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall
be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made):
<PAGE> 8
7
(i) when the Registration Statement or any amendment
thereto has been filed with the Commission and when the
Registration Statement or any post-effective amendment thereto
has become effective;
(ii) of any request by the Commission for amendments
or supplements to the Registration Statement or the prospectus
included therein or for additional information;
(iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that
purpose;
(iv) of the receipt by the Issuers or their legal
counsel of any notification with respect to the suspension of
the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(v) of the happening of any event that requires the
Issuers to make changes in the Registration Statement or the
prospectus in order that the Registration Statement or the
prospectus do not contain an untrue statement of a material
fact nor omit to state a material fact required to be stated
therein or necessary to make the statements therein (in the
case of the prospectus, in light of the circumstances under
which they were made) not misleading.
(c) The Issuers shall make every reasonable effort to obtain the
withdrawal at the earliest possible time, of any order suspending the
effectiveness of the Registration Statement.
(d) The Issuers shall furnish to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, at least one copy
of the Shelf Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(e) The Issuers shall deliver to each Exchanging Dealer and each
Initial Purchaser, and to any other Holder who so requests, without charge, at
least one copy of the Exchange Offer Registration Statement and any
posteffective amendment thereto, including financial statements and schedules,
and, if any Initial Purchaser or any such Holder requests, all exhibits thereto
(including those incorporated by reference).
(f) The Issuers shall, during the Shelf Registration Period, deliver to
each Holder of Securities included within the coverage of the Shelf
Registration, without charge, as many copies of the prospectus (including each
preliminary prospectus) included in the Shelf Registration Statement and any
amendment or supplement thereto as
<PAGE> 9
8
such person may reasonably request. The Issuers consent, subject to the
provisions of this Agreement, to the use of the prospectus or any amendment or
supplement thereto by each of the selling Holders of the Securities in
connection with the offering and sale of the Securities covered by the
prospectus, or any amendment or supplement thereto, included in the Shelf
Registration Statement.
(g) The Issuers shall deliver to each Initial Purchaser, any Exchanging
Dealer, any Participating Broker-Dealer and such other persons required to
deliver a prospectus following the Registered Exchange Offer, without charge, as
many copies of the final prospectus included in the Exchange Offer Registration
Statement and any amendment or supplement thereto as such persons may reasonably
request. The Issuers consent, subject to the provisions of this Agreement, to
the use of the prospectus or any amendment or supplement thereto by any Initial
Purchaser, if necessary, any Participating Broker-Dealer and such other persons
required to deliver a prospectus following the Registered Exchange Offer in
connection with the offering and sale of the Exchange Securities covered by the
prospectus, or any amendment or supplement thereto, included in such Exchange
Offer Registration Statement.
(h) Prior to any public offering of the Securities pursuant to any
Registration Statement the Issuers shall register or qualify or cooperate with
the Holders of the Securities included therein and their respective counsel in
connection with the registration or qualification of the Securities for offer
and sale under the securities or "blue sky" laws of such states of the United
States as any Holder of the Securities reasonably requests in writing and do any
and all other acts or things reasonably necessary or advisable to enable the
offer and sale in such jurisdictions of the Securities covered by such
Registration Statement; provided, however, that the Issuers shall not be
required to (i) qualify generally to do business in any jurisdiction where they
are not then so qualified or (ii) take any action which would subject them to
general service of process or to taxation in any jurisdiction where they are not
then so subject.
(i) The Issuers shall cooperate with the Holders of the Securities to
facilitate the timely preparation and delivery of certificates representing the
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends and, if not represented by a global certificate pursuant to
the Indenture, in such denominations and registered in such names as the Holders
may request a reasonable period of time prior to sales of the Securities
pursuant to such Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraphs (ii)
through (v) of Section 3(b) above during the period for which the Issuers are
required to maintain an effective Registration Statement, the Issuers shall
promptly prepare and file a post-effective amendment to the Registration
Statement or a supplement to the related prospectus and any other required
document so that, as thereafter delivered to Holders of the Securities or
purchasers of Securities, the prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which
<PAGE> 10
9
they were made, not misleading. If the Issuers notify the Initial Purchasers,
the Holders of the Securities and any known Participating Broker-Dealer in
accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the
use of the prospectus until the requisite changes to the prospectus have been
made, then the Initial Purchasers, the Holders of the Securities and any such
Participating Broker-Dealers shall suspend use of such prospectus, and the
period of effectiveness of the Shelf Registration Statement provided for in
Section 2(b) above and the Exchange Offer Registration Statement provided for in
Section 1 above shall each be extended by the number of days from and including
the date of the giving of such notice to and including the date when the Initial
Purchasers, the Holders of the Securities and any known Participating
Broker-Dealer shall have received such amended or supplemented prospectus
pursuant to this Section 3(j).
(k) Not later than the effective date of the applicable Registration
Statement, the Issuers will provide a CUSIP number for the Initial Securities,
the Exchange Securities or the Private Exchange Securities, as the case may be,
and provide the applicable trustee with global certificates (unless the
Indenture provides otherwise) for the Initial Securities, the Exchange
Securities or the Private Exchange Securities, as the case may be, in a form
eligible for deposit with The Depository Trust Company.
(l) The Issuers will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the Registered
Exchange Offer or the Shelf Registration and will make generally available to
their security holders (or otherwise provide in accordance with Section 11(a) of
the Securities Act) an earnings statement satisfying the provisions of Section
11(a) of the Securities Act, no later than 45 days after the end of a 12-month
period (or 90 days, if such period is a fiscal year) beginning with the first
month of the Issuers' first fiscal quarter commencing after the effective date
of the Registration Statement, which statement shall cover such 12-month period.
(m) The Issuers shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, in a timely manner and containing such
changes, if any, as shall be necessary for such qualification. In the event that
such qualification would require the appointment of a new trustee under the
Indenture, the Issuers shall appoint a new trustee thereunder pursuant to the
applicable provisions of the Indenture.
(n) The Issuers may require each Holder of Securities to be sold
pursuant to the Shelf Registration Statement to furnish to the Issuers such
information regarding the Holder and the distribution of the Securities as the
Issuers may from time to time reasonably require for inclusion in the Shelf
Registration Statement, and the Issuers may exclude from such registration the
Securities of any Holder that unreasonably fails to furnish such information
within a reasonable time after receiving such request.
(o) The Issuers shall enter into such customary agreements (including,
if requested, an underwriting agreement in customary form) and take all such
other action, if
<PAGE> 11
10
any, as any Holder of the Securities shall reasonably request in order to
facilitate the disposition of the Securities pursuant to any Shelf Registration.
(p) In the case of any Shelf Registration, the Issuers shall (i) make
reasonably available for inspection by the Holders of the Securities, any
underwriter participating in any disposition pursuant to the Shelf Registration
Statement and any attorney, accountant or other agent retained by the Holders of
the Securities or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Issuers and (ii) use their
reasonable best efforts to cause the Issuers' officers, directors, employees,
accountants and auditors to supply all relevant information reasonably requested
by the Holders of the Securities or any such underwriter, attorney, accountant
or agent in connection with the Shelf Registration Statement, in each case, as
shall be reasonably necessary to enable such persons to conduct a reasonable
investigation within the meaning of Section 11 of the Securities Act; provided,
however, that the foregoing inspection and information gathering shall be
coordinated on behalf of the Initial Purchasers and on behalf of the other
parties, by one counsel designated by and on behalf of such other parties as
described in Section 4 hereof.
(q) In the case of any Shelf Registration, the Issuers, if requested by
any Holder of Securities covered thereby, shall cause (i) their counsel to
deliver an opinion and updates thereof relating to the Securities in customary
form addressed to such Holders and the managing underwriters, if any, thereof
and dated, in the case of the initial opinion, the effective date of such Shelf
Registration Statement covering such matters customarily covered in legal
opinions rendered in connection with underwritten offerings; (ii) its officers
to execute and deliver all customary documents and certificates and updates
thereof requested by any underwriters of the applicable Securities and (iii) its
independent public accountants and the independent public accountants with
respect to any other entity for which financial information is provided in the
Shelf Registration Statement to provide to the selling Holders of the applicable
Securities and any underwriter therefor a comfort letter in customary form and
covering matters of the type customarily covered in comfort letters in
connection with primary underwritten offerings, subject to receipt of
appropriate documentation as contemplated, and only if permitted, by Statement
of Auditing Standards No. 72.
(r) In the case of the Registered Exchange Offer, if requested by any
Initial Purchaser or any known Participating Broker-Dealer, the Issuers shall
cause (i) their counsel to deliver to such Initial Purchaser or such
Participating Broker-Dealer a signed opinion in the form set forth in Sections
6(d) and 6(e) of the Purchase Agreement with such changes as are customary in
connection with the preparation of a Registration Statement and (ii) their
independent public accountants and the independent public accountants with
respect to any other entity for which financial information is provided in the
Registration Statement to deliver to such Initial Purchaser or such
Participating Broker-Dealer a comfort letter, in customary form, meeting the
requirements as to the substance thereof as set forth in Section 6(a) of the
Purchase Agreement, with appropriate date changes.
<PAGE> 12
11
(s) If a Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Initial Securities by Holders to the Issuers
(or to such other Person as directed by the Issuers) in exchange for the
Exchange Securities or the Private Exchange Securities, as the case may be, the
Issuers shall mark, or caused to be marked, on the Initial Securities so
exchanged that such Initial Securities are being canceled in exchange for the
Exchange Securities or the Private Exchange Securities, as the case may be; in
no event shall the Initial Securities be marked as paid or otherwise satisfied.
(t) The Issuers will use their reasonable best efforts to (a) if the
Initial Securities have been rated prior to the initial sale of such Initial
Securities, confirm such ratings will apply to the Securities covered by a
Registration Statement, or (b) if the Initial Securities were not previously
rated, cause the Securities covered by a Registration Statement to be rated with
the appropriate rating agencies, if so requested by Holders of a majority in
aggregate principal amount of Securities covered by such Registration Statement,
or by the managing underwriters, if any.
(u) In the event that any broker-dealer registered under the Exchange
Act shall underwrite any Securities or participate as a member of an
underwriting syndicate or selling group or "assist in the distribution" (within
the meaning of the Conduct Rules (the "Rules") of the National Association of
Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such
Securities or as an underwriter, a placement or sales agent or a broker or
dealer in respect thereof, or otherwise, the Issuers will assist such
broker-dealer in complying with the requirements of such Rules, including,
without limitation, by (i) if such Rules, including Rule 2720, shall so require,
engaging a "qualified independent underwriter" (as defined in Rule 2720) to
participate in the preparation of the Registration Statement relating to such
Securities, to exercise usual standards of due diligence in respect thereto and,
if any portion of the offering contemplated by such Registration Statement is an
underwritten offering or is made through a placement or sales agent, to
recommend the yield of such Securities, (ii) indemnifying any such qualified
independent underwriter to the extent of the indemnification of underwriters
provided in Section 5 hereof and (iii) providing such information to such
broker-dealer as may be required in order for such broker-dealer to comply with
the requirements of the Rules.
(v) The Issuers shall use their reasonable best efforts to take all
other steps necessary to effect the registration of the Securities covered by a
Registration Statement contemplated hereby.
4. Registration Expenses. (a) All expenses incident to the
Issuers' performance of and compliance with this Agreement will be borne by the
Issuers, jointly and severally, regardless of whether a Registration Statement
is ever filed or becomes effective, including without limitation;
(i) all registration and filing fees and expenses;
<PAGE> 13
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(ii) all fees and expenses of compliance with federal
securities and state "blue sky" or securities laws;
(iii) all expenses of printing (including printing
certificates (if required by the Indenture) for the Securities to be
issued in the Registered Exchange Offer and the Private Exchange and
printing of prospectuses), messenger and delivery services and
telephone;
(iv) all fees and disbursements of counsel for the Issuers;
(v) all application and filing fees in connection with listing
the Exchange Securities on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified
public accountants of the Issuers (including the expenses of any
special audit and comfort letters required by or incident to such
performance).
The Issuers will bear their internal expenses (including, without limitation,
all salaries and expenses of their officers and employees performing legal or
accounting duties), the expenses of any annual audit and the fees and expenses
of any person, including special experts, retained by the Issuers.
(b) In connection with any Registration Statement required by
this Agreement, the Issuers will reimburse the Initial Purchasers and the
Holders of Transfer Restricted Securities who are tendering Initial Securities
in the Registered Exchange Offer and/or selling or reselling Securities pursuant
to the "Plan of Distribution" contained in the Exchange Offer Registration
Statement or the Shelf Registration Statement, as applicable, for the reasonable
fees and disbursements of not more than one counsel, who shall be chosen by the
Holders of a majority in principal amount of the Transfer Restricted Securities
for whose benefit such Registration Statement is being prepared.
5. Indemnification. (a) The Issuers agree, jointly and
severally, to indemnify and hold harmless each Holder of the Securities, any
Participating Broker-Dealer and each person, if any, who controls such Holder or
such Participating Broker-Dealer within the meaning of the Securities Act or the
Exchange Act (each Holder, any Participating Broker-Dealer and such controlling
persons are referred to collectively as the "Indemnified Parties") from and
against any losses, claims, damages or liabilities, joint or several, or any
actions in respect thereof (including, but not limited to, any losses, claims,
damages, liabilities or actions relating to purchases and sales of the
Securities) to which each Indemnified Party may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration, or arise out
of, or are based upon, the omission or alleged omission to state therein a
<PAGE> 14
13
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse, as incurred, the Indemnified
Parties for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action in respect thereof; provided, however, that (i) the Issuers
shall not be liable in any such case to the extent that such loss, claim, damage
or liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in a Registration
Statement or prospectus or in any amendment or supplement thereto or in any
preliminary prospectus relating to a Shelf Registration in reliance upon and in
conformity with written information pertaining to such Holder and furnished to
the Issuers by or on behalf of such Holder specifically for inclusion therein
and (ii) with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus relating to a Shelf
Registration Statement, the indemnity agreement contained in this subsection (a)
shall not inure to the benefit of any Holder or Participating Broker-Dealer from
whom the person asserting any such losses, claims, damages or liabilities
purchased the Securities concerned, to the extent that a prospectus relating to
such Securities was required to be delivered by such Holder or Participating
Broker-Dealer under the Securities Act in connection with such purchase and any
such loss, claim, damage or liability of such Holder or Participating
Broker-Dealer results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Securities
to such person, a copy of the final prospectus if the Issuers had previously
furnished copies thereof to such Holder or Participating Broker-Dealer and such
final prospectus corrected such untrue statement or omission; provided further,
however, that this indemnity agreement will be in addition to any liability
which the Issuers may otherwise have to such Indemnified Party. The Issuers
shall also, jointly and severally, indemnify any underwriters, their officers
and directors and each person who controls such underwriters within the meaning
of the Securities Act or the Exchange Act to the same extent as provided above
with respect to the indemnification of the Holders of the Securities if
requested by such Holders.
(b) Each Holder of the Securities, severally and not jointly,
will indemnify and hold harmless the Issuers and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act from and against any losses, claims, damages or liabilities or any actions
in respect thereof, to which the Issuers or any such controlling person may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement or prospectus or in any amendment or
supplement thereto or in any preliminary prospectus relating to a Shelf
Registration, or arise out of or are based upon the omission or alleged omission
to state therein a material fact necessary to make the statements therein not
misleading, but in each case only to the extent that the untrue statement or
omission or alleged untrue statement or omission was made in reliance upon and
in conformity with written information pertaining to such Holder and furnished
to the Issuers by or on behalf of such Holder specifically for inclusion
therein; and, subject to the limitation set forth immediately preceding this
clause, shall reimburse, as incurred, the Issuers for any legal or other
expenses reasonably incurred by the Issuers or any such controlling person in
connection with investigating or defending any loss, claim, damage, liability or
action in respect
<PAGE> 15
14
thereof. This indemnity agreement will be in addition to any liability which
such Holder may otherwise have to the Issuers or any of their controlling
persons.
(c) Promptly after receipt by an indemnified party under this
Section 5 of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 5,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof the
indemnifying party will not be liable to such indemnified party under this
Section 5 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party or parties on the one
hand and the indemnified party on the other from the exchange of the Securities,
pursuant to the Registered Exchange Offer, or the sale of the Securities,
pursuant to a Shelf Registration, as applicable, or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Issuers on the one hand or
such Holder or such other indemnified party, as the case may be, on the other,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid by
an indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any
<PAGE> 16
15
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any action or claim which is the
subject of this subsection (d). Notwithstanding any other provision of this
Section 5(d), the Holders of the Securities shall not be required to contribute
any amount in excess of the amount by which the net proceeds received by such
Holders from the sale of the Securities pursuant to a Registration Statement
exceeds the amount of damages which such Holders have otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this paragraph (d), each person, if any, who controls such indemnified party
within the meaning of the Securities Act or the Exchange Act shall have the same
rights to contribution as such indemnified party and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act shall have the same rights to contribution as the Issuers.
(e) The agreements contained in this Section 5 shall survive
the sale of the Securities pursuant to a Registration Statement and shall remain
in full force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
6. Additional Interest Under Certain Circumstances. (a)
Additional interest (the "Additional Interest") with respect to the Transfer
Restricted Securities shall be assessed as follows if any of the following
events occur (each such event in clauses (i) through (iii) below being herein
called a "Registration Default"):
(i) by August 15, 1999 (60 days after the Closing Date)
(or if such day is not a business day, the first
business day thereafter), neither the Exchange
Registration Statement nor a Shelf Registration
Statement has been filed with the Commission;
(ii) by January 22, 2000 (220 days after the Closing Date)
(or if such day is not a business day, the first
business day thereafter), neither the Registered
Exchange Offer is consummated nor is the Shelf
Registration Statement declared effective by the
Commission; or
(iii) any Registration Statement required by this Agreement
has been declared effective by the Commission but (A)
such Registration Statement thereafter ceases to be
effective or (B) such Registration Statement or the
related prospectus ceases to be usable in connection
with resales of Transfer Restricted Securities during
the periods specified herein because either (1) any
event occurs as a result of which the related
prospectus forming part of such Registration
Statement would include any untrue statement of a
material fact or omit to state any material fact
necessary to make the statements therein in the light
of the circumstances under which they were made not
misleading, or (2) it shall be necessary to amend
such
<PAGE> 17
16
Registration Statement or supplement the related
prospectus, to comply with the Securities Act or the
Exchange Act or the respective rules thereunder.
Each of the foregoing will constitute a Registration Default whatever the reason
for any such event and whether it is voluntary or involuntary or is beyond the
control of the Issuers or pursuant to operation of law or as a result of any
action or inaction by the Issuers.
Additional Interest shall accrue on the Transfer Restricted
Securities over and above the interest set forth in the title of the Securities
from and including the date on which any such Registration Default shall occur
to but excluding the date on which all such Registration Defaults have been
cured, at a rate of 0.25% per annum (the "Additional Interest Rate") for the
first 90-day period immediately following the occurrence of such Registration
Default, regardless of the number of such Registration Defaults. The Additional
Interest Rate shall increase by an additional 0.25% per annum with respect to
each subsequent 90- day period until all Registration Defaults have been cured,
up to a maximum Additional Interest Rate of 0.50% per annum.
(b) A Registration Default referred to in Section 6(a)(iii)
hereof shall be deemed not to have occurred and be continuing in relation to a
Shelf Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate annual audited
financial information with respect to the Issuers where such post-effective
amendment is not yet effective and needs to be declared effective to permit
Holders to use the related prospectus or (y) other material events with respect
to the Issuers that would need to be described in such Shelf Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Issuers are proceeding promptly and in good faith to amend or supplement such
Shelf Registration Statement and related prospectus to describe such events;
provided, however, that in any case if such Registration Default occurs for a
continuous period in excess of 30 days, Additional Interest shall be payable in
accordance with the above paragraph from the day such Registration Default
occurs until such Registration Default is cured.
(c) Any amounts of Additional Interest due pursuant to Section
6(a) will be payable in cash on the regular interest payment dates with respect
to the Securities. The amount of Additional Interest will be determined by
multiplying the applicable Additional Interest Rate by the principal amount of
the Securities and further multiplied by a fraction, the numerator of which is
the number of days such Additional Interest Rate was applicable during such
period (determined on the basis of a 360-day year comprised of twelve 30-day
months), and the denominator of which is 360.
(d) "Transfer Restricted Securities" means each Security until
(i) the date on which such Security has been exchanged by a person other than a
broker-dealer for a freely transferable Exchange Security in the Registered
Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered
Exchange Offer of an Initial Security for an Exchange Security, the date on
which such Exchange Security is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange
<PAGE> 18
17
Offer Registration Statement, (iii) the date on which such Security has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Security is
distributed to the public pursuant to Rule 144 under the Securities Act or is
saleable pursuant to Rule 144(k) under the Securities Act.
7. Rules 144 and 144A. The Issuers shall use their reasonable
best efforts to file the reports required to be filed by them under the
Securities Act and the Exchange Act in a timely manner and, if at any time the
Issuers are not required to file such reports, they will, upon the request of
any Holder of Securities, make publicly available other information so long as
necessary to permit sales of their securities pursuant to Rules 144 and 144A.
The Issuers covenant that they will take such further action as any Holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rules 144 and
144A (including the requirements of Rule 144A(d)(4)). The Issuers will provide a
copy of this Agreement to prospective purchasers of Initial Securities
identified to the Issuers by the Initial Purchasers upon request. Upon the
request of any Holder of Initial Securities, the Issuers shall deliver to such
Holder a written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to
require the Issuers to register any of its securities pursuant to the Exchange
Act.
8. Underwritten Registrations. If any of the Transfer
Restricted Securities covered by any Shelf Registration are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering ("Managing Underwriters") will be
selected by the Holders of a majority in aggregate principal amount of such
Transfer Restricted Securities to be included in such offering.
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Securities on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
9. Miscellaneous.
(a) Remedies. The Issuers acknowledge and agree that any
failure by the Issuers to comply with their obligations under Section 1
and 2 hereof may result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Issuers' obligations under Sections 1 and 2
hereof. The Issuers further agree to waive the defense in any action
for specific performance that a remedy at law would be adequate.
<PAGE> 19
18
(b) No Inconsistent Agreements. The Issuers will not on or
after the date of this Agreement enter into any agreement with respect
to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions
hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the
holders of the Issuers' securities under any agreement in effect on the
date hereof.
(c) Amendments and Waivers. Except as set forth in Section
9(l) hereof, the provisions of this Agreement may not be amended,
modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, except by the Issuers and the
written consent of the Holders of a majority in principal amount of the
Securities affected by such amendment, modification, supplement, waiver
or consents; provided, however, that no amendment, modification, or
supplement or waiver or consent to the departure with respect to the
provisions of Section 6 hereof shall be effective as against any Holder
of Transfer Restricted Securities or any of the Issuers unless
consented to in writing by such Holder of Transfer Restricted
Securities or the Issuers, as the case may be.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, first
class mail, facsimile transmission, or air courier which guarantees
overnight delivery:
(1) if to a Holder of the Securities, at the most
current address given by such Holder to the Issuers.
(2) if to the Initial Purchasers;
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629
Fax No.: (212) 325-8278
Attention: Transactions Advisory Group
with a copy to:
Cahill Gordon & Reindel
80 Pine Street New York, NY 10005
Fax No.: (212) 269-5420
Attention: James J. Clark, Esq.
(3) if to any Issuer, at the following address:
Express Scripts, Inc.
<PAGE> 20
19
13900 Riverport Drive
Maryland Heights, MO 63043
Fax No.: (314) 702-7037
Attention: Chief Financial Officer
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Fax No.: (212) 455-2502
Attention: Vincent Pagano, Jr., Esq.
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; three
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt is acknowledged by recipient's facsimile machine operator, if sent
by facsimile transmission; and on the day delivered, if sent by overnight air
courier guaranteeing next day delivery.
(e) Third Party Beneficiaries. The Holders shall be third
party beneficiaries to the agreements made hereunder between the Issuers, on the
one hand, and the Initial Purchasers, on the other hand, and shall have the
right to enforce such agreements directly to the extent they may deem such
enforcement necessary or advisable to protect their rights or the rights of
Holders hereunder.
(f) Successors and Assigns. This Agreement shall be binding
upon the Issuers and their successors and assigns.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity,
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to:
* the use in the Prospectus constituting part of this Registration
Statement on Form S-4 of our report dated February 12, 1999, except for
Note 15, which is as of July 15, 1999, relating to the financial
statements of Express Scripts, Inc. and our report dated February 26,
1999, except for Note 12, which is as of March 1, 1999, relating to the
financial statements of Diversified Pharmaceutical Services, Inc. and
subsidiary, which are included in such Prospectus;
* the incorporation by reference in the Prospectus constituting part of
this Registration Statement on Form S-4 of our report dated February 12,
1999, except for Note 15, which is as of July 15, 1999, relating tot he
financial statements and financial statement schedule, which appears in
Express Scripts, Inc.'s Annual Report on Form 10-K/A dated June 10, 1999
for the year ended December 31, 1998;
* the incorporation by reference in the Prospectus constituting part of
this Registration Statement on Form S-4 of our report dated April 30,
1998, on our audits of the combined financial statements of Value Health
Pharmacy Benefit Management as of December 31, 1996, and for the years
ended December 31, 1996 and 1995, appearing on page 24 of Express
Scripts, Inc.'s Form 8-K/A Amendment No. 1 dated June 12, 1998; and
* the references to us under the headings "Experts" and "Selected Financial
and Operating Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Financial and Operating Data."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
July 16, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated June 4, 1998, with respect to the financial statements
of Value Health Pharmacy Benefit Management included in Express Scripts, Inc.'s
Current Report on Form 8-K/A dated June 12, 1998, and incorporated by reference
in this Registration Statement on Form S-4 and related Prospectus of Express
Scripts, Inc.
Minneapolis, Minnesota
July 16, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated June 1, 1998, with respect to the financial statements
of Managed Prescription Network, Inc. included in Express Scripts, Inc.'s
Current Report on Form 8- K/A dated June 12, 1998, and incorporated by reference
in this Registration Statement on Form S-4 and related Prospectus of Express
Scripts, Inc.
Pittsburgh, Pennsylvania
July 16, 1999
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 23rd of
June, 1999.
/s/ Howard I. Atkins
----------------------------
Howard I. Atkins
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 23rd of
June, 1999.
/s/ Judith E. Campbell
----------------------------
Judith E. Campbell
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 23rd of
June, 1999.
/s/ Richard M. Kernan, Jr.
----------------------------
Richard M. Kernan, Jr.
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 8th of
July, 1999.
/s/ Richard A. Norling
----------------------------
Richard A. Norling
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being an officer of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 23rd of
June, 1999.
/s/ George Paz
----------------------------
George Paz
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being an officer of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling, Esq.,
attorneys-in-fact and agents of the undersigned with full power and authority of
substitution and resubstitution, in any and all capacities, to execute for and
on behalf of the undersigned the Registration Statement on Form S-4 relating to
the 9 5/8% Senior Notes due 2009 of the Company to be offered in exchange for
the 9 5/8% Senior Notes due 2009 sold by the Company on June 16, 1999, pursuant
to Rule 144A of the Securities Act of 1933, as amended, and any and all
amendments (including post-effective amendments) to the Registration Statement
and any other documents and instruments incidental thereto, and to deliver and
file the same, with all exhibits thereto, and all documents and instruments in
connection therewith, with the Securities and Exchange Commission, granting unto
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing that such attorneys-in-fact and agents deem
advisable or necessary to enable the Company to effectuate the intents and
purposes hereof, and the undersigned hereby fully ratifies and confirms all such
attorneys-in-fact and agents, or his or her substitute or substitutes, shall do
or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 30th of
June, 1999.
/s/ Joseph W. Plum
----------------------------
Joseph W. Plum
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 29th of
June, 1999.
/s/ Frederick J. Sievert
----------------------------
Frederick J. Sievert
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 23rd of
June, 1999.
/s/ Stephen N. Steinig
----------------------------
Stephen N. Steinig
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 28th of
June, 1999.
/s/ Seymour Sternberg
----------------------------
Seymour Sternberg
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 24th of
June, 1999.
/s/ Barrett A. Toan
----------------------------
Barrett A. Toan
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being an officer of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 24th of
June, 1999.
/s/ Barrett A. Toan
----------------------------
Barrett A. Toan
<PAGE> 12
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 25th of
June, 1999.
/s/ Howard L. Waltman
----------------------------
Howard L. Waltman
<PAGE> 13
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director of
EXPRESS SCRIPTS, INC., a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Thomas M. Boudreau, Esq. and Keith J. Ebling,
Esq., attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned the Registration Statement on
Form S-4 relating to the 9 5/8% Senior Notes due 2009 of the Company to be
offered in exchange for the 9 5/8% Senior Notes due 2009 sold by the Company on
June 16, 1999, pursuant to Rule 144A of the Securities Act of 1933, as amended,
and any and all amendments (including post-effective amendments) to the
Registration Statement and any other documents and instruments incidental
thereto, and to deliver and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing that such
attorneys-in-fact and agents deem advisable or necessary to enable the Company
to effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all such attorneys-in-fact and agents, or his or her
substitute or substitutes, shall do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has subscribed his name this 24th of
June, 1999.
/s/ Norman Zachary
----------------------------
Norman Zachary
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
With Respect to
EXPRESS SCRIPTS, INC.
OFFER TO EXCHANGE
9 5/8% SERIES B SENIOR NOTES DUE 2009
FOR ANY AND ALL OF THE OUTSTANDING
9 5/8% SERIES A SENIOR NOTES DUE 2009
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON [ ] UNLESS THE OFFER IS EXTENDED.
Bankers Trust Company
(the "Exchange Agent")
<TABLE>
<CAPTION>
<S> <C> <C>
By Overnight Mail or Courier: By Hand: By Mail:
BT Services Tennessee, Inc. Bankers Trust Company BT Services Tennessee, Inc.
Corporate Trust & Agency Group Corporate Trust and Agency Group Reorganization Unit
Reorganization Unit Attn: Reorganization Department P.O. Box 292737
648 Grassmere Park Road Receipt & Delivery Window Nashville, TN 37229-2737
Nashville, TN 37211 123 Washington Street, 1st Floor
New York, NY 10006
By Facsimile Transmission:
(615) 835-3701
Confirm by Telephone:
(615) 835-3572
Information:
(800) 735-7777
</TABLE>
Delivery of this instrument to an address other than as set forth above
or transmission of instructions via a facsimile number other than the ones
listed above will not constitute a valid delivery. The instructions accompanying
this Letter of Transmittal should be read carefully before this Letter of
Transmittal is completed.
The undersigned hereby acknowledges receipt of the Prospectus dated
(the "Prospectus") of Express Scripts, Inc. (the "Issuer") and Diversified
Pharmaceutical Services, Inc. ("DPS"), ESI/VRx Sales Development Co.
("ESI/VRx"), Express Scripts Vision Corporation ("Vision"), IVTx, Inc. ("IVTx"),
Managed Prescription Network, Inc. ("MPN"), MHI, Inc. ("MHI"), Value Health,
Inc. ("VHI"), ValueRx, Inc. ("ValueRx"), ValueRx Pharmacy Program, Inc.
("ValueRx Pharmacy"), YourPharmacy.com, Inc. ("YourPharmacy") and Health Care
Services, Inc. ("HCS," and together with DPS, ESI/VRx, Vision, IVTx, MPN, MHI,
VHI, ValueRx, ValueRx Pharmacy and YourPharmacy, the "Guarantors," and each a
"Guarantor") and this Letter of Transmittal, which together constitute the
Issuer's offer (the "Exchange Offer") to exchange $1,000 principal amount of
their 9 5/8% Series B Senior Notes due 2009, guaranteed by the Guarantors (the
"Exchange Notes") which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a
<PAGE> 2
2
registration statement of which the Prospectus is a part, for each $1,000
principal amount of their outstanding 9 5/8% Series A Senior Notes due 2009,
guaranteed by the Guarantors (the "Outstanding Notes"), respectively. The term
"Expiration Date" shall mean 5:00 p.m., New York City time, on [ ], unless the
Issuer, in its reasonable judgment, extends the Exchange Offer, in which case
the term shall mean the latest date and time to which the Exchange Offer is
extended. Capitalized terms used but not defined herein have the meaning given
to them in the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Outstanding Notes to which this Letter of Transmittal
relates. If the space indicated is inadequate, the Certificate or Registration
Numbers and Principal Amounts should be listed on a separately signed schedule
affixed hereto.
DESCRIPTION OF OUTSTANDING NOTES TENDERED HEREBY
<TABLE>
<CAPTION>
Name(s) and Address(es) Certificate or Aggregate Principal Principal Amount
of Registered Owner(s) Registration Amount Represented Tendered**
(Please fill in) Numbers* by Outstanding Notes
<S> <C> <C> <C>
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
Total
_________________________________________________________________________________________________________
</TABLE>
* Need not be completed by book-entry Holders.
**Unless otherwise indicated, the Holder will be deemed to have tendered the
full aggregate principal amount represented by such Outstanding Notes. All
tenders must be in integral multiples of $1,000.
This Letter of Transmittal is to be used if (i) certificates
representing Outstanding Notes are to be physically delivered to the Exchange
Agent herewith, (ii) tender of Outstanding Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company ("DTC"), pursuant to the procedures set forth in "The Exchange
Offer--Procedures for Tendering" in the Prospectus or (iii) tender of the
Outstanding Notes is to be made according to the guaranteed delivery procedures
described in the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures." See Instruction 2. Delivery of documents to a book-entry
transfer facility does not constitute delivery to the Exchange Agent. This
Letter of Transmittal must be completed, signed and delivered even if tender
instructions are being transmitted through the Book- Entry Transfer Facility
Automated Tender Offer Program ("ATOP").
As used in this Letter of Transmittal, the term "Holder" with respect
to the Exchange Offer means any person in whose name Outstanding Notes are
registered on the books of the Issuer or, with
<PAGE> 3
3
respect to interests in the Global Outstanding Notes held by DTC, any DTC
participant listed in an official DTC proxy. The undersigned has completed,
executed and delivered this Letter of Transmittal to indicate the action the
undersigned desires to take with respect to the Exchange Offer. Holders who wish
to tender their Outstanding Notes must complete this letter in its entirety.
Holders of Outstanding Notes that are tendering by book-entry transfer
to the Exchange Agent's account at DTC can execute the tender through ATOP, for
which the transaction will be eligible. DTC participants that are accepting the
Exchange Offer must transmit their acceptances to DTC, which will verify the
acceptance and execute a book-entry delivery to the Exchange Agent's account at
DTC. DTC will then send an Agent's Message to the Exchange Agent for its
acceptance. Each DTC participant transmitting an acceptance of the Exchange
Offer through the ATOP procedures will be deemed to have agreed to be bound by
the terms of this Letter of Transmittal. Nevertheless, in order for such
acceptance to constitute a valid tender of the DTC participant's Outstanding
Notes, such participant must complete and sign a Letter of Transmittal and
deliver it to the Exchange Agent before the Expiration Date.
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _________________________________________
Account Number ________________________________________________________
Transaction Code Number _______________________________________________
Holders whose Outstanding Notes are not immediately available or who
cannot deliver their Outstanding Notes and all other documents required hereby
to the Exchange Agent on or prior to the Expiration Date must tender their
Outstanding Notes according to the guaranteed delivery procedure set forth in
the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery
Procedures." See Instruction 2.
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE
FOLLOWING:
Name of Registered Holder(s) __________________________________________
Name of Eligible Institution that Guaranteed Delivery _________________
_______________________________________________________________________
If delivery by book-entry transfer:
Account Number ___________________________________________________
Transaction Code Number __________________________________________
<PAGE> 4
4
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO:
Name __________________________________________________________________
Address _______________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Outstanding Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a Prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a Prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
<PAGE> 5
5
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuer the principal amount of the Outstanding
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of such Outstanding Notes tendered hereby, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Issuer all right,
title and interest in and to such Outstanding Notes as are being tendered
hereby, including all rights to accrued and unpaid interest thereon as of the
Expiration Date. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned
(with full knowledge that said Exchange Agent acts as the agent of the Issuer in
connection with the Exchange Offer) to cause the Outstanding Notes to be
assigned, transferred and exchanged. The undersigned represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Outstanding Notes and to acquire Exchange Notes issuable upon the exchange
of such tendered Outstanding Notes, and that when the same are accepted for
exchange, the Issuer will acquire good and unencumbered title to the tendered
Outstanding Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim.
The undersigned represents to the Issuer that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, and (ii) neither the undersigned nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. If the undersigned or the person
receiving the Exchange Notes covered hereby is a broker-dealer that is receiving
the Exchange Notes for its own account in exchange for Outstanding Notes that
were acquired as a result of market-making activities or other trading
activities, the undersigned acknowledges that it or such other person will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. The undersigned
and any such other person acknowledge that, if they are participating in the
Exchange Offer for the purpose of distributing the Exchange Notes, (A) they
cannot rely on the position of the staff of the Securities and Exchange
Commission enunciated in Exxon Capital Holdings Corporation (April 13, 1988),
Morgan Stanley & Co., Inc. (June 5, 1991) or similar no-action letters and, in
the absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with the
resale transaction and (B) failure to comply with such requirements in such
instance could result in the undersigned or any such other person incurring
liability under the Securities Act for which such persons are not indemnified by
the Issuer. If the undersigned or the person receiving the Exchange Notes
covered by this letter is an affiliate (as defined under Rule 405 of the
Securities Act) of the Issuer, the undersigned represents to the Issuer that the
undersigned understands and acknowledges that such Exchange Notes may not be
offered for resale, resold or otherwise transferred by the undersigned or such
other person without registration under the Securities Act or an exemption
therefrom.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Issuer to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Outstanding Notes or transfer ownership of such Outstanding Notes on
the account books maintained by a book-entry transfer facility. The undersigned
further agrees that acceptance of any tendered Outstanding Notes by the Issuer
and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Issuer of their
<PAGE> 6
6
obligations under the Registration Rights Agreement and that the Issuer shall
have no further obligation or liabilities thereunder for the registration of the
Outstanding Notes or the Exchange Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer--Certain Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these conditions
(which may be waived, in whole or in part, by the Issuer), as more particularly
set forth in the Prospectus, the Issuer may not be required to exchange any of
the Outstanding Notes tendered hereby and, in such event, the Outstanding Notes
not exchanged will be returned to the undersigned at the address shown below
the signature of the undersigned.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Tendered Outstanding Notes may be
withdrawn at any time prior to the Expiration Date.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Outstanding Notes, and any Outstanding Notes delivered herewith but not
exchanged, will be registered in the name of the undersigned and shall be
delivered to the undersigned at the address shown below the signature of the
undersigned. If an Exchange Note is to be issued to a person other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal at an address different than the addresses shown on this
Letter of Transmittal, the appropriate boxes of this Letter of Transmittal
should be completed. If Outstanding Notes are surrendered by Holder(s) that have
completed either the box entitled "Special Registration Instructions" or the box
entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (defined in Instruction 2).
<PAGE> 7
7
SPECIAL REGISTRATION INSTRUCTIONS
To be completed ONLY if the Exchange
Notes are to be issued in the name of someone
other than the undersigned.
Name: ________________________________
Address: _____________________________
Book-Entry Transfer Facility Account:
__________________________________________
Employee Identification or Social Security
Number: _________________________________
(Please print or type.)
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the Exchange Notes are to be sent to someone
other than the undersigned, or to the undersigned at an address other than that
shown under "Description of Outstanding
Notes Tendered Hereby."
Name: _______________________________
Address: ____________________________
(Please print or type.)
REGISTERED HOLDER(S) OF OUTSTANDING NOTES OR DTC PARTICIPANT(S) SIGN HERE
(In addition, complete Substitute Form W-9 below.)
X ______________________________________________________________________________
X ______________________________________________________________________________
(Signature(s) of Registered Holder(s) or DTC Participant(s))
Must be signed by registered holder(s) or DTC participant(s) exactly as
name(s) appear(s) on the Outstanding Notes or on a security position listing as
the owner of the Outstanding Notes or by person(s) authorized to become
registered holder(s) by properly completed bond powers transmitted herewith. If
signature is by attorney-in-fact, trustee, executor, administrator, guardian,
officer of a corporation or other person acting in a fiduciary capacity, please
provide the following information. (Please print or type):
Name and Capacity (full title): ________________________________________________
Address (including zip code): __________________________________________________
________________________________________________________________________________
Area Code and Telephone Number: ________________________________________________
Taxpayer Identification or Social Security No.: ________________________________
Dated: _____________
SIGNATURE GUARANTEE
(If Required -- See Instruction 5)
Authorized Signature: __________________________________________________________
(Signature of Representative of Signature Guarantor)
Name and Title: ________________________________________________________________
Name of Plan: __________________________________________________________________
Area Code and Telephone Number: ________________________________________________
(Please print or type.)
Dated: ____________________
<PAGE> 8
8
THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED
PLEASE PROVIDE YOUR SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION
NUMBER ON THE FOLLOWING SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING.
<TABLE>
<CAPTION>
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT
AND CERTIFY BY SIGNING AND DATING BELOW.
<S> <C> <C>
_________________________
FORM W-9 Social Security Number
Department of the OR
Treasury _________________________
Internal Revenue Employer Identification Number
Service
Payer's Request for PART 2 PART 3--
Taxpayer Certification--Under the penalties of perjury, I certify that:
Identification (1) The number shown on this form is my correct Taxpayer [ ] Awaiting TIN
Number (TIN) Identification Number (or I am waiting for a number to
be issued to me), and
(2) I am not subject to backup withholding
because (a) I am exempt from backup
withholding, or (b) I have not been notified
by the Internal Revenue Service (the "IRS")
that I am subject to backup withholding as a
result of a failure to report all interest or
dividends, or (c) the IRS has notified me
that I am no longer subject to backup
withholding.
CERTIFICATE INSTRUCTIONS--You must cross out item (2)
above if you have been notified by the IRS that you
are currently subject to backup withholding because of
under-reporting interest or dividends on your tax
return. However, if after being notified by the IRS
that you were subject to backup withholding you
received another notification from the IRS that you
are no longer subject to backup withholding, do not
cross out such item (2).
SIGN HERE -> SIGNATURE______________________________________________________________
DATE___________________________________________________________________
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER, PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF
YOU CHECKED THE BOX IN PART 3 OF THE
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable payments made to me will be withheld.
Signature ________________________ Date ____________________________, 1999
<PAGE> 9
9
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
All physically delivered Outstanding Notes or confirmation of any
book-entry transfer to the Exchange Agent's account at a book-entry transfer
facility of Outstanding Notes tendered by book-entry transfer, as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at any of its addresses set
forth herein on or prior to the Expiration Date. The method of delivery of this
Letter of Transmittal, the Outstanding Notes and any other required documents is
at the election and risk of the Holder, and except as otherwise provided below,
the delivery will be deemed made only when actually received by the Exchange
Agent. If such delivery is by mail, it is suggested that registered mail with
return receipt requested, properly insured, be used.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Outstanding Notes for exchange.
Delivery to an address other than as set forth herein, or instructions
via a facsimile number other than the ones set forth herein, will not constitute
a valid delivery.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Outstanding Notes, but whose
Outstanding Notes are not immediately available and thus cannot deliver their
Outstanding Notes, this Letter of Transmittal or any other required documents to
the Exchange Agent (or comply with the procedures for book-entry transfer) prior
to the Expiration Date, may effect a tender if:
(a) the tender is made through a member firm of a registered
national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17
Ad-15 under the Exchange Act (an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent received from
such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name
and address of the Holder, the registration number(s) of such
Outstanding Notes and the principal amount of Outstanding
Notes tendered, stating that the tender is being made thereby
and guaranteeing that, within three (3) New York Stock
Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the
Outstanding Notes (or a confirmation of book-entry transfer of
such Outstanding Notes into the Exchange Agent's account at
DTC) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution
with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Outstanding Notes
in proper form for transfer (or a confirmation of book-entry
transfer of such Outstanding Notes into the Exchange Agent's
account at DTC) and
<PAGE> 10
10
all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within three (3) New York Stock
Exchange trading days after the Expiration Date.
Any Holder who wishes to tender Outstanding Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery relating to such Outstanding
Notes prior to the Expiration Date. Failure to complete the guaranteed delivery
procedures outlined above will not, of itself, affect the validity or effect a
revocation of any Letter of Transmittal form properly completed and executed by
a Holder who attempted to use the guaranteed delivery procedures.
3. BENEFICIAL OWNER INSTRUCTIONS.
Only a Holder of Outstanding Notes (i.e., a person in whose name
Outstanding Notes are registered on the books of the registrar or, with respect
to interests in the Global Outstanding Notes held by DTC, a DTC participant
listed in an official DTC proxy), or the legal representative or
attorney-in-fact of a Holder, may execute and deliver this Letter of
Transmittal. Any beneficial owner of Outstanding Notes who wishes to accept the
Exchange Offer must arrange promptly for the appropriate Holder to execute and
deliver this Letter of Transmittal on his or her behalf through the execution
and delivery to the appropriate Holder of the Instructions to Registered Holder
and/or DTC Participant from Beneficial Owner form accompanying this Letter of
Transmittal.
4. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Outstanding Notes evidenced
by a submitted certificate is tendered, the tendering Holder should fill in the
principal amount tendered in the column entitled "Principal Amount Tendered" of
the box entitled "Description of Outstanding Notes Tendered Hereby." A newly
issued Note for the principal amount of Outstanding Notes submitted but not
tendered will be sent to such Holder as soon as practicable after the Expiration
Date. All Outstanding Notes delivered to the Exchange Agent will be deemed to
have been tendered in full unless otherwise indicated.
Outstanding Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date, after which tenders of
Outstanding Notes are irrevocable. To be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must be timely received by the
Exchange Agent. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Outstanding Notes to be withdrawn (the "Depositor"),
(ii) identify the Outstanding Notes to be withdrawn (including the registration
number(s) and principal amount of such Outstanding Notes, or, in the case of
Outstanding Notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited), (iii) be signed by the Holder in the same manner
as the original signature on this Letter of Transmittal (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Outstanding Notes register the transfer of
such Outstanding Notes into the name of the person withdrawing the tender and
(iv) specify the name in which any such Outstanding Notes are to be registered,
if different from that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Issuer, whose determination shall be final and binding on all parties.
Any Outstanding Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Outstanding Notes so withdrawn are validly
retendered. Any Outstanding Notes which have been tendered but which are not
accepted for exchange will be returned to the Holder thereof without cost to
such Holder as soon as practicable after withdrawal, rejection of tender or
termination of Exchange Offer.
<PAGE> 11
11
5. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered Holder(s) of
the Outstanding Notes tendered hereby, the signature must correspond with the
name(s) as written on the face of the certificates without alteration or
enlargement or any change whatsoever. If this Letter of Transmittal is signed by
a participant in DTC, the signature must correspond with the name as it appears
on the security position listing as the owner of the Outstanding Notes.
If any of the Outstanding Notes tendered hereby are owned of record by
two or more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Outstanding Notes registered in different names are
tendered, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of
Outstanding Notes.
Signatures of this Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution unless the
Outstanding Notes tendered hereby are tendered (i) by a registered Holder who
has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or
Holders of Outstanding Notes (which term, for the purposes described herein,
shall include a participant in DTC whose name appears on a security listing as
the owner of the Outstanding Notes) listed and tendered hereby, no endorsements
of the tendered Outstanding Notes or separate written instruments of transfer or
exchange are required. In any other case, the registered Holder (or acting
Holder) must either properly endorse the Outstanding Notes or transmit properly
completed bond powers with this Letter of Transmittal (in either case, executed
exactly as the name(s) of the registered Holder(s) appear(s) on the Outstanding
Notes, and, with respect to a participant in DTC whose name appears on such
security position listing), with the signature on the Outstanding Notes or bond
power guaranteed by an Eligible Institution (except where the Outstanding Notes
are tendered for the account of an Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Issuer, proper evidence
satisfactory to the Issuer of their authority so to act must be submitted.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box, the name and
address (or account at DTC) in which the Exchange Notes or substitute Notes for
principal amounts not tendered or not accepted for exchange are to be issued (or
deposited), if different from the names and addresses or accounts of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the employer identification number or social security number of the person named
must also be indicated and the tendering Holder should complete the applicable
box.
If no instructions are given, the Exchange Notes (and any Outstanding
Notes not tendered or not accepted) will be issued in the name of and sent to
the acting Holder of the Outstanding Notes or deposited at such Holder's account
at DTC.
<PAGE> 12
12
7. TRANSFER TAXES.
The Issuer shall pay all transfer taxes, if any, applicable to the
transfer and exchange of Outstanding Notes to them or their order pursuant to
the Exchange Offer. If a transfer tax is imposed for any other reason other than
the transfer and exchange of Outstanding Notes to the Issuer, or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered Holder or any other person) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or exception
therefrom is not submitted herewith, the amount of such transfer taxes will be
collected from the tendering Holder by the Exchange Agent.
Except as provided in this Instruction, it will not be necessary for
transfer stamps to be affixed to the Outstanding Notes listed in the Letter of
Transmittal.
8. WAIVER OF CONDITIONS.
The Issuer reserves the right, in its reasonable judgment, to waive, in
whole or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
9. MUTILATED, LOST, STOLEN OR DESTROYED OUTSTANDING NOTES.
Any Holder whose Outstanding Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering as well as requests
for additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number(s) set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to BT Services Tennessee, Inc, telephone: (800)
735-7777.
11. VALIDITY AND FORM.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Outstanding Notes and withdrawal of tendered
Outstanding Notes will be determined by the Issuer in its sole discretion, which
determination will be final and binding. The Issuer reserves the absolute right
to reject any and all Outstanding Notes not properly tendered or any Outstanding
Notes the Issuer's acceptance of which would, in the opinion of counsel for the
Issuer, be unlawful. The Issuer also reserves the right, in its reasonable
judgment, to waive any defects, irregularities or conditions of tender as to
particular Outstanding Notes. The Issuer's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Outstanding Notes must
be cured within such time as the Issuer shall determine. Although the Issuer
intends to notify Holders of defects or irregularities with respect to tenders
of Outstanding Notes, neither the Issuer, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification. Tenders
of Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Outstanding Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holder as soon as practicable following the Expiration
Date.
<PAGE> 13
13
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Outstanding Notes is
required to provide the Exchange Agent with such Holder's correct TIN on
Substitute Form W-9 above. If such Holder is an individual, the TIN is the
Holder's social security number. The Certificate of Awaiting Taxpayer
Identification Number should be completed if the tendering Holder has not been
issued a TIN and has applied for a number or intends to apply for a number in
the near future. If the Exchange Agent is not provided with the correct TIN, the
Holder may be subject to a $50 penalty imposed by the Internal Revenue Service.
In addition, payments that are made to such Holder may be subject to backup
withholding.
Certain Holders (including among others, all domestic corporations and
certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder, who satisfies one
or more of the conditions set forth in Part 2 of the Substitute Form W-9 should
execute the certification following such Part 2. In order for a foreign Holder
to qualify as an exempt recipient, that Holder must submit to the Exchange Agent
a properly completed Internal Revenue Service Form W-8, signed under penalties
of perjury, attesting to that Holder's exempt status. Such forms can be obtained
from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to
withhold 31% of any amounts otherwise payable to the Holder. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder,
the Holder is required to notify the Exchange Agent of his or her correct TIN by
completing the form herein certifying that the TIN provided on Substitute Form
W-9 is correct (or that such Holder is awaiting a TIN) and that (i) such Holder
is exempt, (ii) such Holder has not been notified by the Internal Revenue
Service that he or she is subject to backup withholding as a result of failure
to report all interest or dividends or (iii) the Internal Revenue Service has
notified such Holder that he or she is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each Holder is required to give the Exchange Agent the social security
number or employer identification number of the record Holder(s) of the
Outstanding Notes. If Outstanding Notes are in more than one name or are not in
the name of the actual Holder, consult the Guidelines for Certification of
Taxpayor Identification Number on Substitute Form W-9, for additional guidance
on which number to report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
If the tendering Holder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, write "Applied For"
in the space for the TIN on Substitute Form W-9, sign and date the form and the
Certificate of Awaiting Taxpayer Identification Number and return them to the
Exchange Agent. If such certificate is completed and the Exchange Agent is not
provided with the TIN within 60 days, the Exchange Agent will withhold 31% of
all payments made thereafter until a TIN is provided to the Exchange Agent.
<PAGE> 14
14
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH OUTSTANDING NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER
REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE> 1
EXHIBIT 99.2
EXPRESS SCRIPTS, INC.
OFFER TO EXCHANGE
9 5/8% SERIES B SENIOR NOTES DUE 2009
FOR ANY AND ALL OF THE OUTSTANDING
9 5/8% SERIES A SENIOR NOTES DUE 2009
, 1999
TO SECURITIES DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
Express Scripts, Inc. (the "Issuer"), and Diversified Pharmaceutical
Services, Inc. ("DPS"), ESI/VRx Sales Development Co. ("ESI/VRx"), Express
Scripts Vision Corporation ("Vision"), IVTx, Inc. ("IVTx"), Managed Prescription
Network, Inc. ("MPN"), MHI, Inc. ("MHI"), Value Health, Inc. ("VHI"), ValueRx,
Inc. ("ValueRx"), ValueRx Pharmacy Program, Inc. ("ValueRx Pharmacy"),
YourPharmacy.com, Inc. ("YourPharmacy"), and Health Care Services, Inc. ("HCS,"
and together with DPS, ESI/VRx, Vision, IVTx, MPN, MHI, VHI, ValueRx, ValueRx
Pharmacy, and YourPharmacy, the "Guarantors," and each a "Guarantor"), are
offering (the "Exchange Offer") to exchange $1,000 in principal amount of the
Issuer's 9 5/8% Series B Senior Notes due 2009, guaranteed by the Guarantors
(the "Exchange Notes"), for each $1,000 in principal amount of outstanding 9
5/8% Series A Senior Notes due 2009, guaranteed by the Guarantors (the
"Outstanding Notes"). The terms of the Exchange Notes are identical in all
material respects (including principal amount, interest rate and maturity) to
the terms of the Outstanding Notes for which they may be exchanged pursuant to
the Exchange Offer, except that the Exchange Notes are freely transferable by
holders thereof, upon the terms and subject to the conditions of the enclosed
Prospectus, dated [ ], 1999 (as the same may be amended or supplemented from
time to time, the "Prospectus"), and the enclosed Letter of Transmittal (the
"Letter of Transmittal"). The Outstanding Notes are unconditionally guaranteed
(The "Old Guarantees") by the Guarantors, and the Exchange Notes will be
unconditionally guaranteed (the "New Guarantees") by the Guarantors. Upon the
terms and subject to the conditions set forth in the Prospectus and the Letter
of Transmittal, the Guarantors offer to issue the New Guarantees with respect to
all Exchange Notes issued in the Exchange Offer in exchange for the outstanding
Old Guarantees of the Outstanding Notes for which such Exchange Notes are issued
in exchange. Throughout this letter, unless the context otherwise requires and
whether so expressed or not, references to the "Exchange Offer" include the
Guarantor's offer to exchange the New Guarantees for the Old Guarantees,
references to the "Exchange Notes" include the related New Guarantees and
references to the "Outstanding Notes" include the related Old Guarantees. The
Issuer will accept for exchange any and all Outstanding Notes properly tendered
according to the terms of the Prospectus and the Letter of Transmittal.
Consummation of the Exchange Offer is subject to certain conditions described in
the Prospectus.
WE ARE ASKING YOU TO CONTACT YOUR CLIENTS FOR WHOM YOU HOLD
OUTSTANDING NOTES REGISTERED IN YOUR NAME OR IN THE NAME OF YOUR NOMINEE OR WHO
HOLD OUTSTANDING NOTES REGISTERED IN THEIR OWN NAMES.
The Issuer will not pay any fees or commissions to any broker
or dealer or other person for soliciting tenders of Outstanding Notes pursuant
to the Exchange Offer. You will, however, be reimbursed by the Issuer for
customary mailing and handling expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Issuer will pay all transfer taxes, if
any, applicable to the tender of Outstanding Notes to it or its order, except as
otherwise provided in the Prospectus and the Letter of Transmittal.
<PAGE> 2
Enclosed are copies of the following documents:
1. A form of letter which you may send, as a cover
letter to accompany the Prospectus and related
materials, to your clients for whose accounts you
hold Outstanding Notes registered in your name or the
name of your nominee, with space provided for
obtaining the clients' instructions with regard to
the Exchange Offer.
2. The Prospectus.
3. The Letter of Transmittal for your use in connection
with the tender of Outstanding Notes and for the
information of your clients.
4. A form of Notice of Guaranteed Delivery.
5. Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
Your prompt action is requested. The Exchange Offer will expire at 5:00
P.M., New York City time, on [ ], unless the Exchange Offer is extended by
the Issuer. The time at which the Exchange Offer expires is referred to as the
"Expiration Date." Tendered Outstanding Notes may be withdrawn, subject to the
procedures described in the Prospectus, at any time prior to 5:00 P.M. on the
Expiration Date.
To participate in the Exchange Offer, certificates for
Outstanding Notes, or a timely confirmation of a book-entry transfer of such
Outstanding Notes into the Exchange Agent's account at the Depository Trust
Company, together with a duly executed and properly completed Letter of
Transmittal or facsimile thereof, with any required signature guarantees, and
any other required documents, must be received by the Exchange Agent by the
Expiration Date as indicated in the Letter of Transmittal and the Prospectus.
If holders of the Outstanding Notes wish to tender, but it is
impracticable for them to forward their Outstanding Notes prior to the
Expiration Date or to comply with the book-entry transfer procedures on a timely
basis, a tender may be effected by following the guaranteed delivery procedures
described in the Prospectus under "The Exchange Offer - Guaranteed Delivery
Procedures" and the Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
Exchange Agent, Bankers Trust Company, by calling BT Services Tennessee,
Inc. at (800) 735-7777.
Very truly yours,
Express Scripts, Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY PERSON AS AN AGENT OF THE ISSUER OR THE EXCHANGE AGENT, OR AUTHORIZE
YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH
RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE
PROSPECTUS AND THE LETTER OF TRANSMITTAL.
<PAGE> 1
EXHIBIT 99.3
EXPRESS SCRIPTS, INC.
OFFER TO EXCHANGE
9 5/8% SERIES B SENIOR NOTES DUE 2009
FOR ANY AND ALL OF THE OUTSTANDING
9 5/8% SERIES A SENIOR NOTES DUE 2009
, 1999
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated [ ],
1999 (as the same may be amended or supplemented from time to time, the
"Prospectus"), and a Letter of Transmittal (the "Letter of Transmittal"),
relating to the offer (the "Exchange Offer") by Express Scripts, Inc. (the
"Issuer") and Diversified Pharmaceutical Services, Inc. ("DPS"), ESI/VRx Sales
Development Co. ("ESI/VRx"), Express Scripts Vision Corporation ("Vision"),
IVTx, Inc. ("IVTx"), Managed Prescription Network, Inc. ("MPN"), MHI, Inc.
("MHI"), Value Health, Inc. ("VHI"), ValueRx, Inc. ("ValueRx"), ValueRx Pharmacy
Program, Inc. ("ValueRx Pharmacy"), YourPharmacy.com, Inc. ("YourPharmacy"), and
Health Care Services, Inc. ("HCS," and together with DPS, ESI/VRx, Vision, IVTx,
MPN, MHI, VHI, ValueRx, ValueRx Pharmacy, and YourPharmacy, the "Guarantors,"
and each a "Guarantor"), are offering, to exchange $1,000 in principal amount of
the Issuer's 9 5/8% Series B Senior Notes due 2009, guaranteed by the
Guarantor (the "Exchange Notes"), for each $1,000 in principal amount of
outstanding 9 5/8% Series A Senior Notes due 2009, guaranteed by the Guarantor
(the "Outstanding Notes"), upon the terms and subject to the conditions set
forth in the Prospectus and Letter of Transmittal. The terms of the Exchange
Notes are identical in all material respects (including principal amount,
interest rate and maturity) to the terms of the Outstanding Notes for which they
may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes
are freely transferable by holders thereof (except as provided herein or in the
Prospectus) and are not subject to any covenant regarding registration under the
Securities Act of 1933, as amended (the "Securities Act"). The Outstanding Notes
are unconditionally guaranteed (the "Old Guarantees") by the Guarantors, and the
Exchange Notes will be unconditionally guaranteed (the "New Guarantees") by the
Guarantors. Upon the terms and subject to the conditions set forth in the
Prospectus and the Letter of Transmittal, the Guarantors offer to issue the New
Guarantees with respect to all Exchange Notes issued in the Exchange Offer in
exchange for the outstanding Old Guarantees of the Outstanding Notes for which
such Exchange Notes are issued in exchange. Throughout this letter, unless the
context otherwise requires and whether so expressed or not, references to the
"Exchange Offer" include the Guarantor's offer to exchange the New Guarantees
for the Old Guarantees, references to the "Exchange Notes" include the related
New Guarantees and references to the "Outstanding Notes" include the related Old
Guarantees. The Issuers will accept for exchange any and all Outstanding Notes
properly tendered according to the terms of the Prospectus and the Letter of
Transmittal. Consummation of the Exchange Offer is subject to certain conditions
described in the Prospectus.
This material is being forwarded to you as the beneficial
owner of Outstanding Notes carried by us for your account or benefit but not
registered in your name. A tender of such Outstanding Notes may only be made by
us as the registered holder and pursuant to your instructions. Therefore, the
Issuers urge beneficial owners of Outstanding Notes registered in the name of a
broker, dealer, commercial bank, trust company or other nominee to contact such
registered holder promptly if such beneficial owners wish to tender Outstanding
Notes in the Exchange Offer.
<PAGE> 2
Accordingly, we request instructions as to whether you wish to
tender any or all such Outstanding Notes held by us for your account, pursuant
to the terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal. However, we urge you to read the Prospectus carefully before
instructing us as to whether or not to tender your Outstanding Notes.
Your instructions to us should be forwarded as promptly as
possible in order to permit us to tender Outstanding Notes on your behalf in
accordance with the provisions of the Exchange Offer. The Exchange Offer will
expire at 5:00 P.M., New York City Time, on , 1999, unless the Exchange Offer
is extended by the Issuer. The time the Exchange Offer expires is referred to as
the "Expiration Date." Tenders of Outstanding Notes may be withdrawn at any time
prior to the Expiration Date.
IF YOU WISH TO HAVE US TENDER ANY OR ALL OF YOUR OUTSTANDING
NOTES, PLEASE SO INSTRUCT US BY COMPLETING, EXECUTING AND RETURNING TO US THE
INSTRUCTION FORM ON THE REVERSE HEREOF. The accompanying Letter of Transmittal
is furnished to you for your information only and may not be used by you to
tender Outstanding Notes held by us and registered in our name for your account
or benefit.
If we do not receive written instructions in accordance with
the procedures presented in the Prospectus and the Letter of Transmittal, we
will not tender any of the Outstanding Notes on your account.
Please carefully review the enclosed material as you consider
the Exchange Offer.
<PAGE> 3
INSTRUCTIONS
INSTRUCTION TO REGISTERED HOLDER AND/OR DTC PARTICIPANT
FROM BENEFICIAL OWNER
OF
9 5/8% SERIES A SENIOR NOTES
DUE 2009
The undersigned hereby acknowledges receipt of the
Prospectus dated [ ], 1999 (as the same may be amended or supplemented from
time to time, the "Prospectus"), and a Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") by Express Scripts,
Inc. (the "Issuer") and Diversified Pharmaceutical Services, Inc. ("DPS"),
ESI/VRx Sales Development Co. ("ESI/VRx"), Express Scripts Vision Corporation
("Vision"), IVTx, Inc. ("IVTx"), Managed Prescription Network, Inc. ("MPN"),
MHI, Inc. ("MHI"), Value Health, Inc. ("VHI"), ValueRx, Inc. ("ValueRx"),
ValueRx Pharmacy Program, Inc. ("ValueRx Pharmacy"), YourPharmacy.com, Inc.
("YourPharmacy"), and Health Care Services, Inc. ("HCS," and together with DPS,
ESI/VRx, Vision, IVTx, MPN, MHI, VHI, ValueRx, ValueRx Pharmacy, and
YourPharmacy, the "Guarantors," and each a "Guarantor"), to exchange $1,000 in
principal amount of the Issuer's 9 5/8% Series B Senior Notes due 2009,
guaranteed by the Guarantors, (the "Exchange Notes"), for each $1,000 in
principal amount of outstanding 9 5/8% Series A Senior Notes due 2009,
guaranteed by the Guarantors, (the "Outstanding Notes"), upon the terms and
subject to the conditions set forth in the Prospectus and Letter of
Transmittal. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the
action to be taken by you relating to the Exchange Offer with respect to the
Outstanding Notes held by you for the account of the undersigned.
The aggregate face amount of the Outstanding Notes held by you
for the account of the undersigned is (fill in amount):
$_______________ of the Outstanding Notes.
With respect to the Exchange Offer, the undersigned hereby
instructs you (check appropriate box):
[ ] To TENDER the following Outstanding Notes held by you for the
account of the undersigned (insert principal amount of
Outstanding Notes to be tendered, if any):
$_______________ of the Outstanding Notes.
[ ] NOT to TENDER any Outstanding Notes held by you for the
account of the undersigned.
<PAGE> 1
EXHIBIT 99.4
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
EXPRESS SCRIPTS, INC.
OFFER TO EXCHANGE
9 5/8% SERIES B SENIOR NOTES DUE 2009
FOR ANY AND ALL OF THE OUTSTANDING
9 5/8% SERIES A SENIOR NOTES DUE 2009
This form must be used by a holder of the 9 5/8% Series A
Senior Notes due 2009, guaranteed by the Guarantors (the "Outstanding Notes") of
Express Scripts, Inc. (the "Issuer") who wishes to tender Outstanding Notes to
the Exchange Agent pursuant to the guaranteed delivery procedures described in
"The Exchange Offer--Guaranteed Delivery Procedures" of the Prospectus dated
[ ], 1999 (the "Prospectus") and in Instruction 2 to the Letter of
Transmittal. Any holder who wishes to tender Outstanding Notes pursuant to such
guaranteed delivery procedures must ensure that the Exchange Agent receives this
Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange
Offer. Capitalized terms not defined herein have the meanings ascribed to them
in the Prospectus or the Letter of Transmittal.
To: Bankers Trust Company, Exchange Agent
<TABLE>
<CAPTION>
By Overnight Mail or Courier: By Hand: By Mail:
<S> <C> <C>
BT Services Tennessee, Inc. Bankers Trust Company BT Services Tennessee, Inc.
Corporate Trust & Agency Group Corporate Trust and Agency Group Reorganization Unit
Reorganization Unit Attn: Reorganization Department P.O. Box 292737
648 Grassmere Park Road Receipt & Delivery Window Nashville, TN 37229-2737
Nashville, TN 37211 123 Washington Street, 1st Floor
New York, NY 10006
By Facsimile Transmission:
(615) 835-3701
Confirm by Telephone:
(615) 835-3572
Information:
(800) 735-7777
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and subject to the
conditions set forth in the Prospectus and the related Letter of Transmittal,
receipt of which is hereby acknowledged, the principal amount of Outstanding
Notes specified below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the Letter of Transmittal. The
undersigned hereby tenders the principal amount of Outstanding Notes listed
below:
<PAGE> 2
2
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) PRINCIPAL AMOUNT PRINCIPAL AMOUNT
OF OUTSTANDING NOTES REPRESENTED TENDERED
______________________________________________________________________________________________________________________________
<S> <C> <C>
______________________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________________
</TABLE>
[ ] The Depositary Trust Company
(check if Outstanding Notes will be tendered by book-entry transfer)
Account Number: ________________________________________________________________
SIGN HERE
Name of Holder:_________________________________________________________________
Signature(s):___________________________________________________________________
Name(s) (please print):_________________________________________________________
Address:________________________________________________________________________
Telephone Number : _____________________________________________________________
Date: __________________________________________________________________________
<PAGE> 3
3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Outstanding Notes tendered hereby in
proper form for transfer and any other required documents, all by 5:00 p.m., New
York City time, on the third business day following the Expiration Date.
SIGN HERE
Name of firm:______________________________________________
Authorized Signature:______________________________________
Name (please print): ______________________________________
Address:___________________________________________________
___________________________________________________
Telephone Number:__________________________________________
Date: _____________________________________________________
DO NOT SEND NOTES WITH THIS FORM. ACTUAL SURRENDER OF NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly
completed and duly executed copy of this Notice of Guaranteed Delivery and any
other documents required by this Notice of Guaranteed Delivery must be received
by the Exchange Agent at its address set forth herein prior to the Expiration
Date. The method of delivery of this Notice of Guaranteed Delivery and any other
required documents to the Exchange Agent is at the election and risk of the
holder, and the delivery will be deemed made only when actually received by the
Exchange Agent. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. Instead of delivery by mail, it is
recommended that the holder use an overnight or hand delivery service. In all
cases sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedure, see Instruction 2 of the
Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice
of Guaranteed Delivery is signed by the registered holder(s) of the Outstanding
Notes referred to herein, the signature(s) must correspond with the name(s)
written on the face of the Outstanding Notes without alteration, enlargement, or
any change whatsoever.
<PAGE> 4
4
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Outstanding Notes listed, this Notice of
Guaranteed Delivery must be accompanied by appropriate bond powers, signed as
the name of the registered holder(s) appear(s) on the Outstanding Notes.
If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation,
or other person acting in a fiduciary or representative capacity, such person
should so indicate when signing.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance and requests for additional copies of the Prospectus may
be directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
