<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------
PEDIATRIC SERVICES OF AMERICA, INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
----------------
DELAWARE 8082 58-1873345
(STATE OF INCORPORATION)(PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
310 TECHNOLOGY PARKWAY
NORCROSS, GEORGIA 30092
(770) 441-1580
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
----------------
STEPHEN M. MENGERT
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PEDIATRIC SERVICES OF AMERICA, INC.
310 TECHNOLOGY PARKWAY
NORCROSS, GEORGIA 30092
(770) 441-1580
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
SUSAN E. DIGNAN, ESQ. DAVID M. CALHOUN, ESQ.
GENERAL COUNSEL LONG ALDRIDGE & NORMAN LLP
PEDIATRIC SERVICES OF AMERICA, INC. 5300 ONE PEACHTREE CENTER
310 TECHNOLOGY PARKWAY 303 PEACHTREE STREET, N.E.
NORCROSS, GEORGIA ATLANTA, GEORGIA 30308
(770) 441-1580 (404) 527-4000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) FEE(1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10% Senior Subordinated
Notes due 2008, Series
A..................... $75,000,000 100% $75,000,000 $22,125
- -------------------------------------------------------------------------------------------
Guarantees of 10% Senior
Subordinated Notes due
2008, Series A........ (2) (2) (2) (2)
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee.
(2) Pursuant to Rule 457(n), no registration fee is required with respect to
the Guarantees of the 10% Senior Subordinated Notes, Series A registered
hereby.
----------------
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 OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY
STANDARD
JURISDICTION OF INDUSTRIAL
INCORPORATION OF CLASSIFICATION I.R.S. EMPLOYER
NAME ORGANIZATION CODE IDENTIFICATION CODE
---- ---------------- -------------- -------------------
<S> <C> <C> <C>
PSA Properties
Corporation.............. Delaware 8082 52-2047069
PSA Licensing
Corporation.............. Delaware 8082 51-0375888
Pediatric Services of
America, Inc. ........... Georgia 8082 58-1584862
Pediatric Services of
America (Connecticut),
Inc. .................... Connecticut 8082 58-2207506
Premier Medical Services,
Inc. .................... Nevada 8082 68-0295740
Pediatric Home Nursing
Services, Inc. .......... New York 8082 13-3865349
Pediatric Partners,
Inc. .................... Delaware 8082 58-1914526
Paramedical Services of
America, Inc. ........... California 8082 68-0297864
Premier Nurse Staffing,
Inc. .................... Nevada 8082 68-0295743
Premier Certified Home
Health Services, Inc. ... Nevada 8082 68-0314677
ARO Health Services,
Inc. .................... Washington 8082 91-1516697
</TABLE>
<PAGE>
PROSPECTUS
LOGO
OFFER TO EXCHANGE
10% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
($75,000,000 PRINCIPAL AMOUNT)
FOR ALL OUTSTANDING
10% SENIOR SUBORDINATED NOTES DUE 2008
($75,000,000 PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME
ON , 1998, UNLESS EXTENDED
-----------
Pediatric Services of America, Inc., a Delaware corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and in the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange up to $75,000,000 aggregate
principal amount of its 10% Senior Subordinated Notes due 2008, Series A (the
"New Notes") for up to $75,000,000 aggregate principal of its outstanding 10%
Senior Subordinated Notes due 2008 (the "Old Notes"). The terms of the New
Notes are identical in all material respects to those of the Old Notes, except
(i) the New Notes have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and therefore will not be subject to certain
restrictions on transfer applicable to the Old Notes and (ii) the New Notes
will not provide for the payment of Liquidated Damages (as defined herein)
relating to certain registration rights. The New Notes will be issued pursuant
to, and entitled to the benefits of, the Indenture (as defined herein)
governing the Old Notes. The New Notes and the Old Notes are referred to
collectively as the "Notes."
The New Notes will bear interest at the rate of 10% per annum, payable semi-
annually on April 15 and October 15 of each year, commencing October 15, 1998.
Holders of New Notes will receive interest on October 15, 1998, from the date
of initial issuance of the New Notes, plus an amount equal to the accrued
interest on the Old Notes from the date of initial issuance thereof to the date
of exchange thereof pursuant to the Exchange Offer. Interest on the Old Notes
accepted for exchange will cease to accrue upon issuance of the New Notes in
exchange therefor.
(continued on next page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 1998.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
(continued from previous page)
The New Notes are redeemable for cash at any time on or after April 15,
2003, at the option of the Company, in whole or in part, at the redemption
prices set forth herein, plus accrued and unpaid interest to the date of
redemption. In addition, at any time prior to April 15, 2001, the Company may
redeem up to $18,750,000 aggregate principal amount of the Notes with the net
proceeds from one or more public offerings of common stock of the Company at
the redemption price set forth herein plus accrued and unpaid interest to the
date of redemption; provided, that at least $56,250,000 aggregate principal
amount of the Notes would remain outstanding after giving effect to any such
redemption. Upon a Change of Control (as defined herein), the holders of the
Notes will have the right to require the Company to repurchase their Notes, in
whole or in part, at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the repurchase date. See
"Description of New Notes."
The New Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of the Company, including indebtedness under the Credit
Agreement. The New Notes will be guaranteed (the "Subsidiary Guarantees"),
jointly and severally, on a senior subordinated basis by all existing and
future Restricted Subsidiaries (as defined herein) of the Company (the
"Guaranteeing Subsidiaries"). The Subsidiary Guarantees will be subordinated
in right of payment to all existing and future Senior Debt of the Guaranteeing
Subsidiaries, including any guarantees by the Guaranteeing Subsidiaries of the
Company's obligations under the Credit Agreement (as defined herein). As of
April 30, 1998, the Company had approximately $27.0 million of Senior Debt
outstanding. In addition, the Company had approximately $73.0 million
available for borrowing under the Credit Agreement.
The Company will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City
time, on , 1998, unless extended by the Company in its sole discretion (the
"Expiration Date"). Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. In the event the
Company terminates the Exchange Offer, and does not accept for exchange any
Old Notes with respect to the Exchange Offer, the Company will promptly return
the Old Notes to the holders thereof. The Exchange Offer is not conditioned
upon any minimum principal amount of Old Notes being tendered for exchange,
but is otherwise subject to certain customary conditions. The Old Notes may be
tendered only in integral multiples of $1,000.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Guaranteeing Subsidiaries contained in the
Registration Rights Agreement dated April 16, 1998 (the "Registration Rights
Agreement"), by and among the Company, the Guaranteeing Subsidiaries and
Salomon Brothers Inc, NationsBanc Montgomery Securities LLC and First Union
Capital Markets, a division of Wheat First Securities, Inc., as the initial
purchasers (the "Initial Purchasers") with respect to the offering of the Old
Notes (the "Initial Offering").
Based on interpretations by the Staff of the Securities and Exchange
Commission (the "Commission"), the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by the respective holders thereof (other than any such holder
which is an "affiliate" of the Company 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 New Notes are
acquired in the ordinary course of such holder's business and such holder has
no arrangement with any person to participate in the distribution of such New
Notes and is not engaged in and does not intend to engage in a distribution of
the New Notes. Each broker-dealer that receives New 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 New 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 the resales of the New Notes received in exchange for Old Notes if such
New Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180
2
<PAGE>
days after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
Prior to the Exchange Offer, there has been no public market for the New
Notes. There can be no assurance as to the liquidity of any markets that may
develop for the New Notes, the ability of holders to sell the New Notes, or
the price at which holders would be able to sell the New Notes. Future trading
prices of the New Notes will depend on many factors, including among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Historically, the market for securities similar
to the New Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the New Notes, if
such market develops, will not be subject to similar disruptions. The Initial
Purchasers have advised the Company that they currently intend to make a
market in the New Notes offered hereby. However, the Initial Purchasers are
not obligated to do so and any market-making activities may be discontinued at
any time without notice.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses incident to the Exchange Offer.
----------------
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
THIS PROSPECTUS (INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN)
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS (AS SUCH TERM IS DEFINED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995) AND INFORMATION RELATING TO
THE COMPANY THAT IS BASED ON THE BELIEFS OF THE MANAGEMENT OF THE COMPANY, AS
WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO THE
MANAGEMENT OF THE COMPANY. WHEN USED IN THIS PROSPECTUS (OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE) THE WORDS "MAY," "COULD," "SHOULD," "WOULD,"
"ESTIMATE," "PROJECT," "BELIEVE," "ANTICIPATE," "INTEND," "EXPECT," "PLAN" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,
CERTAIN OF WHICH ARE BEYOND THE COMPANY'S CONTROL. SUCH STATEMENTS REFLECT THE
CURRENT VIEWS OF THE COMPANY WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS, INCLUDING THOSE
DISCUSSED UNDER "RISK FACTORS" AS WELL AS GENERAL ECONOMIC CONDITIONS AND
INDUSTRY TRENDS, THE LEVEL OF ACQUISITION OPPORTUNITIES AVAILABLE TO THE
COMPANY AND THE COMPANY'S ABILITY TO NEGOTIATE THE TERMS OF SUCH ACQUISITIONS
ON A FAVORABLE BASIS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO
THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE
DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
3
<PAGE>
AVAILABLE INFORMATION
The Company and the Guaranteeing Subsidiaries have filed with the Commission
a Registration Statement on Form S-4 under the Securities Act for the
registration of the New Notes offered hereby (the "Registration Statement").
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company or the New
Notes offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, which may be inspected without charge at the
public reference facility maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of which may be obtained from the
Commission at prescribed rates. Statements made in this Prospectus concerning
the contents of any document referred to herein are not necessarily complete.
With respect to each such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, and other information with the
Commission. Proxy statements, reports and other information concerning the
Company can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the regional offices of the
Commission at Seven World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. In addition, the reports, proxy statements and other information can be
obtained from the Commission's website at http:www.sec.gov. Quotations
relating to the Common Stock of the Company appear on the Nasdaq National
Market. Reports, proxy statements and other information concerning the Company
also can be inspected at the offices of the Nasdaq National Market, 1753 K
Street, N.W., Washington, D.C. 20006 or at the Company's website at
www.psakids.com.
For so long as any Notes remain outstanding, the Company is obligated under
the Indenture to remain subject to the reporting requirements of Section 13 or
Section 15(d) of the Exchange Act and to continue to file with the Commission
such information, documents and other reports which are specified in such
Sections of the Exchange Act. The Company is obligated to file with the
Trustee (as defined herein) and cause to be provided to the holders of the
Notes copies of such annual reports and of the information, documents and
other reports which the Company is required to file with the Commission.
INCORPORATION BY REFERENCE
The following documents heretofore filed by the Company with the Commission
are hereby incorporated herein by reference as of their respective dates:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997;
(2) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1997; and
(2) The Company's Current Report on Form 8-K dated April 17, 1998.
All reports and documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior
to the termination of the Exchange Offer shall be deemed to be incorporated by
reference herein and made a part hereof from the respective dates of the
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered upon the written or oral request of such person,
a copy of any or all of the documents incorporated by reference herein (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that the Prospectus
incorporates). Requests should be directed to: Susan E. Dignan, General
Counsel, Pediatric Services of America, Inc., 310 Technology Parkway,
Norcross, Georgia 30092, telephone number (770) 441-1580.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the related notes thereto, appearing elsewhere in this Prospectus or
incorporated by reference herein.
THE COMPANY
The Company is a leading provider of children's health care and related
services. The Company is the nation's largest focused pediatric home health
care provider and third largest provider of paramedical testing services. The
Company provides children's health care services through 131 branch offices
located in 29 states and the District of Columbia and paramedical testing
services through over 200 field offices located in all 50 states, Puerto Rico
and Guam. During the quarter ended December 31, 1997, health care and related
services represented approximately 84% of the Company's net revenue and
paramedical testing represented approximately 16% of the Company's net revenue.
The Company's net revenue and EBITDA have increased at a compound annual growth
rate (measured as the yearly percentage growth from the fiscal year ended
September 30, 1992 to the fiscal year ended September 30, 1997) of 53% and 60%,
respectively. For the twelve months ended December 31, 1997, the Company had
net revenue and EBITDA of $219.0 million and $23.8 million, respectively.
The U.S. market for pediatric home health care services is estimated by the
Company to exceed $5 billion. This market is served by a large number of small
entities that operate on a local or regional basis and typically provide a
limited range of health care services. This market is also served by a small
number of national home health care companies that service the pediatric market
as part of a broader product offering. Because of the high degree of
specialization required for effective treatment of pediatric patients and the
broad scope of services required due to pediatric patients' generally high
medical acuity levels, the Company believes that there are significant growth
opportunities for a national provider offering a broad range of health care
services focused on the pediatric patient. The Company also believes that
pediatric health care is a highly distinct and attractive segment of the home
health care market. Pediatric patients typically are medically fragile due to
premature birth, trauma or genetic defects and often require constant, high
acuity, specialized care from trained nurses for extended periods of time.
Third-party reimbursement for pediatric home care is provided predominantly by
private health insurance, with a smaller portion provided by Medicaid. Because
of the special needs of pediatric patients, the acuity of care and the skill
levels of the nurses or therapists providing the care, the rates charged for
nursing and other home health care services for pediatric patients are
generally higher than adult rates. In addition, due to the high medical acuity
of pediatric home care patients and the large variations in patient conditions
and treatment protocols, pediatric home health care is typically not reimbursed
on a capitated basis.
The Company provides a broad range of pediatric health care services,
including nursing, respiratory therapy and other medical equipment, and
pharmacy and infusion therapy. In addition, the Company provides pediatric
rehabilitation services, day treatment centers for medically fragile children,
pediatric well care services and special needs educational services for
pediatric patients. The Company also provides case management services in order
to assist the family and patient by coordinating the provision of services
between the insurer or other payor, the physician, the hospital and other
health care providers. The Company's services are designed to provide a high
quality, lower cost alternative to prolonged hospitalization for medically
fragile children.
The U.S. paramedical testing services market is estimated by the Company to
be approximately $500 million with the majority of services being provided by
four national providers, including the Company, and several regional providers.
Paramedical testing services include taking health histories, obtaining blood
and urine samples and administering physical examinations and
electrocardiograms. Some or all of these tests are typically required by
insurance companies as a prerequisite to underwriting life, health and
disability insurance policies.
5
<PAGE>
The Company believes that the paramedical testing services market is growing
due to: (i) the implementation of stricter underwriting standards requiring
increased testing as a result of growing concern over substance abuse and AIDS
and other catastrophic illnesses; (ii) technological advances in testing; and
(iii) the aging of the U.S. population. The Company also believes that large
national providers are growing at the expense of local and regional providers
as many insurance companies seek to improve quality and reduce administrative
costs by consolidating their business with fewer providers.
In February 1996, the Company acquired Premier Medical Services, Inc.
("Premier"), thereby extending its home health care operations and entering the
paramedical testing business. In December 1997, the Company acquired the
Physical Measurements Information division ("PMI") of ChoicePoint Services,
Inc. ("ChoicePoint"), consisting of ChoicePoint's paramedical testing assets
and operations, making the Company the nation's third largest provider of
paramedical testing services. The Company provides a broad range of paramedical
testing services, including taking health histories, collecting blood and urine
samples, administering physical examinations and performing electrocardiogram
examinations on insurance applicants. The Company's paramedical testing
services clients include over 1,000 life, health and disability insurance
companies as well as corporations that require drug and alcohol screening,
wellness physical examinations and occupational health services. For the year
ended December 31, 1997, the Company estimates that PMI had approximately $60.0
million in net revenue.
The Company's goal is to be the nation's leading provider of children's
health care services and paramedical testing services. The Company's strategy
to achieve this goal includes: (i) continuing to focus on children's health
care services; (ii) expanding into new geographic markets; (iii) expanding the
range of services offered by the Company in its existing markets; (iv)
providing high quality, cost-effective care; (v) leveraging the quality of the
Company's service offering and its market position to continue to increase the
Company's share of the paramedical testing market; and (vi) continuing to
selectively acquire companies which extend the Company's geographic presence
and service offerings.
THE EXCHANGE OFFER
The New Notes............... The forms and terms of the New Notes are
identical in all material respects to the terms
of the Old Notes for which they may be exchanged
pursuant to the Exchange Offer, except for
certain transfer restrictions and registration
rights relating to the Old Notes described under
"--Terms of New Notes."
The Exchange Offer.......... The Company is offering to exchange up to $75
million aggregate principal amount of 10% Senior
Subordinated Notes due 2008, Series A (the "New
Notes") for up to $75 million aggregate principal
amount of its outstanding 10% Senior Subordinated
Notes due 2008 (the "Old Notes"). Old Notes may
be exchanged only in integral multiples of
$1,000.
Expiration Date; Withdrawal
of Tender..................
The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, or such later date
and time to which it is extended by the Company
(the "Expiration Date"). The tender of the Old
Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration
Date. Any Old Notes not accepted for exchange for
any reason will be returned without expense to
the
6
<PAGE>
tendering holder thereof as promptly as
practicable after the expiration or termination
of the Exchange Offer.
Certain Conditions to the
Exchange Offer.............
The Exchange Offer is subject to certain
customary conditions, which may be waived by the
Company. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer."
Procedures for Tendering Each holder of Old Notes wishing to accept the
Old Notes.................. Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with such Old Notes and any other
required documentation to the Exchange Agent (as
defined herein) at the address set forth herein.
By executing the Letter of Transmittal, each
holder will represent to the Company that, among
other things, (i) any New Notes to be received by
it will be acquired in the ordinary course of its
business, (ii) it has no arrangement or
understanding with any person to participate in
the distribution of the New Notes and (iii) it is
not an "affiliate", as defined in Rule 405 of the
Securities Act, of the Company or, if it is an
affiliate, it will comply with the registration
and prospectus delivery requirements of the
Securities Act to the extent applicable.
Interest on New Notes....... The New Notes will bear interest at the rate of
10% per annum, payable semi-annually on April 15
and October 15 of each year, commencing October
15, 1998. Holders of the New Notes will receive
interest on October 15, 1998 from the date of
initial issuance of the New Notes, plus an amount
equal to the accrued interest on the Old Notes
from the date of initial issuance of the Old
Notes to the date of exchange thereof pursuant to
the Exchange Offer. Interest on the Old Notes
accepted for exchange will cease to accrue upon
issuance of the New Notes in exchange therefor.
Special Procedures for
Beneficial Owners..........
Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Old Notes in the
Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender
on such owner's own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering his or her Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such owner's 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 Holders of Old Notes who wish to tender their Old
Procedures................. Notes and whose Old Notes are not immediately
available or who cannot deliver their
7
<PAGE>
Old Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent, prior to the Expiration
Date, must tender their Old Notes according to
the guaranteed delivery procedures set forth in
"The Exchange Offer --Guaranteed Delivery
Procedures."
Registration Requirements... The Company has agreed to use its best efforts to
(i) cause the registration statement of which
this Prospectus constitutes a part to become
effective and (ii) to consummate, no later than
45 days following the date on which such
registration statement becomes effective, the
registered Exchange Offer pursuant to which
holders of the Old Notes will be offered an
opportunity to exchange their Old Notes for the
New Notes which will be issued without legends
restricting the transfer thereof. In the event
the applicable interpretations of the staff of
the Commission do not permit the Company to
effect the Exchange Offer or in certain other
circumstances, the Company has agreed to file a
Shelf Registration Statement (as defined under
"Old Notes; Registration Rights") covering
resales of the Old Notes and to use its best
efforts to cause such Shelf Registration
Statement to be declared effective under the
Securities Act and, subject to certain
exceptions, keep such Shelf Registration
Statement effective until two years after the
effective date thereof.
Certain Federal Income Tax
Considerations.............
For a discussion of certain federal income tax
considerations relating to the exchange of the
New Notes for the Old Notes, see "Certain Federal
Income Tax Considerations Relating to the
Exchange Offer."
Exchange Agent.............. SunTrust Bank, Atlanta is the Exchange Agent. The
address and telephone number of the Exchange
Agent are set forth in "The Exchange Offer--
Exchange Agent."
The Old Notes are currently eligible for trading in the Nasdaq Stock Market's
Portal MarketSM ("Portal"). Following commencement of the Exchange Offer but
prior to its consummation, the Old Notes may continue to be traded in the
Portal market. Following consummation of the Exchange Offer, only Old Notes not
exchanged will be eligible for Portal trading.
TERMS OF NEW NOTES
New Notes................... $75,000,000 principal amount of 10% Senior
Subordinated Notes due 2008, Series A.
Maturity Date............... April 15, 2008.
Interest Payment Dates...... April 15 and October 15 of each year, commencing
October 15, 1998.
8
<PAGE>
Subordination; Subsidiary The New Notes will be general unsecured
Guarantees................. obligations of the Company, subordinated in right
of payment to all existing and future Senior Debt
of the Company, including indebtedness under the
Credit Agreement (as defined herein). The New
Notes will be guaranteed, jointly and severally,
on a senior subordinated basis by all existing
and future Restricted Subsidiaries of the
Company. The Subsidiary Guarantees will be
subordinated in right of payment to all existing
and future Senior Debt of the Guaranteeing
Subsidiaries, including any guarantees by the
Guaranteeing Subsidiaries of the Company's
obligations under the Credit Agreement. As of
April 30, 1998, the Company had approximately
$27.0 million of Senior Debt outstanding. In
addition, the Company had approximately $73.0
million available for borrowing under the Credit
Agreement. See "Description of Credit Agreement."
Optional Redemption......... Except as provided below, the New Notes are not
redeemable at the Company's option prior to April
15, 2003. Thereafter, the New Notes will be
redeemable, in whole or in part, at the option of
the Company, at the redemption prices set forth
herein plus accrued and unpaid interest to the
date of redemption. In addition, at any time
prior to April 15, 2001, the Company may, at its
option, redeem up to $18,750,000 aggregate
principal amount of Notes with the net proceeds
from one or more public offerings of common stock
of the Company at the redemption price set forth
herein plus accrued and unpaid interest to the
date of redemption; provided that at least
$56,250,000 aggregate principal amount of Notes
would remain outstanding after giving effect to
any such redemption. See "Description of New
Notes -- Optional Redemption."
Change of Control........... In the event of a Change of Control, each holder
of New Notes will have the right to require the
Company to repurchase such holder's New Notes, in
whole or in part, at a purchase price of 101% of
the principal amount thereof plus accrued and
unpaid interest to the date of repurchase. In the
event a Change of Control were to occur, there
can be no assurance that the Company will have
available funds sufficient to repurchase all of
the New Notes that holders elect to tender. In
addition, the Credit Agreement prohibits the
Company from repurchasing the New Notes without
the consent of the lenders. See "Description of
New Notes -- Repurchase at the Option of
Holders -- Change of Control."
Offer to Purchase........... The Company will be required in certain
circumstances to make an offer to purchase New
Notes and certain other indebtedness, at a
purchase price equal to 100% of the principal
amount thereof plus accrued and unpaid interest
to the date of purchase, with the net cash
proceeds of certain asset sales. The Credit
Agreement, however, prohibits the Company from
repurchasing the New Notes without the consent of
the lenders. See "Description of Notes -- Asset
Sales."
9
<PAGE>
Restrictive Covenants....... The indenture governing the Notes (the
"Indenture") contains covenants including, but
not limited to, covenants with respect to
limitations on the following matters: (i) the
incurrence of additional indebtedness, (ii) the
creation of liens, (iii) restricted payments,
(iv) sales of assets, (v) mergers and
consolidations, (vi) payment restrictions
affecting subsidiaries and (vii) transactions
with affiliates. See "Description of New Notes --
Certain Covenants."
Use of Proceeds............. There will be no cash proceeds to the Company
from the Exchange Offer. See "Use of Proceeds of
the New Notes."
Risk Factors................ See "Risk Factors" beginning on page 13 for a
discussion of certain factors that should be
considered prior to making a decision with
respect to the Exchange Offer.
10
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER
AS ADJUSTED 31, YEAR ENDED SEPTEMBER 30,
TWELVE MONTHS --------------------------- ----------------------------------------------------
ENDED AS
DECEMBER 31, AS ADJUSTED ADJUSTED
1997(1) 1997(2) 1997 1996 1997(2) 1997 1996 1995 1994 1993
------------- ----------- ------- ------- -------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(3):
Net revenue............. $219,027 $ 61,559 $61,559 $46,554 $204,023 $204,023 $163,804 $111,860 $70,686 $52,190
Operating salaries,
wages and employee
benefits............... 94,290 26,081 26,081 19,734 87,943 87,943 72,026 50,078 33,198 26,260
Other operating costs... 80,381 22,943 22,943 17,948 75,386 75,386 60,096 39,087 23,566 15,476
Corporate, general and
administrative......... 13,949 3,836 3,836 2,772 12,885 12,885 10,784 7,217 5,428 4,946
Provision for doubtful
accounts............... 6,698 1,833 1,833 1,375 6,239 6,239 4,708 3,164 1,411 1,335
Depreciation and
amortization........... 6,534 1,847 1,847 1,416 6,103 6,103 4,858 3,656 1,874 1,328
Combination costs....... -- -- -- -- -- -- 1,166 -- -- --
Operating income........ 17,175 5,019 5,019 3,309 15,467 15,467 10,166 8,658 5,209 2,845
Interest expense........ 7,841 1,991 1,466 575 7,800 3,534 1,778 1,643 1,074 872
Minority interest in
loss of subsidiary..... 81 1 1 40 119 119 64 -- -- --
Income taxes............ 3,766 1,212 1,432 1,118 3,114 4,797 3,406 2,803 1,556 574
Extraordinary item, net
of tax................. -- -- -- -- -- -- -- 781 (408) --
Net income.............. $ 5,649 $ 1,817 $ 2,122 $ 1,656 $ 4,672 $ 7,255 $ 5,046 $ 4,993 $ 2,171 $ 1,399
OTHER FINANCIAL DATA:
Depreciation and
amortization........... $ 6,534 $ 1,847 $ 1,847 $ 1,416 $ 6,103 $ 6,103 $ 4,858 $ 3,656 $ 1,874 $ 1,328
Gross interest expense.. 7,841 1,991 1,466 575 7,800 3,534 1,778 1,643 1,074 872
EBITDA(4)............... 23,790 6,867 6,867 4,765 21,689 21,689 15,088 12,314 7,083 4,173
Capital expenditures.... 7,242 1,774 1,774 1,400 6,867 6,867 6,479 3,811 2,682 1,890
AS ADJUSTED FINANCIAL
RATIOS:
Ratio of EBITDA to gross
interest expense(4).... 3.0 3.5 2.8
Ratio of total long-term
obligations to
EBITDA(4).............. 4.0 N.M. 3.5
Ratio of earnings to
fixed charges(5)....... 2.1 2.5 3.3 5.1 1.9 4.0 5.0 4.7 4.4 2.9
<CAPTION>
AT DECEMBER 31, 1997
-------------------------
AS
ACTUAL ADJUSTED(1)
------------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 415 $ 415
Working capital......... 70,646 70,646
Total assets............ 201,517 204,517
Long-term obligations,
including current
portion................ 92,147 95,147
Total stockholders'
equity................. 79,783 79,783
</TABLE>
- --------
(1) Represents the unaudited consolidated statement of operations of the
Company for the three months ended December 31, 1997 combined with the
unaudited consolidated statement of operations of the Company for the nine
months ended September 30, 1997, adjusted to give pro forma effect to the
sale of the Old Notes
11
<PAGE>
and the application of the net proceeds therefrom as described under "Use
of Proceeds of Old Notes" as if such transactions had occurred on January
1, 1997.
(2) Reflects the sale of the Old Notes and the application of the net proceeds
therefrom as described in "Use of Proceeds of Old Notes" as though such
transactions had occurred as of October 1, 1996 for statement of
operations purposes, and as of December 31, 1997 for balance sheet
purposes. Does not give effect to interest income derived from the net
proceeds from the offering of the Old Notes after giving effect to the
repayment of indebtedness or to the acquisition of PMI or certain other
businesses acquired during the period, for which audited financial
statements are not available.
(3) The consolidated financial information has been restated for the effect of
the business combination on February 29, 1996, of the Company and Premier,
which was accounted for using the pooling-of-interests method. See Note 5
of notes to the Company's Consolidated Financial Statements.
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, non-recurring charges, interest and other
income and extraordinary items. EBITDA is included herein because
management believes that certain investors may find it to be a useful tool
for measuring a company's ability to service its debt; however, EBITDA
does not represent cash flow from operations, as defined by generally
accepted accounting principles, and should not be considered as a
substitute for net income as an indicator of the Company's operating
performance or for cash flow as a measure of liquidity.
(5) The ratio of earnings to fixed charges is computed by dividing fixed
charges into earnings from operations before income taxes, non-recurring
items and extraordinary items plus fixed charges. Fixed charges include
interest expense, amortization of debt issuance costs and the estimated
interest component of rent expense.
12
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors, as
well as the other information included or incorporated by reference in this
Prospectus, in evaluating an investment in the Notes.
RISKS ASSOCIATED WITH GROWTH STRATEGY; RECENT ACQUISITION
Acquisitions represent an important element of the Company's growth
strategy. Historically the Company has acquired local and regional home health
care companies and paramedical testing companies. In the future, the Company
may seek to acquire health care companies and other businesses and entities
that expand or are complementary to the Company's existing business. There can
be no assurance that acquisitions can be consummated or that acquired
businesses can be integrated successfully into the Company's operations.
Furthermore, there can be no assurance that the Company will be able to obtain
sufficient financing for future acquisitions. Under the Credit Agreement, its
lenders must consent to all acquisitions involving consideration in excess of
$10 million and, prior to September 30, 1998, to any acquisitions or series of
related acquisitions involving cash consideration in excess of $1 million.
There also can be no assurance that past or future acquisitions will not have
an adverse effect upon the Company's operating results, particularly in the
fiscal quarters immediately following consummation of such transactions while
the operations of the acquired business or assets are being integrated into
the Company's operations. The Company also intends to expand its operations by
opening new branch offices in both new and existing markets and expanding the
services currently provided at its existing branch offices. There can be no
assurance that, if established, such start-up branch offices or service line
extensions will be successful. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
In December 1997, the Company purchased PMI, which had revenues of
approximately $60 million for the year ended December 31, 1997. Pursuant to
the terms of the transaction, ChoicePoint provided certain services on behalf
of the Company, including order entry, scheduling, status reporting, billing
and other related services with respect to the acquired operations at no
charge from December 15, 1997 through April 15, 1998, and continues to provide
these services for a monthly fee of approximately $223,000 per month from
April 15, 1998 through June 30, 1998, unless extended by mutual agreement of
the parties. The assets purchased from ChoicePoint included a computer system
under development by ChoicePoint designed to meet the requirements of the
paramedical testing operations (the "PMI System"). The system is designed for
entering orders, scheduling examinations and providing status reports. The
Company anticipates that the PMI System will be implemented in July 1998. The
Company is also developing internally a new paramedical testing billing and
collection system which is designed to integrate with the PMI System. The
Company is completing the development of this billing and collection system
and currently plans to implement it in June 1998. The integration of the PMI
System and the completion of the billing and collection system will require a
significant amount of management's time and attention, and there can be no
assurance that the Company will complete the development of the billing and
collection system or the integration of the operations in a timely manner.
Failure to complete the billing and collection system and integrate the
operations in accordance with management's plans could have a material adverse
effect on the Company's financial condition and results of operations.
Prior to the Company's purchase of PMI, ChoicePoint conducted its
paramedical testing operations as a nonsegregated division within ChoicePoint.
As such, ChoicePoint did not maintain detailed separate financial information
regarding the paramedical testing operations, other than information with
respect to net revenue. As a result, the Company could not obtain from
ChoicePoint sufficient financial information to prepare financial statements
for PMI for periods prior to the Company's acquisition of PMI. Accordingly,
except as to 1997 revenues and certain pro forma revenue information, neither
historical nor pro forma financial information with respect to PMI is included
in this Prospectus. The financial information used by the Company to value
PMI's operations and to create operating models and forecasts based on its
financial position and results of operations are based on numerous estimates
and assumptions. Although the Company believes that these estimates and
assumptions are reasonable, there can be no assurance that they are correct.
As a result, PMI may not contribute
13
<PAGE>
to the Company's results of operations as expected by management, which could
have a material adverse effect on the Company.
REIMBURSEMENT
During the year ended September 30, 1997, the Company derived approximately
64% of its health care related net revenue from private third-party payors,
and 27% and 9% from Medicaid and Medicare, respectively. Federal and state
governments as well as private and third-party payors have taken and continue
to take extensive steps intended to contain or reduce the costs of health
care. These steps have included, among others, reductions in reimbursement
rates, changes in services covered, increased utilization review of services,
negotiated prospective or discounted contract pricing and adoption of a
competitive bid approach to service contracts. Cost containment efforts are
expected to continue in the future. Although home health care, which is
generally less costly than hospital-based care, has benefitted from many of
these cost containment efforts, as expenditures in the home health care market
continue to grow, governmental and private initiatives aimed at reducing the
cost of health care delivery at non- hospital sites are increasing. Many state
Medicaid programs, in an effort to contain the cost of health care and in
light of state budgetary constraints, have reduced their payment rates and
have narrowed the scope of covered services. Likewise, the Federal 1990
Omnibus Budget Reconciliation Act ("OBRA 1990") imposed reimbursement limits
and a national rate system for home medical equipment, including respiratory
equipment. Similar initiatives have been implemented in the past and such
initiatives are expected to continue in the future. There can be no assurance
that these initiatives will not materially and adversely affect the Company's
revenues from these sources and, consequently, its results of operations.
The 1997 Balanced Budget Act ("BBA 1997") contains provisions intended to
significantly reduce Medicare reimbursement to the home health industry. In
addition, BBA 1997 requires that home health and home medical equipment
companies post surety bonds in specified amounts. Furthermore, reimbursement
reductions for oxygen and oxygen equipment are being phased in beginning
January 1, 1998, and home medical equipment fee schedules will be frozen. The
Company believes that health care reform initiatives are likely to continue in
the future. These developments are likely to have an adverse, and may have a
material adverse, effect on the Company. See "Business--Reimbursement."
In recent years, the process of obtaining reimbursement from third-party
payors for services rendered in the health care industry generally, and by the
Company in particular, has become increasingly complex. During this time, the
types of information required by payors has become more detailed and the
protocols for presenting information have become more exacting. As a result,
the payment cycle for the Company's health care services has lengthened. At
December 31, 1997, the Company's average days sales outstanding in accounts
receivable ("DSO") was 125 days, compared to 101 days at September 30, 1996.
Increases in DSO adversely affect the Company's cash flow. Although the
Company has implemented measures designed to shorten its health care services
payment cycle, and consequently lower its DSO, there can be no assurance that
these measures will be effective or that the Company's DSO will not increase.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
REGULATION
The Company's health care business is subject to extensive and frequently
changing state and federal regulation. The Company is subject to state laws
governing and regulating numerous aspects of its business, including home
health care and home infusion services (including certificate of need and
licensure requirements in certain states) and dispensing, distributing and
compounding of prescription products. The Company also is subject to certain
state laws prohibiting remuneration for patient or business referrals and the
provision of services where a financial relationship exists between a
referring physician and the entity providing the service. Federal laws
governing the Company's health care activities include regulations concerning
pharmacy operations and regulations under the Medicare and Medicaid programs
relating to, among other things, certification of home health agencies and
reimbursement. In addition, federal fraud and abuse laws restrict, among other
things,
14
<PAGE>
remuneration to parties in a position to influence or cause the referral of
patients or business. New laws and regulations are enacted from time to time
to regulate new and existing services and products in the home health care
industry. Changes in the law or new interpretations of existing laws also
could have an adverse effect on the Company's methods and costs of doing
business. Further, failure of the Company to comply with such laws could
adversely affect the Company's ability to continue to provide, or receive
reimbursement for, its services and equipment and also could subject the
Company and its officers to civil and criminal penalties. Recently,
enforcement of federal fraud and abuse laws, and regulatory scrutiny
generally, have increasingly focused on the home health care industry. There
can be no assurance that the Company will not become the subject of a
regulatory or other investigation or proceeding or that it will not encounter
regulatory impediments that could adversely affect its ability to open new
branch offices and to expand the services currently provided at its existing
branch offices. There can be no assurance that current or future government
regulation will not have an adverse effect upon the Company's business. See
"Business--Regulation."
IMPLEMENTATION OF NEW INFORMATION SYSTEMS
The business of the Company is dependent upon its ability to store,
retrieve, process and manage billing and collection information for each
patient. The Company is currently in the process of implementing an automated
national patient accounting system (the "NPAS"), which is designed to
facilitate these functions with respect to its home health care business. The
Company believes that when fully implemented, the NPAS will provide each of
the Company's health care locations with immediate access to patient
information and will perform billing and collection services. Also, in
connection with the acquisition of PMI, the Company acquired the PMI System
that was under development by ChoicePoint to manage certain order entry and
billing functions essential to its paramedical testing operations. The Company
anticipates that the PMI System will be implemented in July 1998. The Company
is also currently completing the development of a billing and collection
system and anticipates that it will be implemented in June 1998. The Company
has contracted with ChoicePoint to provide on an interim basis certain order
entry, scheduling, status reporting, billing and other related services. In
addition, the Company expects to begin implementation of a new general ledger,
inventory and accounts receivable system in the first quarter of fiscal 1999.
There can be no assurance that the Company will not experience unanticipated
delays, complications and expenses in the implementation of these systems.
Further, there can be no assurance that these systems, if successfully
implemented, will perform as expected, or that further development will not be
required. Failure by the Company to complete the implementation of its
management information systems successfully, or failure of such systems to
perform as expected, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Management Information Systems."
PRODUCT AND MALPRACTICE LIABILITY; INSURANCE
As a result of operating in the health care industry, the Company's business
entails an inherent risk of lawsuits alleging malpractice, product liability
or related legal theories, which can involve large claims and significant
defense costs. The Company is, from time to time, subject to such suits. The
Company currently maintains liability insurance intended to cover such claims.
This insurance coverage is provided under a "claims-made" policy which
provides, subject to the terms and conditions of the policy, coverage for
certain types of claims made against the Company during the term of the policy
and does not provide coverage for losses occurring during the terms of the
policy for which a claim is made subsequent to the termination of the policy.
There can be no assurance that the coverage limits of the Company's insurance
policies will be adequate. In addition, while the Company has been able to
obtain liability insurance in the past, such insurance varies in cost, is
difficult to obtain and may not be available in the future on acceptable terms
or at all. In addition, the Company is subject to accident claims arising out
of the normal operation of its fleet of vans and small trucks and maintains
insurance intended to cover such claims. A successful claim against the
Company in excess of the Company's insurance coverage could have a material
adverse effect upon the Company's business. Claims against the Company,
regardless of their merits or eventual outcome, also may have a material
adverse effect upon the Company's reputation and business.
15
<PAGE>
DEPENDENCE ON KEY MANAGEMENT AND HEALTH CARE PROFESSIONALS
The Company is highly dependent upon its senior management team and its
staff of professional nurses and respiratory therapists. Competition for
qualified management personnel and health care professionals is strong. The
loss of key personnel or the inability to attract, retain or motivate
sufficient numbers of qualified health care professionals could adversely
affect the Company's business. Although the Company generally has been able to
meet its staffing requirements for nurses and respiratory therapists, an
increase in competition in the future could have a material adverse effect on
the Company's profitability and on the Company's ability to maintain or
increase its patient base at certain or all of its branch offices. The Company
has an employment agreement with Joseph D. Sansone, the Company's President
and Chief Executive Officer, that expires in August 1999 subject to automatic
renewals of one year terms unless either party gives notice at least 30 days
prior to the expiration of the then current term.
COMPETITION
The markets for the Company's health care services are highly competitive
and are divided among a large number of providers, some of which are national
providers, but most of which are either regional or local providers. In
addition to competing with other home health care companies focusing on
providing services to pediatric patients, the Company competes with several
large national home health care companies that, while not focusing primarily
on the pediatric patient, provide pediatric home health care services as part
of a broader service offering. Certain of the Company's competitors and
potential competitors have significantly greater financial, technical and
marketing and sales resources than the Company and may, in certain locations,
possess licenses or certificates that permit them to provide services that the
Company cannot currently provide. There can be no assurance that the Company
will not encounter increased competition in the future that could limit the
Company's ability to maintain or increase its business and could adversely
affect the Company's operating results. See "Business--Competition."
RISKS ASSOCIATED WITH INTANGIBLE ASSETS
A substantial portion of the Company's assets consists of intangible assets,
principally goodwill (excess of cost over fair value of net assets acquired)
relating to the acquisition of businesses. As of December 31, 1997, the
Company's total assets were approximately $201.5 million of which
approximately $85.5 million, or 42.4%, were intangible assets. The Company
estimates that its annualized amortization expense at December 31, 1997 was
$3.2 million. Future acquisitions could significantly add to the Company's
intangible assets. In the event of any sale or liquidation of the Company or
declining operating results, there can be no assurance that the value of such
intangible assets will be realized. If facts and circumstances indicate that
goodwill will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill and related assets will be reduced to
fair value. Any such future determination requiring the write-off of a
significant portion of unamortized intangible assets could adversely affect
the Company's financial position and results of operations for the period in
which any such write-offs occur.
CHANGES IN HEALTH CARE INDUSTRY
In recent years, the health care industry has undergone significant change
driven by various efforts to reduce costs, including efforts at national
health care reform, trends toward managed care, limits in Medicare coverages
and reimbursement levels, consolidation of health care distribution companies
and collective purchasing arrangements by office-based health care
practitioners. The impact of third-party pricing pressures and low barriers to
entry have dramatically reduced profit margins for health care providers.
Continued growth in managed care and capitated plans have pressured health
care providers to find ways of becoming more cost competitive. This has also
led to consolidation of health care providers in the Company's market areas.
The Company's inability to react effectively to these and other changes in the
health care industry could adversely affect its operating results. The Company
cannot predict whether any health care reform efforts will be enacted and what
effect any such reforms may have on the Company or its customers and
suppliers.
16
<PAGE>
SIGNIFICANT LEVERAGE AND DEBT SERVICE
The Company has indebtedness which is substantial in relation to its
stockholders' equity, as well as interest and debt service requirements which
are significant compared to its cash flow from operations. As of December 31,
1997, on a pro forma basis after giving effect to the offering of the Old
Notes and the application of the net proceeds therefrom as described under
"Use of Proceeds of Old Notes," the Company would have had approximately $95.0
million of long-term debt outstanding, including current portion, representing
54.4% of total capitalization. See "Capitalization." In addition, as of
December 31, 1997, on a pro forma basis after giving effect to the offering of
the Old Notes and the application of the net proceeds therefrom, the Company
would have had available borrowing capacity of approximately $86.0 million
under the Company's credit facility (the "Credit Agreement"). See "Description
of Credit Agreement."
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to the
following: (i) a substantial portion of the Company's cash flow from
operations must be dedicated to debt service and will not be available for
operations and other purposes; (ii) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; and (iii) certain
of the Company's borrowings are and will continue to be at variable rates of
interest, which exposes the Company to the risk of increased interest rates.
The Company's ability to pay interest on the Notes and to satisfy its other
obligations will depend upon the Company's future operating performance, which
will be affected by prevailing economic conditions and financial, business and
other factors, many of which are beyond the Company's control. There can be no
assurance that the Company's operating results will continue to be sufficient
for the Company to meet its obligations. In addition, the Company may be
required to refinance the Notes at maturity. No assurance can be given that,
if required, the Company will be able to refinance the Notes on terms
acceptable to it, if at all. If the Company is unable to service its
indebtedness, it will be forced to adopt an alternative strategy that may
include actions such as reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness or seeking additional
equity capital. There can be no assurance that any of these strategies could
be effected on terms acceptable to the Company, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
LIMITATIONS IMPOSED BY CERTAIN INDEBTEDNESS
The Indenture contains certain restrictive covenants which will affect, and
in many respects significantly limit or prohibit, among other things, the
ability of the Company to incur indebtedness, make prepayments of certain
indebtedness, make investments, engage in transactions with affiliates, create
liens, sell assets and engage in mergers and consolidations. The Credit
Agreement contains similar and more restrictive covenants, including a
restriction on the repayment and prepayment of principal on the New Notes, and
also requires the Company to meet certain financial ratios and tests. These
covenants may significantly limit the operating and financial flexibility of
the Company and may limit its ability to respond to changes in its business or
competitive activities. The ability of the Company to comply with such
provisions may be affected by events beyond its control. In the event of any
default under the Credit Agreement or the Notes, the Credit Agreement lenders
could elect to declare all amounts borrowed under the Credit Agreement,
together with accrued interest, to be due and payable. If the Company were
unable to repay such borrowings, the lenders thereunder could proceed against
the collateral securing the Credit Agreement, which consists of the capital
stock of the Company's subsidiaries. If the indebtedness under the Credit
Agreement were to be accelerated, there can be no assurance that the assets of
the Company or those of its subsidiaries would be sufficient to repay such
indebtedness and the Notes (which are subordinated in right of payment to such
indebtedness) in full. See "Description of Credit Agreement."
SUBORDINATION
The payment of principal, premium, if any, interest and liquidated damages,
if any, on the Notes will be subordinated to the prior payment in full of all
existing and future Senior Debt of the Company, including indebtedness under
the Credit Agreement, and, therefore, in the event of the bankruptcy,
liquidation or
17
<PAGE>
reorganization of the Company, the assets of the Company will not be available
to pay obligations under the Notes until all such Senior Debt has been paid in
full. Furthermore, any payment with respect to a Subsidiary Guarantee also
will be subordinated to the payment of Senior Debt of the Guaranteeing
Subsidiary, including the Guaranteeing Subsidiary's guarantee of the Company's
obligations under the Credit Agreement. As a result, there may not be
sufficient assets remaining after such bankruptcy, liquidation or
reorganization to pay amounts due on the Notes. As of April 30, 1998, the
Company had approximately $27.0 million of Senior Debt outstanding. In
addition, as of April 30, 1998, the Company had available borrowing capacity
of approximately $73.0 million under the Credit Agreement. The Indenture
permits the Company to incur additional Senior Debt, subject to certain
limitations.
The subordination provisions of the Indenture provide that no payment may be
made by the Company with respect to the Notes upon the occurrence of a default
in the payment of principal, premium, if any, or interest on Designated Senior
Debt (as defined herein). In addition, upon the occurrence of any other event
entitling the holders of such Designated Senior Debt to accelerate the
maturity thereof and receipt by the Trustee (as defined herein) of written
notice of such occurrence, the holders of such Designated Senior Debt will be
able to block payment on the Notes for specified periods of time. If the
Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would nonetheless constitute an
event of default under the Indenture and would entitle the holders of the
Notes to accelerate the maturity thereof. See "Description of New Notes--
Subordination."
POTENTIAL INABILITY TO EFFECT A CHANGE OF CONTROL OFFER OR AN ASSET SALE OFFER
A Change of Control would require the Company to refinance substantial
amounts of indebtedness. Upon a Change of Control, the holders of the Notes
would be entitled to require the Company to repurchase their Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the repurchase date. In
addition, certain asset sales by the Company will require the Company to make
an offer to repurchase Notes and certain other indebtedness with the proceeds
of such asset sales at a purchase price equal to 100% of the principal amount
thereof plus accrued and unpaid interest and liquidated damages, if any, to
the repurchase date. However, the Credit Agreement prohibits the purchase of
the Notes by the Company unless and until the indebtedness under the Credit
Agreement is repaid in full and the Credit Agreement has been terminated. The
Company's failure to purchase the Notes would result in a default under the
Indenture and the Credit Agreement. The inability to repay the indebtedness
under the Credit Agreement, if accelerated, would also constitute an event of
default under the Indenture, which could have adverse consequences to the
Company and the holders of the Notes. In such event, there can be no assurance
that the Company would have sufficient assets to satisfy all of its
obligations under the Credit Agreement and the Notes. See "Description of New
Notes--Repurchase at the Option of Holders."
FRAUDULENT CONVEYANCE; PREFERENTIAL TRANSFER
If the court in a lawsuit brought by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy of the Company or a Guaranteeing
Subsidiary, as the case may be, as a debtor-in-possession, were to find under
relevant federal or state fraudulent conveyance statutes that the Company or
Guaranteeing Subsidiary, as the case may be, did not receive fair
consideration or reasonably equivalent value for incurring the indebtedness
represented by the Notes or the Subsidiary Guarantees and that, at the time of
such incurrence, the Company or such Guaranteeing Subsidiary (i) was
insolvent, (ii) was rendered insolvent by reason of such incurrence, (iii) was
engaged in a business or transaction for which the assets remaining with the
Company or such Guaranteeing Subsidiary constituted unreasonably small capital
or (iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, such court, subject to applicable
statutes of limitation, could avoid the Company's obligations under the Notes
or such Guaranteeing Subsidiary's obligations under its Subsidiary Guarantee,
subordinate the Notes or such Subsidiary Guarantee to other indebtedness of
the Company or such Guaranteeing Subsidiary or take other action detrimental
to the holders of the Notes.
18
<PAGE>
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than all that company's property at a fair valuation, or if the
present fair salable value of that company's assets is less than the amount
that will be required to pay its probable liability on its existing debts as
they become absolute and matured. Moreover, regardless of solvency, a court
could avoid an incurrence of indebtedness, including the Notes or a Subsidiary
Guarantee, if it determined that such transaction was made with intent to
hinder, delay or defraud creditors, or a court could subordinate the
indebtedness, including the Notes or a Subsidiary Guarantee, to the claims of
all existing and future creditors on similar grounds. Based upon financial and
other information currently available to it, management believes the Company
and each Guaranteeing Subsidiary are solvent. However, there can be no
assurance as to what standard a court would apply in order to determine
whether the Company or a Guaranteeing Subsidiary was "insolvent" upon
consummation of the sale of the Notes and the granting of the Subsidiary
Guarantees.
Additionally, under federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings were initiated by or against
the Company or a Guaranteeing Subsidiary within 90 days after any payment by
the Company with respect to the Notes or any payment by a Guaranteeing
Subsidiary with respect to its Subsidiary Guarantee or if the Company or a
Guaranteeing Subsidiary anticipated becoming insolvent at the time of such
payment, all or a portion of such payment could be avoided as a preferential
transfer and the recipient of such payment could be required to return such
payment.
ABSENCE OF PUBLIC MARKET; TRANSFER RESTRICTIONS
There is no existing market for the New Notes and there can be no assurance
as to the liquidity of any markets that may develop for the New Notes, the
ability of holders to sell the New Notes or the price at which holders would
be able to sell the New Notes. Future trading prices of the New Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results and the market for similar securities.
Historically, the market for securities similar to the New Notes, including
non-investment grade debt, has been subject to substantial volatility. There
can be no assurance that any market for the New Notes, if such market
develops, will not be subject to similar disruptions. The Initial Purchasers
have advised the Company that they currently intend to make a market in the
New Notes. However, the Initial Purchasers are not obligated to do so and any
such market-making activities may be discontinued at any time without notice.
Notwithstanding the registration of the New Notes, holders who are
"affiliates" (as defined in Rule 405 of the Securities Act) of the Company may
publicly offer for sale or resell the New Notes only in compliance with Rule
144 under the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE; POSSIBLE ADVERSE EFFECT ON TRADING MARKET
FOR OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold unless registered under the Securities Act and
applicable state laws, or pursuant to an exemption therefrom. Subject to the
obligation by the Company to file a Shelf Registration Statement covering
resales of Old Notes in certain circumstances, the Company does not intend to
register the Old Notes under the Securities Act and, after consummation of the
Exchange Offer, will not be obligated to do so. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Additionally, as a result of the Exchange Offer, it is
expected that a substantial decrease in the aggregate principal amount of Old
Notes outstanding will occur. As a result, it is unlikely that a liquid
trading market will exist for the Old Notes at any time. This lack of
liquidity will make transactions more difficult and may reduce the trading
price of the Old Notes. See "The Exchange Offer" and "Old Notes; Registration
Rights."
19
<PAGE>
THE COMPANY
Unless otherwise indicated or the context otherwise requires, all references
herein to the "Company" refer to Pediatric Services of America, Inc., a
Delaware corporation, and its wholly owned subsidiaries. The Company's
executive offices are located at 310 Technology Parkway, Norcross, Georgia
30092, and its telephone number at that location is (770) 441-1580.
USE OF PROCEEDS OF NEW NOTES
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the New Notes offered hereby. In
consideration for issuing the New Notes as contemplated in this Prospectus,
the Company will receive, in exchange, Old Notes in like principal amount. The
form and terms of the New Notes are identical in all material respects to the
form and terms of the Old Notes, except as otherwise described herein under
"The Exchange Offer--Terms of the Exchange Offer." The Old Notes surrendered
in exchange for the New Notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the New Notes will not result in any
increase in the outstanding debt of the Company.
USE OF PROCEEDS OF ORIGINAL NOTES
The net proceeds to the Company from the sale of the Old Notes, after
deducting the Initial Purchasers' discount and fees and expenses payable by
the Company in connection with the offering of the Old Notes, are estimated to
be $72.0 million. The Company used all of the net proceeds from the Offering
to repay a portion of the then outstanding indebtedness under the Company's
revolving Credit Agreement. See "Description of Credit Agreement."
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1997, and as adjusted to give effect to the sale by the Company of Old
Notes and the application of the estimated net proceeds therefrom as described
in "Use of Proceeds of Original Notes." This table should be read in
conjunction with the Consolidated Financial Statements and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997
-----------------
AS
ACTUAL ADJUSTED
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.................................... $ 415 $ 415
======== ========
Current maturities of long-term obligations.................. $ 2,191 $ 2,191
Long-term obligations, net of current maturities:
Credit Agreement........................................... 86,000 14,000
10% Senior Subordinated Notes due 2008..................... -- 75,000
Other notes payable........................................ 3,869 3,869
Capital lease obligations, less current portion.............. 87 87
-------- --------
$ 92,147 $ 95,147
======== ========
Stockholders' equity:
Preferred Stock, $.01 par value per share, 2,000,000 shares
authorized, none issued and outstanding................... -- --
Common Stock, $.01 par value per share, 80,000,000 shares
authorized, 7,019,496 shares issued and outstanding....... 70 70
Additional paid-in capital................................. 57,720 57,720
Retained earnings.......................................... 21,993 21,993
-------- --------
Total stockholders' equity............................... 79,783 79,783
-------- --------
Total capitalization................................... $171,930 $174,930
======== ========
</TABLE>
21
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
As a condition to the purchase of the Old Notes by the Initial Purchasers,
the Company entered into the Registration Rights Agreement with the Initial
Purchasers pursuant to which the Company agreed (i) to file, no later than
June 15, 1998, a registration statement (the "Exchange Offer Registration
Statement") with respect to an offer to exchange the Old Notes for New Notes
of the Company with terms substantially identical to the Old Notes, (ii) to
use best efforts to cause the Exchange Offer Registration Statement to become
effective under the Securities Act no later than August 29, 1998 and (iii) to
consummate the Exchange Offer no later than 45 days following the date on
which the Exchange Offer Registration Statement becomes effective. In the
event that applicable law or interpretations of the staff of the Commission do
not permit the Company to file the Registration Statement containing this
Prospectus or to effect the Exchange Offer, or if certain holders of the Old
Notes notify the Company that they are not permitted to participate in, or
would not receive freely tradeable New Notes pursuant to, the Exchange Offer,
the Company will use its best efforts to cause to become effective a Shelf
Registration Statement with respect to the resale of the Old Notes and to keep
the Shelf Registration Statement effective until two years after the effective
date thereof. The Old Notes are subject to the payment of Liquidated Damages
(as defined herein) under certain circumstances if the Company is not in
compliance with its obligations under the Registration Rights Agreement. See
"Old Notes; Registration Rights."
Each holder of the Old Notes who wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement
with any person to participate in the distribution of the New Notes and (iii)
it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the
Company or, if it is an affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent
applicable. See "Old Notes; Registration Rights."
RESALE OF NEW NOTES
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that, except as
described below, New Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by
any holder thereof (other than a holder which is an "affiliate" of the Company
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 such New Notes are acquired in the ordinary course of such
holder's business and such holder does not intend to participate and has no
arrangement or understanding with any person to participate in the
distribution of such New Notes. Any holder who tenders in the Exchange Offer
with the intention or for the purpose of participating in a distribution of
the New Notes cannot rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Unless an exemption from registration is otherwise available, any
such resale transaction should be covered by an effective registration
statement containing the selling security holders information required by Item
507 of Regulation S-K under the Securities Act. This Prospectus may be used
for an offer to resell, resale or other retransfer of New Notes only as
specifically set forth herein. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where such Old 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 New Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Old Notes properly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Company will issue $1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of
outstanding Old Notes surrendered pursuant to the Exchange Offer. Old Notes
may be tendered only in integral multiples of $1,000.
22
<PAGE>
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except the New Notes will be registered under the Securities
Act and hence will not bear legends restricting the transfer thereof. The New
Notes will evidence the same debt as the Old Notes. The New Notes will be
issued under and entitled to the benefits of the Indenture, which also
authorized the issuance of the Old Notes, such that both series will be
treated as a single class of debt securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
As of the date of this Prospectus, $75 million aggregate principal amount of
the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of Old Notes. There will
be no fixed record date for determining registered holders of Old Notes
entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which 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 and the Registration Rights Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Old Notes when, as and if the Company shall have given oral or written notice
thereof to the Exchange Agent and complied with the provisions of Section 2 of
the Registration Rights Agreement. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the New Notes from the
Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions specified
below under "--Certain Conditions to the Exchange Offer."
Holders who tender Old 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 Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York City time on
, 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders of Old Notes an announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the then Expiration
Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under
"--Certain Conditions to the Exchange Offer" shall not have been satisfied, by
giving oral or written notice of such delay, extension or termination to the
Exchange Agent or (ii) 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 Old Notes. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders, and the Company will extend the
Exchange Offer, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
23
<PAGE>
INTEREST ON THE NEW NOTES
The New Notes will bear interest at a rate of 10% per annum, payable semi-
annually, on April 15 and October 15 of each year, commencing October 15,
1998. Holders of New Notes will receive interest on October 15, 1998 from the
date of initial issuance of the New Notes, plus an amount equal to the accrued
interest on the Old Notes from the date of initial issuance thereof to the
date of exchange thereof for New Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the New Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any New Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of any Old Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the Company's sole judgment, might materially impair the ability
of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or enacted,
or any existing law, statute, rule or regulation is interpreted by the
staff of the Commission, which, in the Company's sole judgment, might
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Exchange Agent. During any such
extensions, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Old Notes
not accepted for exchange for any reason will be returned without expense to
the tendering holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified above. The Company will give oral or written notice of any
extension, amendment, non-acceptance or termination to the holders of the Old
Notes as promptly as practicable, such notice in the case of any extension to
be issued no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
or from time to time in its sole discretion. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time or from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall 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, as
amended (the "TIA").
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or facsimile thereof, have the signature thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile to the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration
24
<PAGE>
Date. In addition, either (i) Old Notes must be received by the Exchange Agent
along with the Letter of Transmittal, or (ii) a timely confirmation of book-
entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at the Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below must be received by the Exchange Agent
on or prior to the Expiration Date, or (iii) the holder must comply with the
guaranteed delivery procedures described below. To be tendered effectively,
the Letter of Transmittal and other required documents must be received by the
Exchange Agent at the address set forth below under "--Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old 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 such
registered holder of Old Notes to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Old Notes, either make appropriate arrangements to
register ownership of the Old Notes in such owner's name or obtain a properly
completed bond power from the registered holder of Old Notes. The transfer of
registered ownership may take considerable time and may not be able to be
completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case be, must be guaranteed by an Eligible Institution (as
defined below) unless the Old Notes tendered pursuant thereto are tendered (i)
by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantor must be 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 17Ad-15 under the Exchange
Act which is a member of one of the recognized signature guarantee programs
identified in the Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old 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, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
25
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
defects, irregularities or conditions of tender as to particular Old Notes.
The Company's 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 Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old 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 holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of Old Notes or a timely Book-Entry Confirmation of such
Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility, a properly completed and duly executed Letter of Transmittal and all
other required documents. If any tendered Old Notes are not accepted for
exchange for any reason set forth in the terms and conditions of the Exchange
offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of the Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at the
address set forth below under "--Exchange Agent" on or prior to 5:00 p.m., New
York City time, on the Expiration Date or, if the guaranteed delivery
procedures described below are to be complied with, within the time period
provided under such procedures. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives 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 registered number(s)
of such Old Notes and
26
<PAGE>
the principal amount of Old Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or facsimile thereof) together with the Old Notes or a Book-Entry
Confirmation, as the case may be, 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 Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and 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.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except an otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes were registered, if different from that of the withdrawing
holder. If certificates for Old 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 and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old 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 the Book Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old 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.
27
<PAGE>
EXCHANGE AGENT
SunTrust Bank, Atlanta has been appointed as Exchange Agent of the Exchange
Offer. Questions and requests for assistance, requests for additional copies
of this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
SUNTRUST BANK, ATLANTA
By Mail: By Facsimile: By Hand or Overnight
(Registered or Certified (Eligible Institutions Only) Delivery:
Mail recommended)
(404) 332-3966 SunTrust Bank, Atlanta
SunTrust Bank, Atlanta
58 Edgewood Avenue,
58 Edgewood Avenue, To Confirm by Telephone Suite 400
Suite 400 or for Information Call: Atlanta, Georgia 30303
Atlanta, Georgia 30303
Attention: David M. Kaye
Attention: David M. Kaye (404) 588-8060 Corporate Trust
Corporate Trust Department
Department
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telephone or in person by officers and regular employees of the
Company and its affiliates.
The Company has 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. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include registration fees, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs, and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates
representing Old 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 Notes tendered, or if tendered
Notes are registered in the name of any person other than the person signing
the Letter of Transmittal, or if a transfer tax is imposed for any reason
other than the exchange of Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old 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.
28
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company as of the dates and for the periods presented below. The selected
consolidated financial data as of September 30, 1997 and 1996 and for each of
the years in the three-year period ended September 30, 1997 have been derived
from the Company's audited Consolidated Financial Statements and notes thereto
included elsewhere and incorporated by reference herein. The financial
information as of December 31, 1997, and for the three months ended December
31, 1997 and 1996, has been derived from the Company's Consolidated Financial
Statements and notes thereto included elsewhere and incorporated by reference
herein and is unaudited, but in the opinion of management reflects all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the results for such period. The results of operations for the
three months ended December 31, 1997 are not necessarily indicative of results
that may be expected for any other interim period or for the full year. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER
31, YEAR ENDED SEPTEMBER 30,
--------------- -------------------------------------------
1997 1996 1997 1996 1995 1994 1993
------- ------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
(1):
Net revenue............. $61,559 $46,554 $204,023 $163,804 $111,860 $70,686 $52,190
Operating salaries,
wages and employee
benefits............... 26,081 19,734 87,943 72,026 50,078 33,198 26,260
Other operating costs... 22,943 17,948 75,386 60,096 39,087 23,566 15,476
Corporate, general and
administrative......... 3,836 2,772 12,885 10,784 7,217 5,428 4,946
Provision for doubtful
accounts............... 1,833 1,375 6,239 4,708 3,164 1,411 1,335
Depreciation and
amortization........... 1,847 1,416 6,103 4,858 3,656 1,874 1,328
Combination costs....... -- -- -- 1,166 -- -- --
------- ------- -------- -------- -------- ------- -------
Operating income........ 5,019 3,309 15,467 10,166 8,658 5,209 2,845
Interest expense........ 1,466 575 3,534 1,778 1,643 1,074 872
------- ------- -------- -------- -------- ------- -------
Income before minority
interest, income taxes
and extraordinary
item................... 3,553 2,734 11,933 8,388 7,015 4,135 1,973
Minority interest in
loss of subsidiary..... 1 40 119 64 -- -- --
------- ------- -------- -------- -------- ------- -------
Income before income
taxes and extraordinary
item................... 3,554 2,774 12,052 8,452 7,015 4,135 1,973
Income taxes............ 1,432 1,118 4,797 3,406 2,803 1,556 574
------- ------- -------- -------- -------- ------- -------
Income before
extraordinary item..... 2,122 1,656 7,255 5,046 4,212 2,579 1,399
Extraordinary item, net
of tax................. -- -- -- -- 781 (408) --
------- ------- -------- -------- -------- ------- -------
Net income.............. $ 2,122 $ 1,656 $ 7,255 $ 5,046 $ 4,993 $ 2,171 $ 1,399
======= ======= ======== ======== ======== ======= =======
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER
31, YEAR ENDED SEPTEMBER 30,
----------------- -------------------------------------------
1997 1996 1997 1996 1995 1994 1993
-------- -------- -------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
NET INCOME (LOSS)
ATTRIBUTABLE TO COMMON
AND COMMON EQUIVALENT
SHARES:
Income before
extraordinary item..... $ 2,122 $ 1,656 $ 7,255 $ 5,046 $ 4,212 $ 2,579 $ 1,399
Less accretion on
redeemable warrants.... -- -- -- -- -- (51) (48)
Less accretion on
redeemable preferred
stock.................. -- -- -- (10) (36) (2,198) (1,865)
Less preferred stock
dividends.............. -- -- -- (86) (195) (86) (128)
-------- -------- -------- ------- ------- ------- -------
Income (loss) before
extraordinary item
attributable to common
and common equivalent
shares................. 2,122 1,656 7,255 4,950 3,981 244 (642)
Extraordinary item, net
of tax................. -- -- -- -- 781 (408) --
-------- -------- -------- ------- ------- ------- -------
Income (loss)
attributable to common
and common equivalent
shares................. $ 2,122 $ 1,656 $ 7,255 $ 4,950 $ 4,762 $ (164) $ (642)
======== ======== ======== ======= ======= ======= =======
DENOMINATOR SHARE
DATA(2):
Denominator for basic
income per share-
weighted average
shares................. 6,504 6,249 6,257 6,057 4,655 1,573 227
Effect of dilutive
securities:
Warrants and options.... 204 184 189 243 403 91 --
Conversion of preferred
stock upon business
combination............ -- -- -- 137 -- -- --
Redeemable convertible
preferred stock
converted.............. -- -- -- -- 108 49 --
-------- -------- -------- ------- ------- ------- -------
Denominator for diluted
income per share-
adjusted weighted
average shares......... 6,708 6,433 6,446 6,437 5,166 1,713 227
======== ======== ======== ======= ======= ======= =======
INCOME PER SHARE
DATA(2):
Income (loss) before
extraordinary item per
common share:
Basic................. $ 0.33 $ 0.27 $ 1.16 $ 0.82 $ 0.86 $ 0.16 $ (2.83)
Diluted............... 0.32 0.26 1.13 0.77 0.77 0.14 (2.83)
Extraordinary item per
common share:
Basic................. -- -- -- -- $ 0.17 $ (0.26) --
Diluted............... -- -- -- -- 0.15 (0.24) --
-------- -------- -------- ------- ------- ------- -------
Net income (loss) per
common share:
Basic................. $ 0.33 $ 0.27 $ 1.16 $ 0.82 $ 1.02 $ (0.10) $ (2.83)
Diluted............... 0.32 0.26 1.13 0.77 0.92 (0.10) (2.83)
======== ======== ======== ======= ======= ======= =======
Weighted average shares
outstanding:
Basic................. 6,504 6,249 6,257 6,057 4,655 1,573 227
Diluted............... 6,708 6,433 6,446 6,437 5,166 1,713 227
======== ======== ======== ======= ======= ======= =======
OTHER FINANCIAL DATA:
Depreciation and
amortization........... $ 1,847 $ 1,416 $ 6,103 $ 4,858 $ 3,656 $ 1,874 $ 1,328
Interest expense........ 1,466 575 3,534 1,778 1,643 1,074 872
EBITDA(3)............... 6,867 4,765 21,689 15,088 12,314 7,083 4,173
Capital expenditures.... 1,774 1,400 6,867 6,479 3,811 2,682 1,890
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash
equivalents............ $ 415 $ 579 $ 501 $ 770 $ 101 $ 6,010 $ 924
Working capital......... 70,646 41,236 62,193 35,673 17,936 13,754 3,777
Total assets............ 201,517 109,840 153,834 98,736 73,151 40,299 30,706
Long-term obligations,
including current
portion................ 92,147 34,742 67,274 25,956 8,496 8,919 15,262
Total stockholders'
equity................. 79,783 55,866 61,680 54,193 44,621 20,097 161
</TABLE>
30
<PAGE>
- --------
(1) The consolidated financial information has been restated for the effect of
the business combination on February 29, 1996, of the Company and Premier
which was accounted for using the pooling-of-interests method. See Note 5
of notes to the Company's Consolidated Financial Statements.
(2) Income per share amounts for the periods presented have been restated to
conform to the Statement of Financial Accounting Standards No. 128,
Earnings Per Share requirements. All share information gives effect to a
0.7 for 1 reverse split of the Common Stock that was effected on June 10,
1994.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, non-recurring charges, interest and other
income and extraordinary items. EBITDA is included herein because
management believes that certain investors may find it to be a useful tool
for measuring a company's ability to service its debt; however, EBITDA
does not represent cash flow from operations, as defined by generally
accepted accounting principles, and should not be considered as a
substitute for net income as an indicator of the Company's operating
performance or for cash flow as a measure of liquidity.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Prior to September 1989, the Company operated as two wholly-owned
subsidiaries of Charter Medical Corporation. On September 25, 1989,
management, along with certain investors, completed the acquisition of the
Company with financing that included senior debt, a seller note and equity.
Subsequent to the acquisition, management made the strategic decision to focus
on the growth and development of the Company's pediatric (under age 18) and
young adult (age 18 to 64) home health care businesses and to de-emphasize the
Company's geriatric (age 65 and older) home health care business. Pediatric
home health care is a distinct specialty within the health care services
market requiring nurses, therapists and pharmacists trained to meet the
special needs of pediatric patients. In order to better meet these special
needs and to offer a broad range of services to medically fragile children and
their families, the Company has expanded its services beyond home health care
to include rehabilitation services, pediatric day treatment centers, well care
services and special needs education services for pediatric patients. The
Company also provides case management services in order to assist the family
and the patient by coordinating the provision of services between the insurer
or other payor, the physician, the hospital and other health care providers.
Consistent with the Company's focus on pediatric health care, the Company's
net revenue from pediatric health care services relative to geriatric health
care services has increased significantly during the past eight fiscal years.
The Company's pediatric and young adult revenue is derived primarily from
patients covered by private insurers and Medicaid, while geriatric revenue is
derived primarily from patients covered by Medicare.
In February 1996, the Company acquired Premier, thereby extending its home
health care operations and entering the paramedical testing services business.
In December 1997, the Company acquired PMI, which the Company estimates had
approximately $60 million in net revenue in the year ended December 31, 1997.
As a result of these acquisitions, the Company provides paramedical testing
for more than 1,000 life, health and disability insurance companies which use
the Company's services to assist them in risk assessment for underwriting
insurance policies. The Company also provides drug and alcohol screening,
wellness physical examinations and occupational health services for
corporations and other organizations.
The Company has grown significantly during the past five years, increasing
its revenue from $24.9 million in the fiscal year ended September 30, 1992 to
$204.0 million in the fiscal year ended September 30, 1997. The Company has
expanded its business through strategic acquisitions, new office openings and
internal growth. During the period from October 1, 1992 to December 31, 1997,
the Company completed 30 acquisitions, acquiring an aggregate of 67 branch
health care services offices in 26 states and over 200 paramedical testing
field offices with locations in all 50 states, Puerto Rico and Guam, and has
opened 16 additional start-up branch health care services offices. The Company
intends to continue to expand its business primarily through acquisitions,
opening additional offices in both new and existing markets and expanding the
services currently provided at its existing offices.
As a result of acquisitions completed by the Company, particularly the
December 1997 acquisition of PMI, the Company's historical results of
operations are not necessarily indicative of future results.
32
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
net revenue represented by the following items:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
DECEMBER YEAR ENDED
31, SEPTEMBER 30,
------------ -------------------
1997 1996 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating salaries, wages and employee
benefits.................................. 42.4 42.4 43.1 44.0 44.8
Other operating costs...................... 37.3 38.5 36.9 36.7 34.9
Corporate, general and administrative...... 6.2 6.0 6.3 6.6 6.5
Provision for doubtful accounts............ 3.0 3.0 3.1 2.9 2.8
Depreciation and amortization.............. 3.0 3.0 3.0 3.0 3.3
Combination costs.......................... -- -- -- 0.6 --
----- ----- ----- ----- -----
Operating income........................... 8.1 7.1 7.6 6.2 7.7
Interest expense........................... 2.4 1.2 1.7 1.1 1.4
----- ----- ----- ----- -----
Income before minority interest, income
taxes and extraordinary item.............. 5.7 5.9 5.9 5.1 6.3
Minority interest in loss of subsidiary.... -- 0.1 0.1 0.1 --
----- ----- ----- ----- -----
Income before income taxes and
extraordinary item........................ 5.7 6.0 6.0 5.2 6.3
Income taxes............................... 2.3 2.4 2.4 2.1 2.5
----- ----- ----- ----- -----
Income before extraordinary item........... 3.4 3.6 3.6 3.1 3.8
Extraordinary item, net of tax............. -- -- -- -- 0.7
----- ----- ----- ----- -----
Net income................................. 3.4% 3.6% 3.6% 3.1% 4.5%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1996
Net revenue increased $15.0 million, or 32%, to $61.6 million in the three
months ended December 31, 1997 from $46.6 million in the same period in the
prior year. The Company's acquisitions and start up operations accounted for
approximately $10.0 million, or 67%, of the increase and internal growth
accounted for the remaining $5.0 million, or 33%, of the increase. Overall,
the internal growth in net revenue was 11% for the three months ended December
31, 1997. Of the $15.0 million increase in net revenue in the first quarter of
fiscal 1998, pediatric health care net revenue accounted for $10.0 million, or
67%, of the increase. Increased pediatric health care net revenue for the
three months ended December 31, 1997 was attributable to the Company's
acquisitions which contributed approximately $4.6 million, or 46%, of the
increase and to internal marketing efforts which resulted in an increase in
patients served rather than any significant increase in rates charged. The net
increase in adult health care net revenue (attributable to young adult and
geriatric patients) accounted for $1.5 million, or 10%, of the total increase
in net revenue for the three months ended December 31, 1997. Increased adult
net revenue for the three months ended December 31, 1997 was attributable to
the Company's acquisitions which contributed approximately $3.0 million, or
30% of the increase. Paramedical testing services net revenue accounted for
$3.5 million, or 23%, of the increase in net revenue for the quarter,
primarily due to the acquisition of PMI. This acquisition accounted for $2.4
million, or 24%, of the increase. In the three months ended December 31, 1997,
the Company derived approximately 67% of its net revenues from commercial
insurers and other private payors, 25% from Medicaid and 8% from Medicare.
PMI, which has no significant revenue derived from government payors, did not
contribute materially to the same period in the prior year.
Operating salaries, wages and employee benefits consist primarily of branch
office operations. Operating salaries, wages and employee benefits increased
$6.4 million, or 32%, to $26.1 million in the three months ended December 31,
1997 from $19.7 million in the same period in the prior year. The increase was
primarily due to the Company's acquisitions and start up operations which
added approximately $4.4 million, or 70%, of the
33
<PAGE>
increase and the remainder to internal growth. As a percentage of net revenue,
operating salaries, wages and employee benefits for the three months ended
December 31, 1997 remained unchanged relative to the comparable period in the
prior year.
Other operating costs include medical supplies, branch office rents,
utilities, vehicle expenses and cost of sales. The cost of sales consists
primarily of the cost of pharmacy products. Other operating costs increased
$5.0 million, or 28%, to $22.9 million in the three months ended December 31,
1997 from $17.9 million in the comparable period in 1996. Of this increase,
$4.0 million, or 81%, relates to operations from the Company's acquisitions.
As a percentage of net revenue, other operating costs for the three months
ended December 31, 1997 decreased to 37% from 39% in the comparable period of
the prior year due to a shift in business mix toward nursing operations which
is more service oriented, as well as the leverage of incremental revenue
against the fixed cost component of other operating costs.
Corporate, general and administrative costs increased $1.0 million, or 38%,
to $3.8 million in the three months ended December 31, 1997 from $2.8 million
in the same period in the prior year. The increase was primarily due to the
internal growth of the Company's operations. As a percentage of net revenue,
corporate, general and administrative costs for the three months ended
December 31, 1997 increased slightly to 6.2% from 6.0% in the comparable
period of the prior year.
Provision for doubtful accounts consists of the amount of billed revenue
that management estimates will become uncollectible. During the three months
ended December 31, 1997, the Company's provision for doubtful accounts
increased approximately $0.5 million, or 33%, to $1.8 million from $1.4
million in the same period in 1996. The increase is primarily due to the
increase in net revenue and an increase in DSO, which increased to 125 days in
the fiscal 1998 period from 107 days in the prior year period. As a percentage
of net revenue, the provision for doubtful accounts is comparable for the
three months ended December 31, 1997 and 1996.
Depreciation and amortization expenses increased $0.4 million, or 30%, to
$1.8 million in the three months ended December 31, 1997 from $1.4 million in
the same period in 1996. The increase was primarily due to capital
expenditures for the purchase of rental equipment and the amortization of
goodwill from the Company's acquisitions. As a percentage of the Company's net
revenue, depreciation and amortization costs were comparable for the three
months ended December 31, 1997 and 1996.
Interest expense increased $0.9 million, or 155%, to $1.5 million in the
three months ended December 31, 1997 from $0.6 million in the same period in
the prior year. The increase was primarily the result of a $49 million
increase in the Company's average debt outstanding at December 31, 1997
compared to the same period in the prior year. This additional debt was used
to finance acquisitions and the Company's working capital.
Income tax expense increased $0.3 million, or 28%, to $1.4 million in the
three months ended December 31, 1997 from $1.1 million in the same period in
the prior year. This increase is due to an increase in the taxable income of
the Company.
FISCAL 1997 COMPARED TO FISCAL 1996
Net revenue increased $40.2 million, or 25%, to $204.0 million in fiscal
1997 from $163.8 million in fiscal 1996. The Company's acquisitions and start-
up operations accounted for approximately $14.5 million, or 36%, of the
increase, and internal growth accounted for the remaining $25.7 million, or
64%, of the increase. Of the $40.2 million increase in net revenue in fiscal
1997, pediatric net revenue accounted for $26.9 million, or 67%, of the
increase. Increased pediatric net revenue for fiscal 1997 was attributable to
the Company's acquisitions and start-up operations, the successful opening of
new offices and marketing efforts which resulted in an increase in patients
served rather than any significant increase in rate changes. Adult net revenue
accounted for $6.3 million, or 16%, of the increase in net revenue for fiscal
1997, primarily due to internal growth of existing locations and acquisitions.
Paramedical testing services net revenue accounted for $7.0 million, or 17%,
of the increase in net revenue for fiscal 1997, primarily due to an increase
in the volume of business. In fiscal 1997, the
34
<PAGE>
Company derived approximately 64% of its net revenue from commercial insurers
and other private payors, 27% from Medicaid and 9% from Medicare.
Operating salaries, wages and employee benefits increased $15.9 million, or
22%, to $87.9 million in fiscal 1997 from $72.0 million in fiscal 1996. The
increase was primarily due to the Company's acquisitions, start-up operations
and the internal growth of the Company's operations. The acquisitions and
start-up operations added approximately $9.6 million, or 60%, of the increase
in operating salaries, wages and employee benefits. As a percentage of net
revenue, operating salaries, wage and employee benefits for fiscal 1997
decreased to 43% from 44% in fiscal 1996. The decrease in operating salaries,
wages and employee benefits as a percentage of net revenue is attributable to
a number of factors including improved nursing productivity due to scheduling
and staffing efficiencies and a change in business mix to a higher percentage
of pharmacy net revenue to total net revenue.
Other operating costs increased $15.3 million, or 25%, to $75.4 million in
fiscal 1997 from $60.1 million in fiscal 1996. Of the increase, $3.1 million,
or 20%, relates to the Company's acquisitions and start-up operations and the
remaining $12.2 million, or 80%, to the internal growth of the Company's
operations. The percentage of other operating costs to net revenue was
comparable for fiscal 1997 and 1996.
Corporate, general and administrative costs increased $2.1 million, or 20%,
to $12.9 million in fiscal 1997 from $10.8 million in fiscal 1996. The
increase was primarily due to the growth of the Company's operations and the
addition of temporary personnel needed for the implementation of the Company's
new billing and collection system. The percentage of corporate, general, and
administrative costs to net revenue was comparable for fiscal 1997 and 1996.
Provision for doubtful accounts during fiscal 1997 increased $1.5 million,
or 33%, to $6.2 million from $4.7 million in fiscal 1996. The increase is
primarily due to growth of the business, and an increase in net revenue and
DSO, which increased from 101 days as of September 1996 to 126 days as of
September 30, 1997.
Depreciation and amortization expenses increased $1.2 million, or 26%, to
$6.1 million in fiscal 1997 from $4.9 million in fiscal 1996. The increase was
primarily attributable to the Company's capital expenditures, the purchase of
rental equipment and the amortization of goodwill from the Company's
acquisitions. As a percentage of the Company's net revenue, depreciation and
amortization costs were comparable for fiscal 1997 and 1996.
In fiscal 1996, the Company incurred non-recurring business combination
costs of approximately $1.2 million related to the business combination of the
Company with Premier on February 29, 1996 which was treated as a pooling of
interests transaction for accounting purposes. These costs represent legal and
professional fees, severance costs and other costs related to consummating the
business combination.
Interest expense increased $1.7 million, or 99%, to $3.5 million in fiscal
1997 from $1.8 million in fiscal 1996. The increase was primarily the result
of a $29.4 million increase in the Company's average debt outstanding incurred
to finance acquisitions and the Company's working capital for fiscal 1997.
Income tax expense increased $1.4 million, or 41%, to $4.8 million in fiscal
1997 from $3.4 million in fiscal 1996. This increase is due to an increase in
the taxable income of the Company.
FISCAL 1996 COMPARED TO FISCAL 1995
Net revenue increased $51.9 million, or 46%, to $163.8 million in 1996 from
$111.9 million in fiscal 1995. The Company's acquisitions and start-up
operations accounted for approximately $25.0 million, or 48%, of the increase
and internal growth accounted for the remaining $26.9 million, or 52%, of the
increase. Overall, the internal growth in net revenue increased to 24% for
fiscal 1996 compared to 14% for fiscal 1995. Of the $51.9 million increase in
net revenue in fiscal 1996, pediatric net revenue accounted for $35.3 million,
or 68%, of the increase. Increased pediatric net revenue for fiscal 1996 was
attributable to the Company's acquisitions, the successful opening of new
offices and marketing efforts which resulted in an increase in patients served
rather
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than any significant increase in rates charged. Adult net revenue accounted
for $9.8 million, or 19%, of the increase in net revenue for fiscal 1996,
primarily due to the internal growth of existing locations. Paramedical
testing services net revenue accounted for $6.8 million, or 13%, of the
increase in net revenue for fiscal 1996, primarily due to an increase in the
volume of business. In fiscal 1996, the Company derived approximately 63% of
its net revenue from commercial insurers and other private payors, 27% from
Medicaid and 10% from Medicare.
Operating salaries, wages and employee benefits increased $21.9 million, or
44%, to $72.0 million in fiscal 1996 from $50.1 million in fiscal 1995. The
increase was primarily due to the Company's acquisitions, start-up operations
and the internal growth of the Company's operations. The acquisitions and
start-up operations added approximately $13.6 million, or 62%, of the increase
in operating salaries, wages and employee benefits. As a percentage of net
revenue, total operating salaries, wages and employee benefits for fiscal 1996
decreased to 44% from 45% in fiscal 1995. The decrease in operating salaries,
wages and employee benefits as a percentage of net revenue is primarily
attributable to the increase in the net revenue from pharmacy and paramedical
testing services operations which have a lower operating salaries, wages and
employee benefits component as compared to the Company's other lines of
business.
Other operating costs increased $21.0 million, or 54%, to $60.1 million in
fiscal 1996 from $39.1 million in fiscal 1995. Of this increase, $9.1 million,
or 43%, relates to the Company's acquisitions and start-up operations and the
remainder to the internal growth of the Company's operations. As a percentage
of net revenue, total other operating costs for fiscal 1996 increased to 37%
from 35% in fiscal 1995. The increase in other operating costs as a percentage
of net revenue is primarily attributable to the increase in net revenue from
the pharmacy and paramedical testing services operations. The pharmacy and
paramedical testing services operations have a higher other operating cost
component than the Company's other operations due to the purchase of drug
product for the pharmacy business and the payment of operating expenses for
the paramedical testing services business.
Corporate, general and administrative costs increased $3.6 million, or 49%,
to $10.8 million in fiscal 1996 from $7.2 million in fiscal 1995. The increase
is primarily due to the internal growth of the Company's operations and the
addition of administrative staff to support the Company's acquisitions and
start-up operations. As a percentage of net revenue, corporate, general and
administrative costs are comparable for fiscal 1996 and fiscal 1995.
During fiscal 1996, the Company's provision for doubtful accounts increased
$1.5 million, or 49%, to $4.7 million from $3.2 million in fiscal 1995. The
increase is primarily due to an increase in total net revenue and days sales
outstanding. As a percentage of net revenue, the provision for doubtful
accounts is comparable for fiscal 1996 and fiscal 1995.
Depreciation and amortization expenses increased $1.2 million, or 33%, to
$4.9 million in fiscal 1996 from $3.7 million in fiscal 1995. The increase was
primarily attributable to the Company's capital expenditures for the purchase
of rental equipment and the amortization of goodwill from the Company's
acquisitions. As a percentage of net revenue, depreciation and amortization
costs decreased in fiscal 1996. The decrease is primarily attributable to an
increase in the Company's pharmacy and paramedical testing businesses which
have a lower depreciation and amortization cost component than the Company's
other operations.
In fiscal 1996, the Company incurred non-recurring business combination
costs of approximately $1.2 million related to the business combination of the
Company with Premier on February 29, 1996. These costs represent legal and
professional fees, severance costs and other costs related to consummating the
business combination.
Interest expense increased $0.1 million, or 8%, to $1.8 million in fiscal
1996 from $1.6 million in fiscal 1995. The increase was primarily the result
of a $17.4 million increase in the Company's average debt outstanding incurred
to finance acquisitions during fiscal 1996. In June 1995, the Company used
approximately
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$19.0 million of the net proceeds of its second public offering to repay
outstanding indebtedness. See "Liquidity and Capital Resources."
Income tax expense increased $0.6 million, or 22%, to $3.4 million in fiscal
1996 from $2.8 million in fiscal 1995. This increase is due to an increase in
profitability of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating cash flows are affected significantly by changes in
accounts receivable, which have grown substantially over time, largely as a
result of the Company's net revenue growth. For the three months ended
December 31, 1997 and 1996, the Company's cash flows from operations were
affected by increases in accounts receivable balances of $11.7 million and
$7.0 million, respectively. The Company's DSO was 125 days and 107 days as of
December 31, 1997, and December 31, 1996, respectively, based on the
annualized net revenue for the last quarter of the period. The increase in DSO
is primarily attributable to the growth experienced by the Company, the impact
of the acquired accounts receivable balances from the acquisitions, reduced
collection activities due to the integration of the Company's billing and
collection management system and the increasing complexity of third-party
payor billing procedures and the corresponding lengthening of the collection
period. The Company has taken measures intended to improve DSO by hiring
additional experienced reimbursement personnel, improving training programs
and implementing and integrating its new billing and collection management
system.
As of December 31, 1997, the Company recorded a deferred tax asset in its
consolidated financial statements. Management believes that it is more likely
than not that the deferred tax asset will be realized. Under new guidance
issued by the Internal Revenue Service, in December 1996, the Company made an
election entitling it to mark its accounts receivable to market value for tax
purposes. This election eliminated the deferred tax asset relating to the
allowance for doubtful accounts and established a new deferred tax liability
to reflect the new temporary differences. During fiscal 1997, the 1996 tax
return and the 1993 through 1995 amended tax returns were filed for the
Company under this new guidance. This election gave rise to expected cash
refunds of $2 million plus interest. As of December 31, 1997, $1.8 million
plus interest had been received. In addition, the net operating loss
carryforward of certain subsidiaries had increased and at December 31, 1997,
$3.9 million was remaining to offset certain future tax payments. Of such
carryforwards, $1.0 million expire by the year 2010 and $2.9 million expire by
the year 2011.
The Company's investments in property and equipment are attributable largely
to purchases of medical equipment that is rented to patients and computer
equipment related to the Company's new billing and collection management
system. The Company intends to continue to expand its business primarily
through acquiring local and regional home health care companies, opening
offices in both new and existing markets and expanding the services currently
provided at its existing offices. Acquisitions to date have been financed with
a combination of borrowings under the Credit Agreement, shares of Common Stock
of the Company and seller notes. The Company's investments in the acquisition
of businesses were $19.7 million and $4.6 million respectively, for the three
months ended December 31, 1997 and 1996.
In August 1997, the Company increased the amount of financing available
under the Credit Agreement to $100.0 million from $60.0 million, consisting of
a $100.0 million revolving loan with a $5.0 million swingline loan credit
subfacility. The loan is due August 13, 2002. A commitment fee ranging from
.225% to .450% per annum is charged on the average daily unused portion of the
facility. The loan is collateralized by 100% of the voting stock of the
Company. The loan requires the Company to maintain certain financial ratios,
and places restrictions on the sale and purchase of assets, payment of
dividends and other distributions relating to the Company's outstanding
capital stock. At the Company's option, borrowings under the revolving
facility bear interest at (1) LIBOR plus an applicable margin that varies from
a minimum of 1.0% to a maximum of 1.75% and is based on the calculation of a
leverage ratio, or (2) the prime rate. At the Company's option, borrowings
under the swingline loan credit subfacility bear interest at either (1) a
Quoted Rate established by the lender or (2) the prime rate. At December 31,
1997, the Company's applicable margin was 1.625%, and the interest rates
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under this facility at December 31, 1997 ranged from 7.12% to 7.22%.
Outstanding borrowings under this facility at December 31, 1997 were
approximately $86 million. Pending consummation of the offering of the Old
Notes, the Company also entered into a revolving credit promissory note (the
"Revolving Note") whereby NationsBank, N.A. agreed to advance the Company up
to $10 million provided availability under the Credit Agreement has been
exhausted. The Revolving Note was closed on February 26, 1998, and terminated
upon the consummation of the offering of the Old Notes. Pricing and conditions
to funding for the Revolving Note were identical to those on the Credit
Agreement, and the Revolving Note is cross-defaulted to the Credit Agreement.
At April 30, 1998, total borrowings under the Credit Agreement, including
current portion, was approximately $27 million.
At December 31, 1997, the Company had one interest rate swap agreement with
a commercial bank (the "Counter Party"), having a cumulative notional
principal amount of $25 million. The Company pays a fixed rate of 6.61% plus
the applicable margin that varies from a minimum of 1.0% to a maximum of 1.75%
and is based on the calculation of a leverage ratio. The interest rate swap
terminates in June 2002. The Company is exposed to credit loss in the event of
non-performance by the Counter Party to the interest rate swap agreement.
However, the Company does not anticipate such non-performance.
A portion of the consideration paid by the Company for PMI consisted of
495,050 shares of the Company's Common Stock. Pursuant to the PMI acquisition,
the Company agreed to provide to ChoicePoint for a period of one year after
the acquisition protection against a decrease in the value of any of the
Company's shares issued to and subsequently sold by ChoicePoint in the
marketplace. Under the terms of the agreement, the Company shall each month
reimburse ChoicePoint in cash for any decrease in the price of the Company's
shares by paying ChoicePoint the difference between the actual sale price of
any shares sold by ChoicePoint and $20.20 (the average share price of the
Company's Common Stock on the Nasdaq National Market system for a 15-day
period prior to the closing of the transaction), multiplied by the number of
shares sold. If there is any net gain by ChoicePoint in any month during the
one-year period of the agreement, then ChoicePoint will reimburse the Company
for amounts previously paid by the Company to the extent of such net gains.
Management currently believes that internally generated funds and borrowings
under the Credit Agreement will be adequate to satisfy the Company's working
capital requirements, including currently anticipated expansion, for the
foreseeable future.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an issue impacting all companies has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Management does not anticipate that the Company
will incur significant operating expenses or will be required to invest
heavily in computer system improvements relating to the uncertainties
associated with the year 2000 because the Company's current and planned
systems are year 2000 compliant. Management does not know at this time what,
if any, impact year 2000 compliance may have on its payor and vendor sources
and the impact, if any, on the Company if such payors or vendors are not fully
compliant. Management is attempting to determine when its payors and vendors
will be year 2000 compliant.
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BUSINESS
GENERAL
The Company is a leading provider of children's health care and related
services. The Company is the nation's largest focused pediatric home health
care provider and third largest provider of paramedical testing services. The
Company provides children's health care services through 131 branch offices
located in 29 states and the District of Columbia and paramedical testing
services through over 200 field offices located in all 50 states, Puerto Rico
and Guam. During the quarter ended December 31, 1997, health care and related
services represented approximately 84% of the Company's net revenue and
paramedical testing represented approximately 16% of the Company's net
revenue. The Company's net revenue and EBITDA have increased at a compound
annual growth rate (measured as the yearly percentage growth from the fiscal
year ended September 30, 1992 to the fiscal year ended September 30, 1997) of
53% and 60%, respectively. For the twelve months ended December 31, 1997, the
Company had net revenue and EBITDA of $219.0 million and $23.8 million,
respectively.
The Company provides a broad range of pediatric health care services,
including nursing, respiratory therapy and other medical equipment, and
pharmacy and infusion therapy. In addition, the Company provides pediatric
rehabilitation services, day treatment centers for medically fragile children,
pediatric well care services and special needs educational services for
pediatric patients. The Company also provides case management services in
order to assist the family and patient by coordinating the provision of
services between the insurer or other payor, the physician, the hospital and
other health care providers. The Company's services are designed to provide a
high quality, lower cost alternative to prolonged hospitalization for
medically fragile children.
The Company entered the paramedical testing business through the acquisition
of Premier in February 1996. In December 1997, the Company acquired PMI making
the Company the nation's third largest provider of paramedical testing
services. The Company provides a broad range of paramedical testing services,
including taking health histories, collecting blood and urine samples,
administering physical examinations and performing electrocardiogram
examinations on insurance applicants. The Company's paramedical testing
services clients include over 1,000 life, health and disability insurance
companies as well as corporations and other organizations that require drug
and alcohol screening, wellness physicals and occupational health services.
INDUSTRY OVERVIEW
Health Care Services
According to industry sources, the market for home health care and related
services in the United States in 1996 is estimated at $35 billion. The Company
estimates that the market for pediatric home health care for the same period
is over $5 billion. The pediatric home health care market is distinct in a
number of respects. Pediatric patients tend to require a higher acuity of care
due to their age and the severity of their medical condition, and consequently
generally have a relatively long length of treatment, often measured in years
rather than weeks or months. Pediatric illnesses and conditions include
bronchopulmonary dysplasia, digestive and absorptive diseases, congenital
heart defects and other cardiovascular disorders, cancer, cerebral palsy,
cystic fibrosis, chronic obstructive pulmonary disease, endocrinologic
disorders, hemophilia, orthopedic conditions and post surgical needs. In many
instances, pediatric patients have multiple disorders.
Home care for pediatric patients, like home care generally, is preferred
over institutional care by patients and their parents or other care givers as
well as by payors. Patients and parents prefer home care due to the ability to
care for the child in a nurturing environment, assist in socialization and
provide 24-hour attention. Home care also minimizes the risk of cross-
infection, eliminates privacy and safety concerns and permits a more gradual,
and consequently more event-free, transition of care-giving from the health
care professional to the family. Payors prefer home care because it is
generally more cost effective than institutional care.
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Third-party reimbursement for pediatric home care is provided predominantly
by private health insurance, with a smaller portion provided by Medicaid.
Because of the special needs of pediatric patients, the acuity of care and the
skill levels of the individual nurses or therapists providing the care, the
rates charged for health care services, particularly nursing services, for
pediatric patients are generally higher than adult rates. In addition, due to
the high medical acuity of pediatric patients and the large variations in
patient conditions and treatment protocols, pediatric home health care is
typically not reimbursed on a capitated basis.
Unlike geriatric home care patients, who generally receive maintenance care,
pediatric home care patients are usually treated interventionally, using
technologically advanced medical equipment such as ventilators, oxygen
delivery systems, nebulizers, sleep apnea monitors and other respiratory
equipment. Pediatric patients often also require home infusion therapy for the
delivery of pharmaceuticals, especially for the treatment of hemophilia,
cystic fibrosis and endocrinologic disorders, as well as physical and
occupational therapy.
Due to the specialized care required to treat pediatric illnesses and
conditions, home care is most effectively delivered to pediatric patients by
nurses with neonatal intensive care unit ("NICU") and pediatric intensive care
unit ("PICU") experience. These specialized health care professionals are
experienced in treating medically fragile children, using and maintaining the
medical equipment, and administering required medications and other therapies.
Pediatric patients typically require home nursing in shifts, in which nursing
care is delivered eight to twenty-four hours per day, in contrast to home
nursing care for geriatric patients, in which nursing care is typically
provided on a short "visiting nurse" basis.
Like pediatric patients, young adult home care patients, who range in age
from 18 to 64 years, often require long-term care from private duty nurses.
Young adult patients suffer from such disorders as muscular dystrophy, cystic
fibrosis, hemophilia, cardiovascular disorders and cancer. Many young adult
patients suffered injury and significant disabilities from near drowning
incidents and accidents or other forms of trauma. Many of these disorders and
illnesses require life long treatment. Frequently, a young adult patient
receives home care as a continuation of a pediatric home care treatment
regimen. A large percentage of young adult patients are covered by private
health insurance, with the remainder covered by Medicaid.
Geriatric patients (those patients age 65 years old and older) generally
have shorter periods of service and shorter periods of daily care. Many
geriatric patients suffer from emphysema or other pulmonary disorders
requiring oxygen therapy performed during short home visits by nurses or
therapists. Geriatric patients with more acute conditions are more likely to
receive care in an institutional setting. Most geriatric patients are covered
by Medicare for all or part of their health care needs.
The pediatric home health care services market currently is heavily
fragmented. This market is served by a large number of small entities that
operate on a local or regional basis and typically provide a limited range of
health care services. This market is also served by a small number of national
home health care companies that service the pediatric market as part of a
broader product offering. Because of the high degree of specialization
required for effective treatment of pediatric patients and the broad scope of
services required due to pediatric patients' generally high medical acuity
levels, the Company believes that there are significant growth opportunities
for a national provider offering a broad range of health care products focused
on the home pediatric patient.
Paramedical Testing Services
The U.S. paramedical testing services market is estimated by the Company to
be approximately $500 million with the majority of services being provided by
four national providers, including the Company, and several regional
providers. Paramedical testing services include taking health histories,
obtaining blood and urine samples and administering physical examinations and
electrocardiograms. Some or all of these tests are typically required by
insurance companies as a prerequisite to underwriting life, health and
disability insurance policies. The Company believes that the paramedical
testing services market is growing due to: (i) the implementation of stricter
underwriting standards requiring increased testing as a result of growing
concern over substance abuse
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and AIDS and other catastrophic illnesses; (ii) technological advances in
testing; and (iii) the aging of the U.S. population. The Company also believes
that large national providers are growing at the expense of local and regional
providers as many insurance companies seek to improve quality and reduce
administrative costs by consolidating their business with fewer providers.
Insurance companies increasingly focus on the technological capabilities of
their paramedical testing providers in an effort to more efficiently track the
status of pending applications and to decrease the time between policy
application and issuance. The ability of a paramedical testing provider to
quickly and accurately accept orders for tests, schedule tests, and provide
status information as well as test results electronically has become an
important selection criteria. The Company believes that large national
providers with significant information systems resources and expertise should
be able to capitalize on these assets to gain market share.
To improve quality control and reduce administrative costs, life, health and
disability insurance companies are limiting the number of paramedical testing
providers approved by their medical underwriting departments. As customers
consolidate their business with fewer providers, the ability of a provider to
offer a full range of testing services nationwide has become increasingly
important. In addition, since the accuracy and completeness of testing
information is critical to the timely completion of the entire underwriting
process, insurance companies are seeking out the high quality providers of
paramedical testing services.
BUSINESS STRATEGY
The Company's goal is to be the nation's leading provider of children's
health care services and paramedical testing services. The Company's strategy
to achieve this goal includes the following elements.
Focus on Children's Services. The Company believes that pediatric health
care services are recognized as a distinct specialty within the health care
industry. The Company has significant experience and expertise in children's
health care, particularly with respect to medically fragile children who are
dependent on sophisticated medical technology and nursing care. The Company
believes that its pediatric focus and expertise provide it with significant
sales and marketing advantages. The Company intends to continue to focus on
providing relatively high acuity health care services for children.
Expand into New Geographic Markets. The Company currently has 131 pediatric
health care branch offices in 29 states and the District of Columbia and
approximately 65% of the top 100 Metropolitan Statistical Areas ("MSAs") in
the United States. In the past two years, the Company has extended its
geographic presence from 21 states to 29 states. The Company believes
increased geographic presence can provide additional operating efficiencies
and enable the Company to obtain more referrals from large insurance companies
and other third party payors. The Company intends to continue to broaden its
national coverage by entering new geographic markets.
Expand Service Offering. The Company currently provides pediatric home
nursing, respiratory therapy and other medical equipment, and pharmacy and
infusion therapy services to medically fragile children across the nation.
However, the Company does not provide all of these services in all of its
markets. In addition, in certain locations the Company provides rehabilitation
services, pediatric day treatment centers, well care services and special
needs education. The Company intends to continue to add new services in
existing markets where it does not yet provide its full range of services. In
addition, the Company may extend its service offering to include additional
children's services that extend the scope of or complement its existing
services.
Provide High Quality, Cost-Effective Care. The Company emphasizes quality
throughout its organization with respect to both the provision of services and
the hiring and training of clinical personnel. Moreover, the Company believes
that its ability to coordinate and deliver a full range of services in a non-
institutional setting and its experience and expertise in caring for medically
fragile children result in superior and cost-effective medical outcomes. The
Company intends to continue to emphasize and enhance the quality and cost-
effectiveness of its services.
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Leverage Market Position and Service Offering in Paramedical Testing
Business. The Company recently expanded its paramedical testing services
business through the acquisition of PMI and is now the third largest national
provider of paramedical testing services. The paramedical testing market is
consolidating as customers seek to reduce administrative costs and increase
quality by limiting the number of companies with which they contract. The
Company intends to expand its paramedical testing business by leveraging its
national network and strong customer relationships and continuing to emphasize
the quality of its services and responsiveness to customers. In addition, the
Company intends to evaluate opportunities for expansion of services
complementary to paramedical testing, such as drug and alcohol screening,
corporate wellness physicals, occupational health services and preventive
medicine analysis for corporations and other organizations.
Acquire Selectively. During the period from October 1, 1992 to December 31,
1997, the Company completed 30 acquisitions aggregating approximately $181.6
million in annualized net revenue at the time of acquisition. In the past, the
Company has selectively acquired businesses which extend its geographic
presence, provide access to certificates of need, or expand the Company's
service offering. The Company continually evaluates acquisition opportunities
and intends to continue to acquire on a selective basis similar and
complementary businesses.
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SERVICES AND OPERATIONS
General
The Company provides comprehensive health care services, principally for
children. The Company also provides paramedical testing services for the
insurance industry. The following table summarizes the percentages of net
revenue to total net revenue of each major category of service offered by the
Company for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
PEDIATRIC HEALTH CARE*:
Nursing................................................. 32.3% 31.7% 30.1%
Respiratory therapy equipment........................... 11.2 10.7 11.8
Pharmacy and infusion therapy........................... 14.3 14.0 9.1
Home medical equipment.................................. 1.3 0.8 1.2
----- ----- -----
Total pediatric health care........................... 59.1 57.2 52.2
YOUNG ADULT HEALTH CARE*:
Nursing................................................. 7.6% 7.3% 8.0%
Respiratory therapy equipment........................... 6.6 9.2 11.7
Pharmacy and infusion therapy........................... 3.4 2.6 1.9
Home medical equipment.................................. 1.5 2.1 3.3
----- ----- -----
Total young adult health care......................... 19.1 21.2 24.9
GERIATRIC HEALTH CARE*:
Nursing................................................. 3.1% 3.5% 3.9%
Respiratory therapy equipment........................... 4.0 4.3 5.6
Pharmacy and infusion therapy........................... 0.9 1.0 1.4
Home medical equipment.................................. 1.0 1.2 1.1
----- ----- -----
Total geriatric health care........................... 9.0 10.0 12.0
PARAMEDICAL TESTING..................................... 12.8% 11.6% 10.9%
----- ----- -----
Total................................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
- --------
* Pediatric health care includes services provided to patients age 17 and
younger. Young adult health care includes services provided to patients age
18 to 64. Geriatric health care is provided to patients age 65 and older.
The information with respect to geriatric health care is estimated, based on
net revenue received from Medicare, which is the primary payor for the
Company's geriatric patients.
HEALTH CARE SERVICES AND OPERATIONS
The Company provides a broad range of health care services principally for
children and, to a lesser extent, young adults and geriatric patients.
Pediatric Health Care Services
The Company offers the following services to pediatric patients.
Pediatric Nursing Services. The Company's pediatric nursing services consist
primarily of private duty home nursing care for pediatric patients with
illnesses and conditions such as bronchopulmonary dysplasia, digestive and
absorptive diseases, congenital heart defects and other cardiovascular
disorders, cancer, cerebral palsy, cystic fibrosis, chronic obstructive
pulmonary disease (e.g., emphysema, chronic bronchitis and asthma),
endocrinologic disorders, hemophilia, orthopedic conditions and post surgical
needs. Pediatric nursing care typically begins upon the patient's discharge
from the hospital. The Company's nurses assess and monitor vital
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signs and the condition of the child, administer medications and treatment
regimens, provide enteral and other forms of tube feeding, monitor and
maintain ventilators, oxygen and other home medical equipment, monitor and
administer pain management, provide daily care, including baths, hygiene and
skin care, conduct physical, occupational and other forms of prescribed
therapy, and coordinate other forms of medical care necessary for the child.
Private nursing care is often provided 24 hours per day for extended periods
of time. The Company estimates that its pediatric patients require private
duty nursing care for an average of eight months with length of daily care
averaging ten to 11 hours. The Company's nurses emphasize education of the
parents or other care givers of the child in order to maximize the
independence of the child and the family. Through this educational process,
the length of the daily private duty care can be reduced as the child's
condition improves or stabilizes and the parents or care givers assume a more
active role in the care of the child. Depending on the illness or condition of
the child, in many cases the Company continues to provide nursing visits,
respiratory therapy and other medical equipment services and pharmaceutical
services after it discontinues private duty nursing care.
The Company has more than 5,000 registered or licensed pediatric nurses and
therapists on its active nursing registries. Due to the special needs and
acuity of care of pediatric patients generally, the Company requires that its
nurses and therapists have training with pediatric patients. Most of the
Company's nurses have NICU or PICU experience.
Although nursing services traditionally have provided the Company with lower
profit margins than the Company's other services, referral sources generally
make arrangements for nursing services before making arrangements for other
health care services necessary for the discharge of a medically fragile child
from the hospital. Consequently, a high quality nursing service facilitates
marketing of the Company's higher margin pediatric services. The Company
intends to continue to increase the number of its branch offices that provide
pediatric nursing services as the Company focuses on further developing its
pediatric business.
Pediatric Respiratory Therapy Equipment and Services. The Company provides
respiratory therapy equipment and services to pediatric patients in the home.
These services include (i) the rental, sale, delivery and setup in accordance
with physician prescriptions of equipment, such as ventilators, oxygen
concentrators, liquid oxygen systems, high pressure oxygen cylinders, apnea
monitors and nebulizers, (ii) periodic evaluation and maintenance of the
equipment and (iii) delivery and setup of disposable supplies necessary for
the operation of the equipment. The Company provides these services to
patients with a variety of conditions, including chronic obstructive pulmonary
diseases, neurologically related respiratory problems, cystic fibrosis,
congenital heart defects and cancer. The Company utilizes skilled registered
respiratory therapists and certified respiratory therapy technicians to
provide these services. The Company also provides training to patients and
their families in equipment use and a 24-hour repair service through emergency
on-call technicians.
Pharmacy and Infusion Therapy. The Company provides pharmaceutical products
and related specialty infusion therapy services for its patients. Infusion
therapy involves the administration of nutrients, antibiotics and other
medications intravenously or through feeding tubes. The number of therapies
that can be administered safely in the home has increased significantly in
recent years because of technological innovations in infusion equipment and
advances in drug therapy. Consequently, an increasing number and a broader
range of infections and diseases which would otherwise have required patients
to be hospitalized are now considered treatable in the home. These in-home
therapies reduce the need for emergency room visits for infusion therapy, and
are popular with patients, referring physicians and payors.
The Company provides a full range of pharmacy and infusion therapies,
including antibiotic and other anti- infective therapies, enteral and total
parenteral nutrition therapy, pain management therapy, hemophilia therapy,
immunomodular therapy and chemotherapy. The Company also provides specialty
infusion therapies intended to meet the needs of patients with a variety of
serious infections such as osteomyelitis, bacterial endocarditis, cellulitis,
septic arthritis, wound infections and recurrent infections associated with
the kidney and urinary tract and AIDS. The Company also provides specialty
infusion therapy to terminally or chronically ill patients
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suffering from acute or chronic pain, patients with impaired or altered
digestive tracts due to gastrointestinal illness, patients suffering from
various types of cancer, patients requiring treatment for congestive heart
failure and patients with chronic conditions such as hemophilia, cystic
fibrosis and endocrinologic disorders. The Company's specialty infusion
therapy services are administered by its nursing staff. The Company currently
supports the home infusion therapy market through seven regional pharmacy
locations.
The Company also operates a mail order medication service that provides
physician-prescribed unit dose medications to respiratory therapy patients.
The Company offers its patients medication in a premixed unit dose form as
well as professional clinical support and claims processing. The Company
employs licensed pharmacists to assist with its unit dose medication services
business.
Pediatric Home Medical Equipment and Services. The Company provides rentals,
sales and service of home medical equipment. These services are provided to
patients upon their discharge from the hospital as well as after the Company's
nursing services are no longer required. Home medical equipment provided by
the Company includes wheelchairs, home care beds and ambulatory aids. The
Company currently has 71 locations that provide rentals of home medical
equipment as well as mail order programs for the provision of a broad range of
home health care equipment.
Other Pediatric Services. The Company currently has ten pediatric day
treatment centers in Florida, Georgia and Tennessee. These centers provide,
among other services, daily medical care and physical, occupational and other
forms of therapy for medically fragile children. The children receive nursing
supervision and/or physical and other therapies in a setting which allows for
socialization and education of the children. The Company currently intends to
increase the number of centers in areas where it believes there is sufficient
market demand.
The Company also provides pediatric rehabilitation services such as
physical, occupational and speech therapies. The Company utilizes skilled
registered therapists to perform these services in the home or through the
Company's pediatric day treatment centers.
Young Adult and Geriatric Health Care Services
The Company generally offers young adult and geriatric patients the same
health care services it provides to pediatric patients. Although young adult
patients tend to require a lower acuity of care, they often require long-term
care from private duty nurses. The Company's young adult patients are being
treated for disorders such as muscular dystrophy, cystic fibrosis, hemophilia,
cardiovascular disorders and cancer as well as serious disabilities from near
drowning incidents and accidents and other forms of trauma involving spinal
cord or other injuries. Frequently, the Company's young adult patients receive
home care as a continuation of a pediatric home care treatment regimen.
The Company's geriatric home care patients generally require the lowest
acuity of care and have shorter periods of service and shorter periods of
daily care than either the Company's pediatric or young adult patients. Most
of these patients receive maintenance care for end-of-life conditions such as
emphysema or other pulmonary disorders, neurological diseases and renal
diseases. Services are provided during short home visits by nurses or
therapists. Although some of the Company's geriatric home care patients
receive higher acuity, interventional care, these services are more likely to
be provided in an institutional setting.
Recruiting, Training and Retention of Professional Staff
The Company's services are provided by skilled pediatric nurses and skilled
respiratory therapists. Nurses generally have a minimum of one year prior NICU
or PICU experience, a nursing license and current CPR certification. Each
nurse must pass a written pediatric and medication exam and provide employment
references. Therapists generally have a minimum of one year prior experience
and current CPR certification, and must provide employment references as well.
Under the Company's pediatric nursing training program, nurses are
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required to attend an orientation program where they are trained in aspects of
home health care, such as equipment use, which differ from institutionally
provided health care. If qualified, nurses receive additional training in the
use of ventilators and other home respiratory equipment. The Company requires
its nurses to attend continuing education sessions on safety and techniques in
home health care. Further, the Company offers its nurses periodic continuing
education courses and professional seminars on various topics in home health
care to assist in the retention of qualified personnel. As of December 31,
1997, the Company had over 5,000 licensed or credentialed nurses and
therapists on its staff and active registries.
To provide a qualified, reliable nursing and therapy services staff, the
Company continuously recruits professional nurses and technical specialists,
and trains and offers benefits and other programs to encourage retention of
these professionals. The Company recruits primarily through advertising,
employment fairs, direct contact with community groups and employment programs
and uses bonuses and other benefit programs to encourage new employee
referrals by existing employees. The Company has in the past recruited
pediatric nurses who have cared for a patient in the hospital to continue to
provide care for such patient in the home through part-time or full-time
employment with the Company.
Quality Assurance
The Company has established a quality assurance program for the
implementation and monitoring of service standards. The Company's quality
assurance program includes periodic quality audits and other measures designed
to ensure compliance with the documentation and operating procedures required
by federal and state law and the Company's internal standards. The Company's
officers oversee the results of these quality assurance audits and implement
changes where necessary.
The Company's quality assurance program also emphasizes accreditation by the
Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"). JCAHO
is a nationally recognized not-for-profit organization that develops standards
for various health care providers and monitors compliance with such standards.
Substantially all of the Company's branch offices, other than those recently
acquired or established, have received accreditation from JCAHO. JCAHO's
objective standards are one of the few methods by which referring health care
professionals may assess the quality of services of a home health care
provider.
Case Administration
Prior to providing services to a patient, the Company coordinates with the
patient's physicians, third-party payors, case managers and other referral
sources. In order to accomplish this coordination, the Company has developed
and implemented case management and clinical coordination functions.
Case Management. The Company maintains a case management service department
designed to assure the cost-effective delivery of high quality care to the
Company's highest acuity patients. This department acts as the central point
for coordination of services and benefits for patients referred by insurance
companies. The Company assigns a case manager to review the patient's
insurance status to determine coverage and relevant reimbursement criteria.
The case manager contacts the relevant third-party payors to negotiate the
services that will be covered and the applicable rates. The case manager then
communicates with the Company's billing and collection department to assist in
accurate billing. The case manager also assists in resolving disputes that may
arise between the Company and third party payors.
Clinical Coordination. The Company assigns a clinical coordinator to higher
acuity patients, typically before the patient is discharged from the hospital.
The clinical coordinator works with the physician, case manager or other
referral source to arrange all home health care services needed by the
patient.
Sales and Marketing
The Company obtains patient referrals primarily from neonatologists,
pediatricians, pulmonologists, internists and other physicians, hospital
discharge planners, case managers, community-based health care
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institutions and social service agencies. The Company markets its services to
these referral sources primarily through its branch office personnel and
various media formats. The branch office directors conduct the sales and
marketing activities at the branch office level. Branch office directors
generally have a clinical background as registered nurses and/or therapists,
and as such they are able to describe and promote the Company's services to
referral sources. The branch office directors attempt to cultivate
relationships with their local referral sources through quality service,
personal contacts and education about the appropriate role and benefits of the
Company's services in the treatment of patients. In addition, the Company's
case management department plays an integral role in maintaining favorable
relationships between the Company and large insurance companies.
The Company also promotes referrals by seeking to arrange preferred provider
contracts with managed care companies. The Company has established preferred
provider arrangements that are both national and regional in scope. These
contracts typically designate the Company as a preferred provider of certain
services in select areas but do not establish an exclusive relationship. The
preferred provider contracts typically set forth a range of services that the
Company may provide and the applicable rates for such services. The contracts
also specify required billing and claims procedures, record maintenance
policies and other requirements. The Company has not entered into any
contracts with health maintenance organizations or other third-party payors
that require services to be rendered on a risk-sharing or capitated basis.
The Company believes that JCAHO accreditation of its branch offices is an
important factor in its sales and marketing efforts. The Company also believes
that its focus on pediatric health care services combined with management's
experience in rendering these services provides the Company with a significant
sales and marketing advantage.
Billing and Collection
The Company derives substantially all of its health care net revenue from
commercial insurance and other private third-party payors and Medicare and
Medicaid. The current reimbursement environment is a complicated process,
involving multiple payors with differing coverage and reimbursement policies.
Management of accounts receivable, through effective billing, collection and
reimbursement procedures, is critical to the financial success of health care
service providers due to lengthy reimbursement periods. The Company's
reimbursement specialists work closely with the branch offices and third-party
payors. Each specialist is responsible for ensuring the adequacy of the
documentation, submitting the documentation and claims to third-party payors
and expediting payment.
In July 1997, the Company began implementing the NPAS, which is designed to
provide each of the Company's health care branch offices with immediate access
to patient information and perform billing and collection services. As of
February 28, 1998, the Company had implemented the NPAS at 80 branch offices.
See "Business--Management Information Systems."
Local Office Network
The Company currently provides its health care services through a network of
131 branch offices located in 29 states and the District of Columbia. The
Company seeks to address local market needs through its branch office network.
Each branch office conducts local marketing efforts, negotiates contracts with
local referral sources, recruits personnel and coordinates patient care. The
Company believes that the business of providing health care services is most
effective if each branch office is allowed to operate as a local business
targeting services to, and reacting to the needs of, the local community. The
Company provides its branch office managers with training, comprehensive
policies and procedures and standardized operating systems, while allowing
them sufficient autonomy to address local needs.
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PARAMEDICAL TESTING SERVICES AND OPERATIONS
General
The Company is the nation's third largest provider of comprehensive
paramedical testing services with over 1,000 life, health and disability
insurance company customers. The Company's examiners provide examinations at
the request of insurance agents at times and in places convenient to
applicants. The Company utilizes a national network of paramedical technicians
consisting of independent contractors and employees to administer the tests
primarily in the applicant's home or office. In selected cases, the Company
will contract with credentialed nurses or physicians to administer specialized
testing services. The Company offers its testing services through a network of
over 200 field offices in strategic geographical locations located in all 50
states, Puerto Rico and Guam.
Because the Company utilizes nurses, physicians and trained paramedical
technicians to conduct examinations, the Company is able to provide its
clients with a full range of paramedical examination services. These services
include recording an applicant's medical history, height and weight, measuring
blood pressure, and collecting blood and urine specimens. Examiners also
perform more sophisticated procedures at the request of insurance companies,
including physician examinations, electrocardiograms and lung capacity
measurements.
The Company's network of highly automated branch offices enables it to
provide services nationwide. As a result, the Company is an attractive choice
for direct marketers, master brokers, banks, savings and loan associations and
investment brokers who write insurance applications nationwide and desire a
single source for their paramedical testing needs.
The Company provides written and electronic examination results to insurance
clients, in most cases within three days of receiving the initial request for
an examination. The Company's ability to process examinations rapidly is due,
in part, to the proximity of its paramedical technicians to the homes and
workplaces of insurance applicants, ongoing improvements in data processing
and management information systems, and the use of medically trained personnel
who promptly evaluate insurance applicants and efficiently process examination
results. The Company also performs other services such as drug and alcohol
screening, wellness physical examinations and occupational health services for
corporations and other organizations. In order to provide high quality
paramedical testing services, the Company maintains a quality assurance
program that includes the ongoing training of paramedical technicians,
monitoring of service standards and establishing and maintaining controls
throughout the order management system.
In December 1997, the Company acquired PMI, making the Company the third
largest provider of paramedical testing services. PMI had approximately $60
million in revenues in calendar 1997. This acquisition significantly expanded
the scale of the Company's paramedical testing services, placed the Company on
the approved provider list for over 200 new insurance company customers and
added significant geographic coverage.
In connection with the Company's purchase of PMI, the Company acquired the
PMI System, an advanced computer software system, then under development by
ChoicePoint, designed for entering orders, scheduling examinations and
providing status reports. The PMI System is designed to permit electronic
communication of information between the Company and its insurance company
clients. Once completed and integrated with the Company's billing and
collection system, the Company intends to utilize the combined system
capabilities to provide current information on the status of any given
customer order, thereby providing enhanced services to and allowing closer
ties with the Company's customers.
Sales and Marketing
The Company markets its paramedical testing services on a national level
through seven full-time national sales representatives who call on senior
underwriting executives at the home offices of insurance companies. The
Company serves over 1,000 active life, health and disability insurance company
clients, including their networks
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of agency, district, and brokerage offices. National sales representatives
promote the Company's high quality of service and rapid response time to
examination requests and are responsible for maintaining the Company's
position on each insurance company's approved list of examination providers.
The Company regularly attends and occasionally sponsors client conferences to
provide national sales representatives with opportunities to further develop
key relationships.
At the local level, branch managers, and in certain offices, additional
marketing personnel, market the Company's services directly to the local
insurance agents and local managers, who have the authority to select
examination providers from the list approved by the home offices of the
insurance companies. These local marketing efforts emphasize the quality of
the Company's examinations and the speed and accuracy of its services,
including the ability of each branch to quickly ascertain the status of each
service request.
Billing, Collection and Information Services
The Company bills its insurance company and other paramedical testing
clients on a fee-for-service basis. DSO for these services average between 45
and 50 days.
In connection with the Company's purchase of PMI in December 1997,
ChoicePoint agreed to continue to provide certain services on behalf of the
Company, including order entry, scheduling, status reporting, billing and
other related services with respect to the acquired operations at no charge
from December 15, 1997 through April 15, 1998 and continues to provide such
services for a fee of approximately $223,000 per month from April 15, 1998
through June 30, 1998, unless extended by mutual agreement of the parties.
The assets purchased from ChoicePoint included the PMI System, a computer
system then under development by ChoicePoint designed to meet the requirements
of the paramedical testing operations. The system is designed for entering
orders, scheduling examinations and providing status reports. The Company
anticipates that the PMI System will be implemented in July, 1998. The Company
is also developing internally a new paramedical testing billing and collection
system which is designed to integrate with the PMI System. The Company is
completing the development of this billing and collection system and currently
plans to implement the system in June 1998.
Local Office Network
The Company provides its paramedical services through a network of over 200
field offices strategically located in all 50 states, Puerto Rico and Guam.
Each branch office is responsible for local marketing efforts, recruiting
qualified personnel and coordinating examination and reporting procedures. The
Company provides its branch managers with training, comprehensive policies and
procedures and standardized operating systems, while allowing them sufficient
autonomy to address local needs. The Company believes that decentralized
management of local operations enhances the Company's ability to establish and
maintain relationships with local insurance agents and other referral
services.
MANAGEMENT INFORMATION SYSTEMS
In July 1997, the Company began implementing the NPAS, designed to provide
each of the Company's health care branch offices with immediate access to
patient information and to perform billing and collection services.
Approximately 64% of the Company's health care branch offices currently use
the NPAS. The Company believes that once the NPAS is fully implemented, it
will enhance the Company's patient information and billing and collection
functions.
In connection with the Company's purchase of PMI in December 1997, the
Company acquired the PMI System under development by ChoicePoint for use by
PMI. The PMI System is designed for entering orders, scheduling examinations
and providing status reports and anticipates that the system will be
implemented in July 1998. The Company is also developing internally a new
paramedical testing billing and collection system which will integrate with
the PMI System. The Company is completing the development of the billing and
collection
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system and currently plans to implement the system in June 1998. In connection
with the PMI acquisition, ChoicePoint agreed to continue to provide certain
services on behalf of the Company, including order entry, scheduling, status
reporting, billing and other related services with respect to the acquired
operations at no charge from December 15, 1997 through April 15, 1998, and for
a monthly fee of up to approximately $223,000 per month from April 15, 1998
through June 30, 1998, unless extended by mutual agreement of the parties. The
completion of the PMI System will require a significant amount of management's
time and attention and there can be no assurance that the Company will
complete the development of the billing and collection system or the
integration of the operations in a timely manner. Failure to complete the PMI
System and integrate the operations in accordance with management's plans
could have a material adverse effect on the Company's financial condition and
results of operations.
The Company has selected a software vendor and has retained a consultant for
the implementation of a new general ledger, accounts payable, inventory,
purchasing and fixed assets accounting system. The Company intends to begin
implementation of this new system in the first quarter of fiscal 1999.
REIMBURSEMENT
The Company focuses its health care marketing efforts on patients with
private insurance; however, due to the nature of the Company's business, many
of its patients rely on Medicare and Medicaid for health coverage. The
following are the approximate percentages of the Company's net revenue
attributable to reimbursement from various payors of both the health care
services and paramedical testing businesses for the periods presented:
<TABLE>
<CAPTION>
YEAR
ENDED
SEPTEMBER
30,
----------
PAYOR 1997 1996
----- ---- ----
<S> <C> <C>
Commercial Insurance and Self Payors........................... 64% 63%
Medicaid and Other State Programs.............................. 27 27
Medicare and Other Federal Programs............................ 9 10
--- ---
Total........................................................ 100% 100%
=== ===
</TABLE>
These percentages do not reflect PMI's net revenue, estimated by the Company
at $60 million for the year ended December 31, 1997. All of PMI's estimated
net revenue was attributable to reimbursement from commercial insurance
companies.
During the past decade, federal and state governments and third-party payors
have taken extensive steps intended to contain or reduce the costs of health
care. These steps have included, among others, reduced reimbursement rates,
changes in services covered, increased utilization review of services,
negotiated prospective or discounted contract pricing and adoption of a
competitive bid approach to service contracts. Cost containment efforts are
expected to continue in the future. Home health care, which is usually less
costly than hospital-based care, generally has benefited from many of these
cost containment efforts. As expenditures on home health care services
continue to grow, however, initiatives aimed at reducing the cost of health
care delivery in non-institutional settings are increasing. Many state
Medicaid programs, in an effort to contain the cost of health care and in
light of state budgetary constraints, have reduced their payment rates and
have narrowed the scope of covered services. Likewise, the federal government
through legislation and regulation has acted repeatedly to limit expenditures
for health care, including home health services and home medical equipment.
Similar initiatives are expected to continue in the future. A significant
change in coverage or a reduction in payment rates for the types of services
provided by the Company could have a material adverse effect upon the
Company's business.
Commercial Insurance. The Company provides its services on a fee-for-service
basis to patients covered by commercial insurance as well as self-funded
employer plans. In some instances, services are rendered pursuant to fees
negotiated with insurance companies under preferred provider contracts. The
Company has not entered into any contracts with health maintenance
organizations or other insurance companies that require services to be
rendered on a risk-sharing or capitated basis. A shift to capitated payments
could have an adverse financial effect upon the Company's business.
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All of the Company's paramedical testing services are performed on a fee-
for-service basis and are paid by the insurance company or other entity that
requested the tests.
Medicaid Program. Medicaid (Title XIX of the Social Security Act) is a
cooperative state-federal program for medical assistance to the poor. In order
to be eligible, a person must be either age 65 or over, blind or disabled or
be the caretaker for minor children. States have great flexibility in
determining the services that will be paid for under their Medicaid programs.
Beyond mandatory services, states can provide a wide range of medical
services, including services not otherwise covered under Medicare, such as
long-term nursing care. BBA 1997 also allows states to amend their state plans
to expand services to uninsured children by providing $24 billion over the
next five years in matching funds to state Medicaid programs.
Medicare Program. Medicare is a federally funded health insurance program
that provides health insurance coverage for persons with incomes below
established federal poverty standards as well as certain disabled persons,
persons age 65 and older and persons with chronic renal disease. The United
States Congress enacted the Medicare program in 1965 as Title XVIII of the
Social Security Act. The program consists of two separate insurance programs:
(i) "Hospital Insurance," established in Part A of the Social Security Act,
provides certain benefits covering inpatient hospital, nursing facility, home
health and hospice services, and (ii) "Supplementary Medical Insurance,"
established in Part B of the Social Security Act, provides benefits in the
areas of outpatient hospital visits, physician services, other types of
outpatient services, respiratory therapy, infusion therapy, home medical
equipment and prosthetic devices.
Individuals age 65 and older who qualify for Social Security or Railroad
Retirement Benefits automatically qualify for Medicare Part A. Medicare Part B
is a voluntary program and all individuals who are eligible for Medicare Part
A coverage may elect to enroll in Medicare Part B. The Company is an
authorized provider eligible to receive direct reimbursement under Medicare
Parts A and B in certain geographic locations. Health care providers such as
the Company must meet "conditions of participation" to receive Medicare
payments. The conditions of participation are federal requirements intended to
ensure the quality of the medical services provided.
Part A providers are required to sign provider agreements to participate in
Medicare. The Medicare Part A home health benefit currently is a cost-based
reimbursement program that requires the Company to file an annual cost report
for those branch offices performing services under Medicare Part A and for the
Company's home office. Medicare reimburses the Company for covered home health
care services at the lower of (i) the Company's reimbursable costs (based on
Medicare regulations), (ii) cost limits established by Health Care Financing
Administration, or (iii) the Company's charges.
Under Medicare Part B, the beneficiary must pay an annual deductible amount
before Medicare will make any payments. After the Medicare Part B deductible
is satisfied, Medicare ordinarily will pay 80% of the Medicare approved
payment amount, and the beneficiary is responsible for paying the remaining
20%. Medicare has developed approved forms for submission of bills and claims.
The passage of BBA 1997 is expected to materially affect Medicare
reimbursement to the home health industry. The U.S. Congressional Budget
Office estimates that the combined effect of changes enacted in BBA 1997 will
reduce projected Medicare spending on home health care services, durable
medical equipment and oxygen and oxygen equipment by $19.1 billion over the
period of fiscal year 1998 through fiscal year 2002 and by $59.3 billion over
the period of fiscal year 1998 through fiscal year 2007.
Under BBA 1997, the current cost reimbursement system for home health
services will remain in effect for the two-year period prior to the
implementation of a prospective payment system in October 1999. Effective for
cost-reporting periods ending on or after October 1, 1997, agencies will be
reimbursed at the lower of three amounts: (i) their actual costs; (ii) the
cost per visit limits reduced to 105% of the median costs for free-standing
agencies; or (iii) an aggregate per beneficiary limit based on 75% of agency-
specific costs and 25% on census region costs for cost- reporting years ending
during fiscal year 1994, updated by the home health market basket
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index. For cost-reporting periods beginning on or after October 1, 1997, the
cost-per-visit limits will apply to claims based on the geographic area where
the service is furnished, rather than on the geographic area where the agency
is located. For services furnished on or after October 1, 1997, the Secretary
of Health and Human Services is authorized to issue regulations establishing
normative guidelines for the frequency and duration of home health services,
beyond which services will not be covered. The Secretary is also authorized to
implement not more than five competitive bidding demonstration projects which
must terminate by the end of calendar year 2002 for items or services covered
under Part B. Updates to the durable medical equipment fee schedules will be
eliminated for the years 1998 through 2002. Payment rates for parenteral and
enteral nutrients, supplies and equipment will also be frozen for the years
1998 through 2002 at the rate in effect during 1995. Beginning with services
furnished on or after January 1, 1998, coverage of home health services under
Part A will be reduced to a maximum of 100 visits during a spell of illness
after a three-day hospitalization or after receiving any covered services in a
skilled nursing facility. Coverage for all other home health services would be
under Part B. Funding responsibility for payment of the services under Part B
will be transferred gradually out of the Part A trust fund over a seven year
period. All claims will continue to be submitted to, and paid by, the fiscal
intermediaries. Periodic Interim Payments will be eliminated for cost
reporting periods on or for the benefit of the Medicare program and each state
Medicaid program in which it participates, after October 1, 1999. Beginning
six months after October 1, 1997, home skilled nursing care will not be
covered if it is solely venipuncture for the purpose of drawing blood.
BBA 1997 also mandates that the Medicare national payment limit for oxygen
and oxygen equipment be reduced by 25% of 1997 rates for 1998, with an
additional 5% reduction of 1997 rates for 1999 and subsequent years. The
General Accounting Office has been requested to submit a report to Congress
addressing access to home oxygen equipment and recommendations for further
legislation. Home health companies will be required to post a surety bond in
an amount equal to the greater of $50,000 or 15% of revenues derived from any
such program.
The effect that these changes ultimately will have on the home health
industry cannot be quantified at this time, however, there can be no assurance
that these and other changes mandated by BBA 1997 will not materially and
adversely affect the business and financial condition of the Company.
COMPETITION
Pediatric and Other Health Care. Each of the Company's health care services
markets is highly competitive and is divided among a large number of
providers, some of which are national providers but most of which are either
regional or local providers. The Company competes for referrals primarily
based on quality of care and service, reputation with referring health care
professionals, ability to develop and maintain contacts with referral sources
and price of services. In addition to competing with other home health care
companies focusing on providing services to pediatric patients, the Company
competes with several large national home health care companies that, while
not focusing on the pediatric patient, provide pediatric health care services
as part of a broader product offering. The Company believes that its
specialization in pediatric health care, as well as its coordinated care
approach to health care services, broadens its appeal to local health care
professionals and to managed care organizations.
In addition to its traditional competitors, other types of health care
providers, including hospitals, physician groups and home health agencies,
have entered, and may continue to enter, the Company's business. Relatively
few barriers to entry exist in the home health care industry in states that do
not require a certificate of need. Certain of the Company's competitors and
potential competitors have significantly greater financial, technical and
marketing and sales resources than the Company and may, in certain locations,
possess licenses or certificates that permit them to provide services that the
Company cannot currently provide. There can be no assurance that the Company
will not encounter increased competition in the future that could limit the
Company's ability to maintain or increase its business and could adversely
affect the Company's operating results.
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Paramedical Testing. The paramedical testing business is highly competitive,
and certain of the Company's competitors have greater resources than the
Company, and offer services not offered by the Company or offer similar
services at prices lower than those charged by the Company.
Management believes that the Company is the nation's third largest provider
of paramedical testing services to insurance companies, based on revenues. A
large number of regional and local firms also offer these services. In
management's opinion, the principal competitive factors in the paramedical
testing market are speed of response, geographic coverage, and delivery of
complete and accurate information. In addition, technological capabilities
recently have taken the forefront in client needs.
REGULATION
Pediatric and Other Health Care Services
General. The Company's health care services business is subject to extensive
and frequently changing state and federal regulation. The Company is subject
to state laws governing and regulating numerous aspects of its business,
including home health care and home infusion therapy services (including
certificates of need and license requirements in certain states) and
dispensing, distributing and compounding prescription products. The Company
also is subject to certain state laws prohibiting the payment of remuneration
for patient or business referrals and the provision of services where a
financial relationship exists between a referring physician and the entity
providing the service.
Federal laws governing the Company's activities include regulations of
pharmacy operations and regulations under the Medicare and Medicaid programs
relating to, among other things, certification of home health agencies and
reimbursement. In addition, federal fraud and abuse laws prohibit or restrict,
among other things, the payment of remuneration to parties in a position to
influence or cause the referral of patients or business.
New laws and regulations are enacted from time to time to regulate new and
existing services and products in the home health care industry. Changes in
the law or new interpretations of existing laws also could have an adverse
effect on the Company's methods and costs of doing business. Further, failure
of the Company to comply with such laws could adversely affect the Company's
ability to continue to provide, or receive reimbursement for, its equipment
and services, and also could subject the Company and its officers and
employees to civil and criminal penalties. There can be no assurance that the
Company will not encounter regulatory impediments that could adversely affect
its ability to open new branch offices and to expand the services currently
provided at its existing branch offices. There can be no assurance that
current or future government regulation will not have an adverse effect upon
the Company's business.
Set forth below is a more detailed discussion of certain factors related to
federal and state regulation of the Company and its business.
Medicare and Medicaid Regulations. As a provider of services under the
Medicare and Medicaid programs, the Company is subject to federal laws and
regulations governing reimbursement procedures and practices. These laws
include the Medicare and Medicaid fraud and abuse statutes and regulations,
which prohibit the payment or receipt of any form of remuneration in return
for referring business or patients to providers of services for which payments
are made by a government health care program. Violation of these laws may
result in civil and criminal penalties, including substantial fines, loss of
the right to participate in the Medicare and Medicaid programs and
imprisonment. In addition, the Government recently enacted the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"), a portion of
which took effect this year, expanding the government's fraud and abuse
elimination efforts. HIPAA, among other provisions, expands the Government's
efforts for prosecuting fraud and abuse beyond Medicare and Medicaid to all
payors; makes exclusion from the Medicare and Medicaid programs mandatory for
a minimum of five years for any felony conviction relating to fraud; requires
that organizations contracting with another organization or individual take
steps to be informed as to whether the organization or individual is excluded
from Medicare and Medicaid participation; and enhances
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civil penalties by increasing the amount of fines permitted. These laws also
include prohibitions on referrals contained in the Omnibus Budget
Reconciliation Act of 1989 ("Stark I"), which prohibits referrals by
physicians to clinical laboratories in which the physician has a financial
interest, and further prohibitions contained in the Omnibus Budget
Reconciliation Act of 1993 ("Stark II"), which prohibits such referrals to a
more extensive range of services, including home health care and the supply of
durable medical equipment. While regulations interpreting Stark I have been
issued, regulations interpreting Stark II have not been finalized to date. No
assurance can be given that all of the practices of the Company, if reviewed,
would be found to be in compliance with any such federal laws or with any
future laws or regulations. In addition, various federal and state laws impose
civil and criminal penalties against participants in the Medicare or Medicaid
programs who make false claims for payment for services or otherwise engage in
false billing practices.
Many states also have statutes prohibiting the payment or receipt (or the
offer of) anything of value in return for, or to induce, a referral for health
care goods or services. In addition, there are several other statutes that,
although they do not explicitly address payments for referrals, could be
interpreted as prohibiting the practice. While similar in many respects to the
federal laws, these state laws vary from state to state, are often vague and
have been interpreted inconsistently by courts and regulatory agencies.
Private insurers and various state enforcement agencies also have increased
their scrutiny of health care providers' practices and claims, particularly in
the home health and home medical equipment areas.
Recently, enforcement of federal fraud and abuse laws, and regulatory
scrutiny generally, have increasingly focused on the home health care
industry. For example, the government has implemented Operation Restore Trust,
a federal investigatory initiative focused on home health, home medical
equipment and skilled nursing facility providers, and recently expanded this
program to 12 new states, as well as implementing "Wedge" audits, which
involve a review of a small sample of patient records to identify
noncompliance. Any adverse findings under these types of audits can result in
adjustments in future payments. There can be no assurance that the Company
will not become the subject of a regulatory or other investigation or
proceeding or that its interpretations of applicable health care laws and
regulations will not be challenged. The defense of any such challenge could
result in substantial cost to the Company and diversion of management's time
and attention. Any such challenge, should it ultimately be sustained or not,
could have a material adverse effect on the Company.
In 1997, the Company undertook the development and implementation of a
company-wide corporate compliance program developed in accordance with federal
guidelines. The Company's compliance program encompasses measures for auditing
and monitoring of legal compliance as well as training for Company employees
and agents. The Company has hired a corporate compliance officer who is vested
with responsibility for implementing the compliance program.
Medicare Certification. Federal regulations governing the Medicare program
also are applicable to the Company. Regulations for Medicare reimbursement
include an annual review of health care facilities and personnel and provide
criteria for coverage and reimbursement. The Company is Medicare certified to
provide nursing services in 16 states and Washington, D.C.
Permits and Licensure. Many states require companies providing pharmacy
services, home health care services, home infusion therapy products and
services and other products and services of the type offered by the Company to
be licensed. The Company currently is licensed as a home health agency in 16
states, is licensed as a home care agency in eight states and currently is
licensed as a pharmacy in 34 states. The Company provides unit dose
medications by mail order to various states. The Company has obtained or, in
certain cases, is in the process of obtaining, licenses for its mail order
services from such states.
Certificates of Need. Approximately 16 states require companies providing
home health care services, infusion therapy and other services of the type
offered by the Company to have a certificate of need issued by a state health
planning agency. Certificates of need are often difficult to obtain and in
many instances a certificate of need is not obtainable at all (because an area
is determined to be adequately served by existing providers or
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for other reasons). If the Company plans to commence operations in a state, or
expands its operations in a state where it is currently operating, and those
operations require a certificate of need, the Company will be required to
obtain a certificate of need with respect to those operations. There can be no
assurance that the Company will be able to obtain any required certificate of
need, and, if so required, the Company will incur expenses in connection with
attempting to obtain a certificate of need.
Paramedical Testing
Various aspects of the Company's paramedical testing business also are
regulated by the federal government and the states in which the Company
currently operates. Although the Company has been able to comply with
applicable regulations to date, there can be no assurance that it will
continue to be able to comply with specific requirements of certain states.
States periodically change the regulations and licensing requirements that
apply to the Company. If such changes occur, or if the Company expands its
operations into new jurisdictions or services, there can be no assurance that
the Company will be able to comply with regulations and licensing
requirements, although the Company will be required to do so before providing
service.
HEALTH CARE REFORM
Political, economic and regulatory influences are subjecting the health care
industry in the United States to extensive and dynamic change, and many
competing proposals have been introduced in Congress and various state
legislatures to reform the present health care system. It is possible that
health care reform at the federal or state level, whether implemented through
legislation or through action by federal or state administrative agencies,
would require the Company to make significant changes in the way it conducts
business. Certain aspects of health care reform such as proposed reductions in
Medicare and Medicaid payments, if successfully developed and adopted, could
have a material adverse effect upon the Company's business. The Company
anticipates that Congress and state legislatures will continue to review and
assess alternative health care delivery systems and payment methodologies, and
public debate of these issues will likely continue in the future. It is not
possible at this time to predict what, if any, further reforms will be
adopted, or when such reforms will be adopted and implemented. No assurance
can be given that any such reforms will not have a material adverse effect
upon the Company's business, results of operations, and financial condition.
EMPLOYEES
As of February 18, 1998, the Company's health care and related services
operations employed approximately 1,600 full-time employees and 3,400 part-
time employees and the Company's paramedical testing operation employed
approximately 350 full-time employees. The paramedical testing operations also
utilize the services of over 5,000 part-time independent contractors.
ENVIRONMENTAL MATTERS
Medical facilities are subject to a wide variety of federal, state and local
environmental and occupational health and safety laws and regulations, such as
air and water quality control requirements, waste management requirements and
requirements for training employees in the proper handling and management of
hazardous materials and wastes. The typical branch office facility operations
include, but are not limited to, the handling, use, storage, transportation,
disposal and/or discharge of hazardous, toxic, infectious, flammable and other
hazardous materials, waste, pollutants or contaminants. These activities may
result in injury to individuals or damage to property or the environment and
may result in legal liability, damages, injunctions, fines, penalties or other
governmental agency actions. The Company is not aware of any pending or
threatening claim, investigation or enforcement action regarding environmental
issues which, if determined adversely to the Company, would have a material
adverse effect upon the capital expenditures, earnings, or competitive
position of the Company.
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PROPERTIES
The Company's principal executive offices are located in Norcross, Georgia
and consist of approximately 60,000 square feet of office space. The lease
term on the facility expires in 2008. The Company's health care operations
include 131 branch offices in 29 states and the District of Columbia. Branch
offices typically are located in office parks or complexes and average
approximately 2,500 square feet. Generally, each health care facility is a
combination warehouse and office. Lease terms on branch offices are generally
three years or less. The Company's paramedical testing division maintains its
corporate operations in Walnut Creek, California in approximately 4,500 square
feet of leased space. The paramedical testing division also maintains regional
service centers in Dallas, Texas, Kansas City, Kansas, and Minneapolis,
Minnesota. The division has over 200 testing field offices located in all 50
states, Puerto Rico and Guam. The lease terms on these facilities generally
are three years or less. The Company believes that its current facilities are
suitable for and adequate to support the level of its present operations.
POTENTIAL LIABILITY AND INSURANCE
In recent years, physicians, hospitals and other participants in the health
care industry have become subject to an increasing number of lawsuits alleging
malpractice, product liability or related legal theories, many of which
involve large claims and significant defense costs. The Company currently
maintains liability insurance intended to cover any claims. This insurance
coverage is provided under a "claims-made" policy which provides, subject to
the terms of the policy, coverage for certain claims made against the Company
during the term of the policy and does not provide coverage for losses
occurring during the term of the policy for which a claim is made subsequent
to the termination of the policy. There can be no assurance that the coverage
limits of the Company's insurance policies will be adequate. In addition,
while the Company has been able to obtain liability insurance in the past,
such insurance varies in cost, is difficult to obtain and may not be available
in the future on acceptable terms or at all.
The Company is also subject to accident claims arising out of the normal
operation of its fleet of vans and small trucks and maintains insurance
intended to cover these claims. The Company also is named as an additional
insured in the product liability policies maintained by certain manufacturers
of health care equipment utilized by the Company in connection with its
business and operations. A successful claim against the Company in excess of
the insurance coverage could have a material adverse effect upon the Company's
business. Claims against the Company, regardless of their merits or eventual
outcome, also may have a material adverse effect upon the Company's reputation
and business.
LEGAL PROCEEDINGS
The Company is subject to certain claims and lawsuits, the outcomes of which
are not determinable at this time. In the opinion of management, it is
unlikely that any liability that might be incurred upon the resolution of
these claims and lawsuits will, individually or in the aggregate, have a
material adverse effect on the consolidated financial condition or results of
operations of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of February 24, 1998,
with respect to the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph D. Sansone(1)................ 54 Chairman of the Board of Directors, President
and Chief Executive Officer
Stephen M. Mengert.................. 48 Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
Susan E. Dignan..................... 45 Assistant Secretary and General Counsel
Charles P. Gaetano.................. 46 Senior Vice President of Development
James R. Henderson.................. 52 Senior Vice President of Operations
Michael J. Finn(1).................. 48 Director
Adam O. Holzhauer(1)................ 51 Director
Robert P. Pinkas(2)................. 44 Director
Irving S. Shapiro(2)................ 81 Director
Richard S. Smith(1)(2).............. 62 Director
</TABLE>
- --------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Joseph D. Sansone has been Chairman of the Board of Directors, President and
Chief Executive Officer of the Company since its formation in 1989. From
September 1987 until the formation of the Company, Mr. Sansone was President
of Ambulatory Services of America, Inc. ("ASA"), a wholly owned subsidiary of
Charter Medical Corporation, the Company's former parent. Prior to joining
Charter Medical, Mr. Sansone was employed by American Medical International,
Inc. ("AMI"). From 1985 to 1987, he served as Vice President of AMI Home
Health Equipment Centers, a division of AMI specializing in durable medical
equipment sales and rentals.
Stephen M. Mengert has been Senior Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since July 1996. Prior to joining the
Company, Mr. Mengert was Senior Vice President and Chief Financial Officer of
Arbor Health Care Company from November 1995 to July 1996. From July 1990
until joining Arbor Health Care Company, Mr. Mengert was employed in a similar
capacity at Rehability Corporation.
Susan E. Dignan has been Assistant Secretary and General Counsel of the
Company since 1996. Prior to joining the Company, Ms. Dignan was an attorney
with the law firm of Long Aldridge & Norman LLP from 1993 until 1996.
Charles P. Gaetano has served as the Company's Senior Vice President of
Development since March 31, 1995, when the Company acquired PPI. Mr. Gaetano
previously served as Chief Executive Officer of Pediatric Partners, Inc. from
1990 to 1995.
James R. Henderson joined ASA in 1987 as a Senior Regional Director and in
1989 became a Divisional Vice President of the Company. In 1996, Mr. Henderson
became Senior Vice President of Operations of the Company. From 1985 until
joining ASA, Mr. Henderson was Director of Operations and President of
Healthfocus Medical Equipment, Inc. in Houston, Texas, a wholly-owned
subsidiary of Healthfocus, Inc.
Michael J. Finn has been a director of the Company since 1989. He has been a
General Partner of Brantley Venture Partners, L.P., a venture capital firm
based in Cleveland, Ohio, since May 1995. Mr. Finn served from 1987 until May
1995 as Vice President, Venture Capital and Emerging Growth for Sears
Investment Management Co. and during his tenure headed the Venture Capital
Group for the firm. Previously, Mr. Finn was
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Deputy Director of the Bureau of Investments, Michigan Department of Treasury.
In this capacity, Mr. Finn headed the Venture Capital Group. Mr. Finn also is
a director of Medirisk, Inc., Silvon Software and The Rhomas Group.
Adam O. Holzhauer has been a director of the Company since 1989. He is
Chairman of the Board and Chief Executive Officer of Royale Healthcare, Inc.,
a hospital management company which he founded in 1988. Mr. Holzhauer also is
President of Adam Holzhauer, Inc., a private investment company. From 1985
until 1994, Mr. Holzhauer served as President of Master Ventures, Inc., a
division of Master Collectors, which provides accounts receivable management
and collection services for health care providers, government agencies, major
retailers, banks and national credit card companies.
Robert P. Pinkas has been a director of the Company since 1989. He is a
General Partner of Brantley Venture Partners, L.P., a venture capital firm
based in Cleveland, Ohio, of which he was the founding partner in 1987. Mr.
Pinkas has been a director, officer and investor in several early stage
technology businesses since 1981, including Quad Systems Corporation,
Medirisk, Inc., Waterlink, Inc. and Brantley Capital Corporation. He currently
serves as Chairman of the Board of Gliatech, Inc.
Irving S. Shapiro has been a director of the Company since 1992. He has been
Of Counsel to the law firm Skadden, Arps, Slate, Meagher & Flom, LLP in
Wilmington, Delaware, since 1990, and from 1981 to 1990 was a partner of that
firm. Prior to joining Skadden, Arps, Slate, Meagher & Flom, LLP, Mr. Shapiro
was Chairman of the Board and Chief Executive Officer of E. I. du Pont de
Nemours & Company. Mr. Shapiro currently serves as director of AEA Investors
Inc., Gliatech, Inc. and J. P. Morgan Florida Savings Bank. He also serves as
a trustee of the Howard Hughes Medical Institute and Chairman of the Board of
Sola International, Inc. and Marvin & Palmer Associates, Inc.
Richard S. Smith has been a director of the Company since 1993. He has been
President of Ventex Management, Inc. or its predecessors since 1987. Ventex
Management, Inc. is the general partner of Ventex Partners, Ltd., an
investment partnership located in Houston, Texas. Mr. Smith currently serves
as a director of several private corporations.
DESCRIPTION OF CREDIT AGREEMENT
On August 13, 1997, the Company entered into a syndicated revolving credit
agreement through Pediatric Services of America, Inc. a Georgia corporation
and wholly-owned subsidiary of the Company (the "Borrower") to borrow up to
$100.0 million in borrowings, with a $10.0 million sublimit for letters of
credit, and a $5.0 million sublimit for short-term swing loans. The Credit
Agreement, as amended, which was arranged by NationsBank, N.A., as
administrative agent, will terminate on August 13, 2002 unless extended by the
consent of each of the lenders. Proceeds of the Credit Agreement initially
were used to refinance certain existing indebtedness of the Company and are
available on an ongoing basis for working capital and other corporate
purposes, including acquisitions. Letters of Credit issued under the Credit
Agreement may be used only for, or in connection with, appeal bonds,
reimbursement obligations arising in connection with surety and reclamation
bonds, reinsurance, domestic or international trade transactions and other
purposes in the ordinary course of business.
Under the terms of the Credit Agreement, borrowings bear interest at the
option of the Company either at NationsBank's prime rate (8.5% at February 23,
1998) or at LIBOR plus a specified percentage, which percentage is determined
and adjusted quarterly based upon the consolidated leverage ratio of the
Company and its consolidated subsidiaries (currently LIBOR plus 1.625%). The
obligations of the Borrower under the Credit Agreement are guaranteed by the
Company and its direct and indirect subsidiaries, and are secured by a pledge
of the capital stock and equity interests in certain of the Company's direct
and indirect subsidiaries.
As of December 31, 1997, the Company had $86 million of borrowings
(including letters of credit) outstanding under the Credit Agreement.
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The Credit Agreement contains certain customary terms and provisions,
including limitations on the Company with respect to the incurrence of
additional debt, liens, consolidations, mergers, leases, sales, dispositions,
or purchases of assets, capital expenditures, advances, loans and investments,
transactions with affiliates, changes in fiscal year, prepayment, repayment or
refinancing of existing debt (other than with respect to the Non-Qualified
Plan and permitted intercompany debt), sale/leasebacks, and further negative
pledges.
The Company also is prohibited from (i) declaring, paying or making any
dividend or distribution, direct or indirect, on account of any shares of any
class of stock (other than (x) dividends payable solely in shares of the same
class of stock to holders of that class or (y) dividends payable to certain
subsidiaries), (ii) making or permitting any redemption, retirement, sinking
fund or similar payment, purchase or other acquisition for value, direct or
indirect, of any shares of any class of stock, or (iii) making or permitting
any payment to retire or to obtain the surrender of any outstanding warrants,
options or other rights to acquire shares of any class of stock (any of the
foregoing, a "Restricted Payment"). Notwithstanding the foregoing
restrictions, the Company is permitted to make Restricted Payments with
respect to the Non-Qualified Plan, and Restricted Payments may be made to the
extent that no Default or Event of Default under the Credit Agreement exists
immediately prior or will exist after giving effect to such Restricted Payment
on a pro forma basis.
In addition, the Credit Agreement contains certain financial covenants
related to the performance of the Company and its consolidated subsidiaries,
including consolidated fixed charge coverage and leverage ratios and a
consolidated net worth covenant.
The Company also entered into the Revolving Note whereby NationsBank, N.A.
agreed to advance the Company up to $10.0 million on a revolving credit basis
provided availability under the Credit Agreement has been exhausted. The
Revolving Note was closed on February 26, 1998 and terminated on the
consummation of the offering of the Old Notes.
The Company used the net proceeds of the offering of the Old Notes to repay
indebtedness outstanding under the Credit Agreement, including payment in full
of any amounts outstanding under the Revolving Note.
DESCRIPTION OF NEW NOTES
The New Notes will be, and the Old Notes were, issued pursuant to the
Indenture (the "Indenture") between the Company, the Guaranteeing Subsidiaries
and SunTrust Bank, Atlanta, a Georgia banking corporation, as trustee (the
"Trustee"), in a private transaction that was not subject to the registration
requirements of the Securities Act. For purposes of the following summary, the
Old Notes and the New Notes shall be collectively referred to as the "Notes."
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the TIA. The Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and the TIA for
a statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. Capitalized terms that are used but not otherwise defined below
under the caption "--Certain Definitions" have the meaning assigned to them in
the Indenture, and such definitions are incorporated herein by reference. A
copy of the Indenture is filed as an exhibit to the Registration Statement of
which this Prospectus is a part, and is available as set forth under
"Additional Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions."
GENERAL
The Notes will be general unsecured obligations of the Company, subordinated
in right of payment to all existing and future Senior Debt of the Company. See
"Subordination." The Notes will be guaranteed, jointly and severally, on a
senior subordinated basis by the Guaranteeing Subsidiaries. The Subsidiary
Guarantees will be subordinated in right of payment to all existing and future
Senior Debt of the Guaranteeing Subsidiaries,
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including the obligations of the Guaranteeing Subsidiaries under the Credit
Agreement. See "Subsidiary Guarantees." At December 31, 1997, on a pro forma
basis (giving effect to the offering of the Old Notes and the application of
the net proceeds therefrom), the Company had approximately $20.1 million of
Senior Debt outstanding.
Restrictions in the Indenture on the ability of the Company and its
Restricted Subsidiaries to incur additional Indebtedness, to make Asset Sales,
to enter into transactions with Affiliates and to enter into mergers,
consolidations or sales of all or substantially all of its assets, may make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Although such restrictions cover a
wide variety of arrangements which traditionally have been used to effect
highly leveraged transactions, the Indenture may not afford holders of Notes
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
As of the date of the Indenture, all of the Company's Subsidiaries were
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $100 million and
will mature on April 15, 2008. The Indenture provides for the issuance of up
to $25 million aggregate principal amount of additional notes having identical
terms and conditions to the Notes offered hereby subject to compliance with
the covenants contained in the Indenture. Any issuance of additional notes
would be subject to the covenant described under "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock." Any additional
notes will be part of the same issue as the Notes and will vote on all matters
with the Old Notes and New Notes. For purposes of this "Description of New
Notes," reference to the Notes includes any additional notes issued pursuant
to the Indenture. Interest on the Notes will accrue at the rate of 10% per
annum and will be payable semi-annually in arrears on April 15 and October 15,
commencing on October 15, 1998, to Holders of record on the immediately
preceding April 1 and October 1. Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Holders of the New Notes will
receive interest on October 15, 1998 from the date of initial issuance of the
New Notes, plus an amount equal to the accrued interest on the Old Notes from
the date of initial issuance thereof to the date of exchange thereof pursuant
to the Exchange Offer. Interest on the Old Notes accepted for exchange will
cease to accrue upon issuance of New Notes in exchange therefor. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, interest and Liquidated Damages (as defined in
"Registration Rights; Liquidated Damages"), if any, on the Notes will be
payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company,
payment of interest may be made by check mailed to the Holders of the Notes at
their respective addresses set forth in the register of Holders of Notes.
Until otherwise designated by the Company, the Company's office or agency in
New York will be the office of the Trustee maintained for such purpose. The
Notes will be issued in denominations of $1,000 and integral multiples
thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed (the "Subsidiary Guarantees") by the Guaranteeing
Subsidiaries. Guaranteeing Subsidiaries include each of the Subsidiaries of
the Company in existence on the date of the Indenture and any future
Restricted Subsidiaries and their respective successors and assigns. The
Subsidiary Guarantee of each Guaranteeing Subsidiary will be subordinated to
the prior payment in full of all existing and future Senior Debt of such
Guaranteeing Subsidiary on substantially the same terms as the Notes are
subordinated to the Senior Debt of the Company. The obligations of each
Guaranteeing Subsidiary under its Subsidiary Guarantee will provide that they
will be limited so as not
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to constitute a fraudulent conveyance under applicable law. See "Risk
Factors--Fraudulent Conveyance; Preferential Transfer."
The Indenture provides that no Guaranteeing Subsidiary may consolidate with
or merge with or into (whether or not such Guaranteeing Subsidiary is the
surviving Person), another Person, whether or not affiliated with such
Guaranteeing Subsidiary, unless (i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such consolidation or merger
(if other than such Guaranteeing Subsidiary) assumes all the obligations of
such Guaranteeing Subsidiary under the Notes and the Indenture pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
the Consolidated Net Worth of the Guaranteeing Subsidiary or the surviving
entity, as the case may be, is at least equal to the Consolidated Net Worth of
the Guaranteeing Subsidiary immediately before such transaction or series of
transactions; and (iv) the Company would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio, immediately after giving
effect to such transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio set forth in the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock." The foregoing
will not prohibit a merger between a Guaranteeing Subsidiary and another
Guaranteeing Subsidiary or a merger between a Guaranteeing Subsidiary and the
Company.
The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Guaranteeing Subsidiary, by way
of merger, consolidation or otherwise, or a sale or other disposition of all
of the Capital Stock of any Guaranteeing Subsidiary, then such Guaranteeing
Subsidiary (in the event of a sale or other disposition, by way of such a
merger, consolidation or otherwise, of all of the Capital Stock of such
Guaranteeing Subsidiary) or the corporation acquiring the property (in the
event of a sale or other disposition of all of the assets of such Guaranteeing
Subsidiary) will be released and relieved of any obligations under its
Subsidiary Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture. See "--Asset Sales."
SUBORDINATION
The payment of all Obligations on the Notes will be subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company, or in a bankruptcy, reorganization, insolvency,
receivership or any such proceeding relating to the Company or its property,
an assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash or Cash Equivalents of all Obligations due in respect
of such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not
such interest is in an allowed claim under applicable law) before the Holders
of Notes will be entitled to receive any payment with respect to the Notes.
Until all Obligations with respect to Senior Debt are paid in full in cash or
Cash Equivalents, any distribution to which the Holders of Notes would
otherwise be entitled shall be made to the holders of Senior Debt (except that
Holders of Notes may receive (i) Permitted Junior Securities and any other
Permitted Junior Securities issued in exchange for any Permitted Junior
Securities and (ii) payments made from the trust described under "Legal
Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in such Permitted Junior Securities, Permitted Junior Securities
issued in exchange for such Permitted Junior Securities or from the trust
described under "Legal Defeasance and Covenant Defeasance") if (i) a default
in the payment of the principal of, premium, if any, or interest on Designated
Senior Debt occurs and is continuing or (ii) any other
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default occurs and is continuing with respect to Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and the Trustee receives a notice of such default
(a "Payment Blockage Notice") from the holders of any Designated Senior Debt.
Payments on the Notes may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived and (b) in
case of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received unless the maturity of any Designated
Senior Debt has been accelerated. No new period of payment blockage may be
commenced unless and until (i) 360 days have elapsed since the effectiveness
of the immediately prior Payment Blockage Notice and (ii) all scheduled
payments of principal, premium, if any, Liquidated Damages, if any, and
interest on the Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for
a subsequent Payment Blockage Notice unless such default shall have been
waived for a period of not less than 90 days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of the Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. See "Risk
Factors--Subordination."
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the Notes will not be redeemable
at the Company's option prior to April 15, 2003. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, together, with
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period
beginning on April 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003............................................................ 105.000%
2004............................................................ 103.333%
2005............................................................ 101.667%
2006 and thereafter............................................. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 15, 2001, the
Company on one or more occasions may redeem up to $18,750,000 aggregate
principal amount of Notes with the net proceeds of one or more public
offerings of common stock of the Company at a redemption price of 110% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable date of redemption; provided that
at least $56,250,000 aggregate principal amount of the Notes remain
outstanding immediately after the occurrence of each such redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make any mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes
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pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to
the date of purchase (the "Change of Control Payment"). Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes pursuant to the procedures required
by the Indenture and described in such notice. The Company will comply with
the requirements of Rule 14e-l under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Notes as a result of a Change of
Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture will
provide that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will
either repay all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
The Credit Agreement prohibits the Company from purchasing any Notes, and
also provides that certain change of control events (including a Change of
Control under the Indenture) with respect to the Company would constitute a
default thereunder. Any future credit agreements or other agreements relating
to Senior Debt to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from purchasing Notes, the Company could seek
the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a default under the Credit
Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of Notes. See "Risk
Factors--Potential Inability to Effect a Change of Control Offer or an Asset
Sale 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 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 definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as whole. There is no
precisely established definition of the phrase "substantially all" under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease,
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transfer, conveyance or other disposition of less than all of the assets of
the Company and its Subsidiaries taken as a whole to another Person or group
is uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash or Cash Equivalents;
provided that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Notes or, in the case of liabilities of a Restricted
Subsidiary, the Subsidiary Guarantee of such Subsidiary) that are assumed by
the transferee of any such assets and (y) any securities, notes or other
obligations received by the Company or any such Restricted Subsidiary from
such transferee that are converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) within 180 days
after receipt, shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay Senior
Debt or Pari Passu Indebtedness (provided that if the Company shall so reduce
Pari Passu Indebtedness, it will equally and ratably make an Asset Sale Offer
(in accordance with the procedures set forth below for an Asset Sale Offer) to
all Holders) and/or (b) to an investment in another business, the making of a
capital expenditure or the acquisition of other tangible assets, product
distribution rights or intellectual property or rights thereto, in each case,
in a line of business permitted by the covenant described in "Line of
Business." Pending the final application of any such Net Proceeds, the Company
may temporarily reduce borrowings under the Credit Agreement or otherwise
invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." The Indenture provides that when the aggregate
amount of Excess Proceeds exceeds $10.0 million, the Company will (i) make an
offer to all Holders of Notes and (ii) prepay, purchase or redeem (or make an
offer to do so) any other Pari Passu Indebtedness of the Company in accordance
with provisions (if any) requiring the Company to prepay, purchase or redeem
such Indebtedness with the proceeds from any asset sales (or offer to do so),
pro rata in proportion to the respective principal amounts (or accreted value,
as applicable) of the Notes and such other Indebtedness required to be
prepaid, purchased or redeemed or tendered for pursuant to such offer (an
"Asset Sale Offer"), to purchase the maximum principal amount of Notes that
may be purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase, in
accordance with the procedures set forth in the Indenture.
The Credit Agreement prohibits the Company from purchasing any Notes and
also provides that certain change of control events with respect to the
Company (including a Change of Control under the Indenture) and certain asset
sales will constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs or the Company is required to make an Asset Sale Offer at a
time when the Company is prohibited from purchasing Notes, the Company could
seek the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a default under the Credit
Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of the Notes. See
"Risk Factors--Subordination."
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SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a pro rata basis,
by lot or by such other method as the Trustee deems fair and appropriate;
provided that no Notes with a principal amount of $1,000 or less shall be
redeemed in part. Notice of redemption shall 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 such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Note. On and after the redemption date, interest will cease to accrue on Notes
or portions thereof called for redemption.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any distribution (including in connection with any merger or
consolidation) on account of any Equity Interests of the Company or any of its
Restricted Subsidiaries (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or dividends
or distributions payable to the Company or any Wholly Owned Restricted
Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or
retire for value any Equity Interests of the Company, any of its Restricted
Subsidiaries or any other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned Restricted Subsidiary of
the Company); (iii) make any principal payment on, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated in right of payment to the Notes or a Subsidiary Guarantee,
except at the original final maturity thereof or in accordance with the
scheduled mandatory redemption or repayment provisions set forth in the
original documentation governing such Indebtedness (but not pursuant to any
mandatory offer to repurchase upon the occurrence of any event); or (iv) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would be able to incur at least $1.00 of additional
Indebtedness under the Fixed Charge Coverage Ratio in the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (v), (vi) and (ix) of the next succeeding paragraph),
is less than the sum of (1) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) from the beginning
of the first fiscal quarter commencing after the date of the Indenture to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit,
minus 100% of such deficit), plus (2) 100% of the aggregate net cash
proceeds received by the Company from contributions of capital or the issue
or sale since the date of the Indenture of Equity Interests of the Company
or the amount by which Indebtedness of the Company or its Restricted
Subsidiaries is reduced on the Company's balance sheet upon the conversion
of debt securities of the Company into Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock), plus (3) to the extent that any
Restricted Investment that was made after the date of the Indenture is sold
for cash or otherwise liquidated or repaid for cash (other than to the
Company or a Restricted Subsidiary), the cash return of capital with
respect to such Restricted Investment equal to the amount of the original
Investment
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(less the cost of disposition, if any); provided, however, that no cash
proceeds received by the Company from the issue or sale of any Equity
Interests issued by the Company will be counted in determining the amount
available for Restricted Payments under this clause (c) to the extent such
proceeds were used: to redeem, repurchase, retire or acquire any Equity
Interests of the Company pursuant to clause (ii) of the next succeeding
paragraph; to defease, redeem or repurchase any subordinated Indebtedness
pursuant to clause (iii) of the next succeeding paragraph; or to purchase,
redeem or acquire any shares of Capital Stock of the Company or options on
such shares pursuant to clause (iv) of the next succeeding paragraph.
The foregoing provisions will not prohibit any or all of the following (each
and all of which: (1) constitutes an independent exception to the foregoing
provisions and (2) may occur in addition to any action permitted to occur
under any other exception): (i) the payment of any dividend within 60 days
after the date of declaration thereof, if at such date of declaration such
payment would have complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement or other acquisition of any Equity
Interests of the Company in exchange for, or out of the net proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (c)(2) of the preceding paragraph; (iii) the defeasance,
redemption or repurchase of subordinated Indebtedness with the net proceeds
from an incurrence of Permitted Refinancing Indebtedness or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity
Interests of the Company (other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c)(2) of the preceding paragraph; (iv) the funding of loans (but not
including the forgiveness of any such loan) to executive officers, directors
or shareholders for relocation loans, bonus advances and other purposes
consistent with past practices or the purchase, redemption or other
acquisition for value of shares of Capital Stock of the Company (other than
Disqualified Stock) or options on such shares held by the Company's or the
Restricted Subsidiaries' officers or employees or former officers or employees
(or their estates or trusts or beneficiaries under their estates or trusts for
the benefit of such beneficiaries) upon the death, disability, retirement or
termination of employment of such current or former officers or employees
pursuant to the terms of an employee benefit plan or any other agreement
pursuant to which such shares of Capital Stock or options were issued or
pursuant to a severance, buy-sell or right of first refusal agreement with
such current or former officers or employees provided that the aggregate
amount of any such loans funded and cash consideration paid, or distributions
made, pursuant to this clause (iv) does not in any one fiscal year exceed $1.0
million; (v) the payment of dividends by a Restricted Subsidiary on any class
of common stock of such Restricted Subsidiary if such dividend is paid pro
rata to all holders of such class of common stock; (vi) the repurchase of any
class of common stock of a Restricted Subsidiary if such repurchase is made
pro rata with respect to such class of common stock; (vii) any other
Restricted Payment (other than (A) a dividend or other distribution on account
of any Equity Interests of the Company or any of its Restricted Subsidiaries
and (B) a purchase, redemption or other acquisition of any Equity Interests of
the Company, any of its Restricted Subsidiaries or any Affiliate of the
Company) if the amounts thereof, together with all other Restricted Payments
made pursuant to this clause since the date of the Indenture, shall not exceed
$10.0 million, (viii) Permitted ChoicePoint Payments and (ix) the redemption,
repurchase or other acquisition of Notes.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary; provided, however, that (i) no Default or Event of
Default shall have occurred and be continuing or would arise therefrom, (ii)
such designation, when considered as an Investment as described in the next
sentence, is at that time permitted under the covenant described under
"Restricted Payments" and (iii) immediately after giving effect to such
designation, the Company would be able to incur at least $1.00 of additional
Indebtedness under the Fixed Charge Coverage Ratio in the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant. All such outstanding
Investments will be deemed to constitute Restricted Investments in an amount
equal to the greater of (i) the net book value of such Investments at the time
of such designation and (ii) the fair market value of such Investments at the
time of such designation. Such designation will only be permitted if under the
terms of the
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Indenture such Restricted Investment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which
calculations shall be based upon the Company's latest available financial
statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, Incur, contingently or
otherwise, any Indebtedness (including Acquired Debt) and that the Company
will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company and its Guaranteeing Subsidiaries may incur
Indebtedness (including Acquired Debt) and the Company may issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock issued would
have been at least (x) 2.0 to 1 if such incurrence or issuance occurs on or
before March 31, 2001, or (y) 2.25 to 1 if such incurrence or issuance occurs
at any time thereafter, in each case, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The foregoing provisions do not apply to any of the following (each and all
of which: (1) may be issued or incurred, (2) constitute an independent
exception to the foregoing provisions and (3) may be incurred in addition to
any other Indebtedness permitted to be incurred under any other exception):
(i) the incurrence by the Company or any Guaranteeing Subsidiary of
Indebtedness and letters of credit pursuant to the Credit Facility in an
aggregate principal amount at any one time outstanding not exceeding $100.0
million (A) less the aggregate amount of all mandatory repayments (a
"Mandatory Repayment") permanently reducing the principal of any term
Indebtedness under the Credit Facility that has been made since the date of
the Indenture (or which would otherwise have been required to have been made
but for the fact that a prior optional repayment has been made permanently
reducing the principal of any term Indebtedness under the Credit Facility)
pursuant to the amortization schedule of the Credit Facility (other than any
Mandatory Repayment made concurrently with refinancing or refunding of the
Credit Facility) and (B) less the aggregate amount of all Net Proceeds of
Asset Sales applied pursuant to clause (a) of the first sentence of the second
paragraph under the covenant entitled "Asset Sales" to permanently reduce
Indebtedness (and, in the case of revolving Indebtedness, the commitments)
under the Credit Facility or to cash collateralize letters of credit and
permanently reduce commitments with respect to revolving Indebtedness under
the Credit Facility; provided that the amount of Indebtedness permitted to be
incurred pursuant to the Credit Facility in accordance with this clause (i)
shall be in addition to any Indebtedness permitted to be incurred pursuant to
the Credit Facility or otherwise in reliance on, and in accordance with,
clause (vii) below; (ii) the incurrence by the Company and any Guaranteeing
Subsidiary of Indebtedness represented by the Notes offered hereby (and
excluding any additional notes issued pursuant to the Indenture) and any
Subsidiary Guarantee; (iii) Existing Indebtedness; (iv) the incurrence by the
Company or any of its Restricted Subsidiaries of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund, Indebtedness that was permitted
by the Indenture; (v) the incurrence by the Company or any of its Wholly Owned
Restricted Subsidiaries of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries; provided,
however, that (a) any subsequent issuance or transfer (other than for security
purposes) of Equity Interests and (b) any subsequent sale or other transfer
(including for security purposes other than to secure Indebtedness permitted
to be incurred pursuant to clause (i) of this paragraph) of such Indebtedness,
in each case, that results in any such Indebtedness being held by a Person
other than the Company or any of its Wholly Owned Restricted Subsidiaries
shall be deemed to constitute an incurrence of such Indebtedness by the
Company or such Wholly Owned Restricted Subsidiary, as the case may be; (vi)
the
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incurrence by the Company or any of its Restricted Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging (a)
interest rate risk with respect to any floating rate Indebtedness of such
Person so long as such floating rate Indebtedness is permitted by the terms of
the Indenture to be outstanding or (b) exchange rate risk with respect to
agreements or indebtedness of such Person payable or denominated in a currency
other than U.S. dollars; (vii) the incurrence by the Company and any
Guaranteeing Subsidiary of Indebtedness in an aggregate principal amount at
any time outstanding not to exceed $15.0 million; and (viii) Obligations in
respect of performance and surety bonds provided by the Company or any
Guaranteeing Subsidiary in the ordinary course of business.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company and any Guaranteeing Subsidiary may enter into a
sale and leaseback transaction if (i) the Company or such Guaranteeing
Subsidiary could have incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant "Incurrence of Indebtedness and Issuance of Preferred Stock," (ii)
the Lien to secure such Indebtedness does not extend to or cover any assets of
the Company or such Guaranteeing Subsidiary other than the assets which are
the subject of the sale leaseback transaction, (iii) the gross cash proceeds
of such sale and leaseback transaction are at least equal to the fair market
value (as determined in good faith by the Board of Directors of the Company
and set forth in an Officers' Certificate delivered to the Trustee) of the
property that is the subject of such sale and leaseback transaction and (iv)
the transfer of assets in such sale and leaseback transaction is permitted by,
and the proceeds of such transaction are applied in compliance with, the
covenant "Asset Sales."
Liens
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien (other than Permitted Liens) securing any
Obligations on any property or asset now owned or hereafter acquired, or on
any income or profits therefrom or assign or convey any right to receive
income therefrom, unless the Notes, and the Subsidiary Guarantees, as
applicable, are either (i) secured by a Lien on such property, assets, income
or profits that is senior in priority to the Lien securing such other
Obligations, if such other Obligations are subordinated in right of payment to
the Notes and/or the Subsidiary Guarantees or (ii) equally and ratably secured
by a Lien on such property, assets, income or profits with the Lien securing
such other Obligations, if such other Obligations are pari passu in right of
payment to the Notes and/or the Subsidiary Guarantees.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to: (i)(a) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries on its Capital Stock or (b) pay any Indebtedness owed
to the Company or any of its Restricted Subsidiaries; (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries; or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness, as in effect on the date of
the Indenture; (b) any Credit Facility; provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive in the aggregate than
those contained in the Credit Agreement, as in effect on the date of the
Indenture; (c) the Indenture and the Notes; (d) applicable law; (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries, as in effect at the time of
acquisition (except to the extent such Indebtedness was incurred in connection
with, or in contemplation of, such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person, so
acquired;
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provided that in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred; (f) customary non-assignment
provisions in leases and other agreements entered into in the ordinary course
of business and consistent with past practices; (g) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired; (h) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive in the aggregate than those contained in
the agreements governing the Indebtedness being refinanced; or (i) an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Equity Interests or property or assets of a
Restricted Subsidiary; provided that such restrictions are limited to the
Restricted Subsidiary that is the subject of such agreement.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
its properties or assets in one or more related transactions to, another
Person unless (i) the Company is the surviving corporation or the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) immediately after giving effect to such transaction or series
of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), the Consolidated Net
Worth of the Company or the surviving entity, as the case may be, is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or series of transactions; (iii) the Person formed by or surviving
any such consolidation or merger (if other than the Company) or the Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made assumes all the obligations of the Company under the Notes
and the Indenture pursuant to a supplemental indenture in form reasonably
satisfactory to the Trustee; (iv) immediately after such transaction, no
Default or Event of Default exists; and (v) the Company or the Person formed
by or surviving any such consolidation or merger, or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made will, at the time of such transaction after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock." The foregoing does not prohibit a consolidation
or merger between the Company and a Wholly Owned Restricted Subsidiary, the
transfer of all or substantially all of the properties or assets of the
Company to a Wholly Owned Restricted Subsidiary or the transfer of all or
substantially all of the properties or assets of a Wholly Owned Restricted
Subsidiary to the Company; provided that if the Company is not the surviving
entity of such transaction or the Person to which such transfer is made, the
surviving entity or the Person to which such transfer is made shall comply
with clause (iii) of this paragraph.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from,
or enter into any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or such Restricted Subsidiary than
those that could have been obtained in a comparable transaction by the Company
or such Restricted Subsidiary with an unrelated Person, (ii) if such Affiliate
Transaction involves aggregate consideration in excess of $2.0 million, the
Company delivers to the Trustee a resolution of the Board of Directors of the
Company set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and such Affiliate Transaction is
approved by a majority of the disinterested members of the Board of Directors
of the Company and (iii) if such Affiliate Transaction involves aggregate
consideration in excess of $5.0 million, the Company delivers to the Trustee
an
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opinion as to the fairness of such Affiliate Transaction from a financial
point-of-view issued by an investment bank or accounting firm of national
standing, provided, however, that (a) any employment, consulting or similar
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business of the Company or such Restricted Subsidiary,
(b) transactions between or among the Company and/or its Restricted
Subsidiaries, (c) payment of employee benefits, including wages, salary,
bonuses, retirement plans and stock options, and director fees in the ordinary
course of business, and (d) Restricted Payments permitted by the provisions of
the Indenture described above under clauses (i), (iv), (v), (vi), (vii),
(viii) of the second paragraph of the covenant entitled "Restricted Payments,"
in each case, shall not be deemed Affiliate Transactions.
Anti-Layering
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee, or otherwise become liable for any Indebtedness that is
both (a) subordinate or junior in right of payment to any Senior Debt and (b)
senior in any respect in right of payment to the Notes and (ii) no
Guaranteeing Subsidiary will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is both (a) subordinate or
junior in right of payment to its Senior Debt and (b) senior in any respect in
right of payment to its Subsidiary Guarantee.
Line of Business
The Company will not, and will not permit any of its Restricted Subsidiaries
to, engage in any business other than a Health Care Related Business;
provided, however, that the Company will not be deemed to be in violation of
this covenant so long as the Company does not derive any material portion of
its consolidated revenues or Consolidated EBITDA from a business that is not a
Health Care Related Business.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file
such forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Company and its Restricted Subsidiaries and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the
rules and regulations of the Commission, from and after the consummation of
the Exchange Offer or the effectiveness of the Shelf Registration Statement,
the Company will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such
a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company and the
Guaranteeing Subsidiaries have agreed that, for so long as any Notes remain
outstanding, they will furnish to 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.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(i) default for 30 days in the payment when due of interest or Liquidated
Damages, if any, with respect to the Notes (whether or not prohibited by
the subordination provisions of the Indenture);
(ii) default in payment when due of principal or premium, if any, on the
Notes at maturity, upon redemption or otherwise (whether or not prohibited
by the subordination provisions of the Indenture);
(iii) failure by the Company or any Guaranteeing Subsidiary for 30 days
after receipt of notice from the Trustee or Holders of at least 25% in
principal amount of the Notes then outstanding to comply with the
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provisions described under the covenants entitled "Change of Control,"
"Asset Sales," "Sale and Leaseback Transactions," "Restricted Payments,"
"Incurrence of Indebtedness and Issuance of Preferred Stock" or "Merger,
Consolidation or Sale of Assets;"
(iv) failure by the Company or any Guaranteeing Subsidiary for 60 days
after notice from the Trustee or the Holders of at least 25% in principal
amount of the Notes then outstanding to comply with its other agreements in
the Indenture or the Notes;
(v) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now
exists, or is created after the date of the Indenture, which default (A)(i)
is caused by a failure to pay when due at final stated maturity (giving
effect to any grace period related thereto) principal of such Indebtedness
(a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and (B) in each case, the
principal amount of such Indebtedness, together with the principal amount
of any other such Indebtedness under which there has been a Payment Default
or the maturity of which has been accelerated as a result of any matter
contemplated in clause (v)(A)(i) or (v)(A)(ii), aggregates $7.5 million or
more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments (to the extent not covered by insurance or as to which the
insurer has not acknowledged coverage in writing) aggregating in excess of
$7.5 million, which judgments are not paid, fully bonded, discharged or
stayed within 60 days after their entry;
(vii) certain events of bankruptcy or insolvency with respect to the
Company or any Restricted Subsidiary of the Company that is a Significant
Subsidiary or group of Restricted Subsidiaries of the Company that
together, would constitute a Significant Subsidiary; and
(viii) the termination of the Subsidiary Guarantee(s) of either a
Guaranteeing Subsidiary that is a Significant Subsidiary or group of
Guaranteeing Subsidiaries that together constitute a Significant Subsidiary
for any reason not permitted by the Indenture, or the denial of any Person
acting on behalf of any such Guaranteeing Subsidiary or group of
Guaranteeing Subsidiaries of its Obligations under any such Subsidiary
Guarantee(s).
To the extent that the last day of the period referred to in clauses (i),
(iii), (iv) or (vi) of the immediately preceding paragraph is not a Business
Day, then the first Business Day following such day shall be deemed to be the
last day of the period referred to in such clauses. Any "day" will be deemed
to end as of 11:59 p.m., New York City time.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable by notice in writing to the Company and
the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice"), and the same (i) shall
become immediately due and payable or (ii) if there are any amounts
outstanding under the Credit Facility, shall become immediately due and
payable upon the first to occur of an acceleration under the Credit Facility
or five Business Days after receipt by the Company and the Representative
under the Credit Facility of such Acceleration Notice but only if such Event
of Default is then continuing. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency
with respect to the Company, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest or premium on, or principal of, the Notes. The Trustee may
withhold from Holders of the Notes notice of any
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continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in such Holders' interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guaranteeing Subsidiary, as such, shall have any liability for any
obligations of the Company under the Notes, any Subsidiary Guarantee or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Subsidiary. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all
obligations of the Company and the Guaranteeing Subsidiaries discharged with
respect to the outstanding Notes and the Subsidiary Guarantees ("legal
defeasance"). Such legal defeasance means that the Company will be deemed to
have paid and discharged the entire indebtedness represented by the
outstanding Notes, except for (a) the rights of Holders of outstanding Notes
to receive payments in respect of the principal of, premium, if any, and
interest and Liquidated Damages, if any, on the Notes when such payments are
due, or on the redemption date, as the case may be, (b) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (c) the rights, powers, trust, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (d) the
legal defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company and
the Guaranteeing Subsidiaries released with respect to certain covenants that
are described in the Indenture ("covenant defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Notes. In the event covenant defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either legal defeasance or covenant defeasance, the
Company must, among other things, irrevocably deposit with the Trustee, in
trust for the benefit of the Holders of the Notes, cash in U.S. dollars, non-
callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants selected by the Trustee, to pay the principal
of, premium, if any, and interest on the outstanding Notes on the stated
maturity or on the applicable optional redemption date, as the case may be.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Notes or the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including consents obtained in connection with a tender
offer or exchange offer for Notes), and any existing default or compliance
with any provision of the Indenture, the Notes or the Subsidiary Guarantees
may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, however, an amendment or waiver
may not (with respect to any Note held by a non-consenting Holder): (i) reduce
the principal amount of Notes; (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes or any change of control offer; (iii) reduce the rate
of or change the time for payment of interest or Liquidated Damages on any
Notes; (iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest or Liquidated Damages, if any, on the Notes
(except a rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration); (v) make any Note
payable in money other than that stated in the Notes; (vi) waive a redemption
or repurchase payment with respect to any Note; or (vii) make any change in
the foregoing amendment and waiver provisions. Notwithstanding the foregoing,
the provisions with respect to Asset Sales may be amended or supplemented with
the consent of the Holders of at least two-thirds in principal amount of the
Notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the Notes). In addition, any amendment to
the provisions of Article 10 of the Indenture (which relate to subordination)
will require the consent of the Holders of at least 75% in aggregate amount of
Notes then outstanding if such amendment would adversely affect the rights of
Holders of Notes. In addition, any amendment to the subordination provisions
of the Indenture shall require the consent of the requisite lenders under the
Credit Facility and, if such amendment would adversely affect the rights of
the Holders of the Notes, of the Holders of at least 75% in aggregate amount
of the Notes then outstanding.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Guaranteeing Subsidiaries and the Trustee may amend or
supplement the Indenture, the Subsidiary Guarantees or the Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption
of the Company's or a Guaranteeing Subsidiary's obligations to Holders of the
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the TIA or to allow any
Guaranteeing Subsidiary to guarantee the Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions with the Company; however, if the Trustee
acquires any conflicting interest, it must eliminate such conflict within 90
days, apply to the Commission for permission to continue as Trustee or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will 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 in case an Event of Default
shall occur (which shall not be 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 will be
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.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to the Company, 310
Technology Parkway, Norcross, Georgia 30092, Attention: Susan E. Dignan,
General Counsel.
BOOK-ENTRY, DELIVERY AND FORM
Except as described in the next paragraph, the New Notes initially will be
represented by a single permanent global certificate in definitive, fully
registered form (the "Global Note"). The Global Note will be deposited on the
date of issuance thereof with, or on behalf of, the Depository Trust Company,
New York, New York ("DTC") and registered in the name of a nominee of DTC. The
Global Note will be subject to certain restrictions on transfer set forth
therein and will bear the legend regarding such restrictions set forth under
the heading "Notice to Investors" herein.
Notes (i) transferred to "foreign purchasers" (as defined in "Notice to
Investors") or (ii) held by QIBs who elect to take physical delivery of their
certificates instead of holding their interests through the Global Note (and
which are thus ineligible to trade through DTC) (collectively referred to
herein as the "Non-Global Purchasers") will be issued in registered form (the
"Certificated Security"). Upon the transfer to a QIB of any Certificated
Security initially issued to a Non-Global Purchaser, such Certificated
Security will, unless the transferee requests otherwise or the Global Note has
previously been exchanged in whole for Certificated Securities, be exchanged
for an interest in the Global Note.
The Global Note. The Company expects that pursuant to procedures established
by DTC (i) upon the issuance of the Global Note, DTC or its custodian will
credit, on its internal system, the principal amount of Notes of the
individual beneficial interests represented by such Global Note to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Note will be shown on, and the
transfer of such ownership will be effected only through, records maintained
by DTC or its nominee (with respect to interests of participants) and the
records of participants (with respect to interests of persons other than
participants). Such accounts initially were designated by or on behalf of the
Initial Purchasers and ownership of beneficial interests in the Global Note
will be limited to persons who have accounts with DTC ("participants") or
persons who hold interests through participants. QIBs may hold their interests
in the Global Note directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, 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. No beneficial owner of an interest in the Global Note
will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.
Payments of the principal of, premium (if any), and interest (including
Liquidated Damages) on, the Global Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will 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 interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, and interest (including Liquidated Damages) 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. The Company
also expects that payments by participants to owners of beneficial interests
in the Global Note held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
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Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company 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 are 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 Indenture, DTC will exchange the Global
Note for Certificated Securities, which it will distribute to its participants
and which will be legended as set forth under the heading "Notice to
Investors."
DTC has advised the Company 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
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 for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be
issued in exchange for the Global Note, which certificates will bear the
legends referred to under the heading "Notice to Investors."
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
For purposes of making any determination of any amount under any single
definition set forth below, such determination shall be made without double
counting of any item; provided that, with respect to the definition of "Fixed
Charge Coverage Ratio" it shall not be deemed to be double counting if an item
is included in the calculation of each of "Consolidated EBITDA" and "Fixed
Charges."
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person
and not satisfied at or prior to the closing of such transaction, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"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 purposes of this definition,
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"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) the sale, lease, conveyance, or other disposition by
the Company or any of its Restricted Subsidiaries of any assets (including,
without limitation, by way of a sale and leaseback) other than in the ordinary
course of business, and (ii) the issue or sale by the Company or any of its
Restricted Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of clauses (i) and (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $2.0 million or (b) for net proceeds in excess of $2.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the
Company to a Restricted Subsidiary or by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, (iii) a Restricted Payment that is permitted by the covenant
described above under the covenant entitled "Restricted Payments," and (iv)
the sale and leaseback of any assets within 90 days of the acquisition of such
assets will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means, (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock and (iii) in the case of a partnership, partnership interests
(whether general or limited).
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any commercial bank or trust
company having capital and surplus in excess of $500 million, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Services, a
division of the McGraw-Hill Companies, Inc. ("S&P") and in each case maturing
within one year after the date of acquisition, (vi) investment funds investing
95% of their assets in securities of the types described in clauses (i)-(v)
above, (vii) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of
the two highest rating categories obtainable from either Moody's or S&P and
(vii) Indebtedness with a rating of "A" or higher from S&P or "A2" or higher
from Moody's.
"Change of Control" means the occurrence of any of the following: (i) any
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as defined in Section 13(d) of the Exchange Act) or
"group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act);
(ii) the adoption of a plan for the liquidation or dissolution of the Company;
(iii) the Company consolidates with, or merges with or into, another "person"
(as defined above) or "group" (as defined above), in a transaction or series
of related transactions in which the Voting Stock of the Company is converted
into or
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exchanged for cash, securities or other property, other than any transaction
where (A) the outstanding Voting Stock of the Company is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee corporation and (B) either (1) the "beneficial owners" (as defined
in Rule 13d-3 and 13d-5 under the Exchange Act) of the outstanding Voting
Stock of the Company immediately prior to such transaction own beneficially,
directly or indirectly through one or more Subsidiaries, not less than a
majority of the total outstanding Voting Stock of the surviving or transferee
corporation immediately after such transaction or (2) if, immediately prior to
such transaction the Company is a direct or indirect Subsidiary of any other
Person (each such other Person, the "Holding Company"), the "beneficial
owners" (as defined above) of the outstanding Voting Stock of such Holding
Company immediately prior to such transaction own beneficially, directly or
indirectly through one or more Subsidiaries, not less than a majority of the
outstanding Voting Stock of the surviving or transferee corporation
immediately after such transaction; (iv) the consummation of any transaction
or series of any related transactions (including, without limitation, by way
of merger or consolidation) the result of which is that any "person" (as
defined above) or "group" (as defined above), becomes the "beneficial owner"
(as defined above) of more than 50% of the voting power of the Voting Stock of
the Company; or (v) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of Directors, or
whose nomination for election by the stockholders of the Company, was approved
by a vote of a majority of the directors of the Company 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 then in office.
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period, plus, to the extent deducted in computing Consolidated Net
Income, (i) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, (ii) Consolidated Interest
Expense of such Person for such period, (iii) depreciation and amortization
(including amortization of goodwill and other intangibles) and all other non-
cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of
such Person and its Restricted Subsidiaries for such period and (iv) any
extraordinary or non-recurring loss and any net loss realized in connection
with either any Asset Sale or the extinguishment of Indebtedness, in each
case, on a consolidated basis determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges
of, a Restricted Subsidiary of a Person shall be added to Consolidated Net
Income to compute Consolidated EBITDA only to the extent (and in the same
proportion) that the Net Income of such Restricted Subsidiary was included in
calculating the Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the interest expense of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP
(including amortization of original issue discount and deferred financing
costs (except as set forth in the proviso to this definition), non-cash
interest payments, the interest component of all payments associated with
Capital Lease Obligations, net payments, if any, pursuant to Hedging
Obligations and imputed interest with respect to Attributable Debt; provided,
however, that in no event shall any amortization of deferred financing cost
incurred on or prior to the date of the Indenture in connection with the
Credit Agreement or any amortization of deferred financing costs incurred in
connection with the issuance of the Notes be included in Consolidated Interest
Expense).
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (i) the Net Income (but not loss) of any Person that
is not a Restricted Subsidiary or that is accounted for by the equity method
of accounting shall be included only to the extent of the amount of dividends
or distributions paid to the referent Person or a Restricted Subsidiary
thereof in cash, (ii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to
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the date of such acquisition shall be included, (iii) the cumulative effect of
a change in accounting principles shall be excluded, (iv) the portion of net
income of the Company and its Consolidated Subsidiaries allocable to
investments in unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by the Company or one of its
Consolidated Subsidiaries shall be excluded and (v) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
Net Income is not, at the date of determination, permitted without any prior
governmental approval (which has not been obtained) or, directly or
indirectly, 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.
"Consolidated Net Worth" means, with respect to any Person at any date, the
consolidated stockholders' equity of such Person less the amount of such
stockholders' equity attributable to Redeemable Capital Stock of such Person
and its Subsidiaries, as determined in accordance with GAAP.
"Credit Agreement" means that certain revolving credit and security
agreement, providing for up to $100.0 million aggregate principal amount of
borrowings, dated as of August 15, 1997 and as amended through and including
the date of the Indenture, by and among the Company, certain Subsidiaries, the
several lenders party thereto and NationsBank, N.A., as Administrative Agent,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, in each case as amended,
modified, supplemented, restructured, renewed, restated, refunded, replaced,
extended or refinanced from time to time, together with any such amendment,
modification, supplement, restructuring, renewal, restatement, refunding,
replacement, extension or refinancing (collectively, a "Refinancing") to or of
any of the foregoing (collectively, a "Modification") or to any Modification,
ad infinitum, including, without limitation, any agreement modifying the
maturity or amortization schedule of or refinancing or refunding all or any
portion of the Indebtedness thereunder or increasing the amount that may be
borrowed under such agreement or any successor agreement. For purposes of this
definition, "Credit Agreement" includes that certain Revolving Credit
Promissory Note between Pediatric Services of America, Inc., a Georgia
corporation and wholly owned subsidiary of the Company and NationsBank, N.A.
dated February 26, 1998. The Company shall promptly notify the Trustee of any
Refinancing of the Credit Agreement.
"Credit Facility" means the Credit Agreement and any one or more other
borrowing arrangements entered into by and between the Company and/or one or
more of its Subsidiaries and a commercial bank or other institutional lender,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, in each case as amended,
modified, supplemented, restructured, renewed, restated, refunded, replaced,
extended or refinanced from time to time on one or more occasions. The Company
shall promptly notify the Trustee of any Refinancing of a Credit Facility.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) so long as any Indebtedness is
outstanding under the Credit Agreement, such Indebtedness, and (ii) after
repayment in full of any outstanding Indebtedness under the Credit Agreement,
any other Senior Debt permitted under the Indenture the principal amount of
which at the time of such designation is $10.0 million or more and that has
been designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means that portion of 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 (other than an
event which would constitute a Change of Control), matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control) on or prior to the final maturity
date of the Notes.
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the Indenture until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Restricted
Subsidiaries for such period to the Fixed Charges of such Person and its
Restricted Subsidiaries for such period. In the event that the Company or any
of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated but on or prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall
be calculated giving pro forma effect to such incurrence, assumption,
Guarantee or redemption of Indebtedness, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the
applicable four-quarter reference period. For purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first
day of the four-quarter reference period, and "Fixed Charge Coverage Ratio"
shall give pro forma effect to the Indebtedness and the Consolidated EBITDA of
the Person which is the subject of any such acquisition, including any pro
forma adjustments to the Consolidated EBITDA of such Person which would be
required or permitted as a result of such acquisition by Article 11 of
Regulation S-X promulgated by the Commission under the Securities Act if such
financials were included in a registration statement filed under the
Securities Act and (ii) the Consolidated EBITDA attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) the Consolidated Interest Expense of such Person for such period and (ii)
any interest expense on Indebtedness of another Person that is (a) Guaranteed
by the referent Person or one of its Restricted Subsidiaries (whether or not
such Guarantee is called upon) or (b) secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such Lien is
called upon); provided that with respect to clause (ii)(b), the amount of
Indebtedness (and attributable interest expense) shall be equal to the lesser
of (I) the principal amount of the Indebtedness secured by the assets of such
Person or one of its Restricted Subsidiaries and (II) the fair market value
(as determined by the Board of Directors of such Person and set forth in an
Officers' Certificate delivered to the Trustee) of the assets securing such
Indebtedness and (iii) the product of (A) all cash dividend payments (and non-
cash dividend payments in the case of a Person that is a Subsidiary) on any
series of preferred stock of such Person, times (B) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with
GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, the Securities and Exchange
Commission or in such other statements by such other entity as may be approved
by a significant segment of the accounting profession of the United States,
which are in effect from time to time; provided, however, that all reports and
other financial information provided by the Company to the Holders, the
Trustee and/or the Commission shall be prepared in accordance with GAAP, as in
effect on the date of such report or other financial information.
"Government Securities" means direct obligations of, or obligations
guaranteed by the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
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"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect hereof, of all or any part of any
Indebtedness.
"Guaranteeing Subsidiary" means each of (i) the Subsidiaries of the Company
in existence on the date of the Indenture and (ii) any future Restricted
Subsidiary and their respective successors and assigns.
"Health Care Related Business" means a business whose revenues result from
the provision of health care related services, which term for purposes hereof
shall include health care information services and children's services.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates and (iii) indemnity agreements and
arrangements entered into in connection with the agreements and arrangements
described in clauses (i) and (ii).
"Incur" or "incur" means, with respect to any Indebtedness (including
Acquired Debt), to create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable for or with respect to, or become responsible
for, the payment of such Indebtedness (including Acquired Debt); provided that
(i) neither the accrual of interest nor the accretion of original issue
discount shall be considered an incurrence of Indebtedness and (ii) the
assumption of Indebtedness by the surviving entity of a transaction permitted
by the last sentence of the second paragraph under "Subsidiary Guarantees" or
the last sentence of the covenant entitled "Merger, Consolidation, or Sale of
Assets" in existence at the time of such transaction shall not be deemed to be
an incurrence of Indebtedness. The term "incurrence" has corresponding
meaning.
"Indebtedness" means, with respect to any Person without duplication, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof) or
representing Capital Lease Obligations or the deferred and unpaid balance of
the purchase price of any property, except any such balance that constitutes
an accrued expense or trade payable, or representing any Hedging Obligations
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person), the maximum fixed
repurchase price of Disqualified Stock issued by such Person and the
liquidation preference of preferred stock issued by such Person, in each case
if held by any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company, and, to the extent not otherwise included, the
Guarantee by such Person of any such indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans
(including Guarantees), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP; provided that an acquisition of assets,
Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company shall not be deemed to
be an Investment. If the Company or any Restricted Subsidiary of the Company
sells or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Company, or any Restricted Subsidiary of the
Company issues Equity Interests, such that, after giving effect to any such
sale or disposition, such Person is no longer a Restricted Subsidiary of the
Company, the Company shall be deemed to have made an investment on the date of
any such sale, disposition or issuance equal to the fair market value of the
Equity Interests of such Person held by the Company or such Restricted
Subsidiary immediately following any such sale, disposition or issuance.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such
gain (but not loss), realized in connection with (a) any Asset Sale
(including, without limitation, dispositions pursuant to sale and leaseback
transactions or (b) the extinguishment of any Indebtedness of such Person or
any of its Restricted Subsidiaries, and (ii) any extraordinary or nonrecurring
gain (but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, amounts required to be applied to the repayment of
Indebtedness (other than long-term Indebtedness of a Restricted Subsidiary of
such Person and Indebtedness under the Credit Facility) secured by a Lien on
the asset or assets that are the subject of such Asset Sale and any reserve
for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of
its Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and (ii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of the Company or any
of its Restricted Subsidiaries.
"Obligations" means any principal, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law), penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Pari Passu Indebtedness" means Indebtedness of the Company which ranks pari
passu in right of payment with the Notes.
"Permitted ChoicePoint Payment" means a cash payment required to be made to
ChoicePoint pursuant to Section 2.01(c) of the Asset Purchase Agreement,
effective as of December 2, 1997, by and among ChoicePoint, ChoicePoint, Inc.,
Insurance Medical Reporter, Inc. and the Company (without giving effect to any
amendment thereto that may be entered into by the parties thereto); provided
that at the time any such payment is made (i) no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence thereof
and (ii) the Company would be able to incur at least $1.00 of additional
Indebtedness under the Fixed Charge Coverage Ratio in the "Incurrence of
Indebtedness and Issuance of Preferred Stock" Covenant.
"Permitted Investments" means (i) Investments in the Company or in a
Restricted Subsidiary of the Company (including, without limitation,
Guarantees of the Indebtedness and/or other Obligations of the Company and/or
any Wholly Owned Restricted Subsidiary of the Company, so long as such
Indebtedness and/or other Obligations are permitted under the Indenture), (ii)
Investments in Cash Equivalents, (iii) Investments by the Company or any
Wholly Owned Restricted Subsidiary of the Company in, or the purchase of the
securities of, a Person if, as a result of such Investment, (a) such person
becomes a Restricted Subsidiary of the Company or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company, (iv) Investments
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in accounts and notes receivable acquired in the ordinary course of business,
(v) any non-cash consideration received in connection with an Asset Sale that
complies with the covenant entitled "Asset Sales," (vi) Investments in
connection with Hedging Obligations permitted to be incurred under the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock"; and (vii) Investments, not to exceed $10.0 million at any given time
outstanding, in corporations, limited liability companies, partnerships
(including limited liability partnerships), joint ventures or similar
investment entities, provided any such entity is engaged in a Health Care
Related Business.
"Permitted Junior Securities" means debt securities of the Company that are
unsecured and subordinated at least to the same extent as the Notes to Senior
Debt of the Company and guarantees of any such debt by any Guaranteeing
Subsidiary that are unsecured and subordinated at least to the same extent as
the Subsidiary Guarantee of such Guaranteeing Subsidiary to the Senior Debt of
such Guaranteeing Subsidiary, as the case may be, and has a final maturity
date at least as late as the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Notes.
"Permitted Liens" means (i) Liens on property of the Company and any
Guaranteeing Subsidiary securing (a) Senior Debt and/or (b) Hedging
Obligations (with respect to Senior Debt or otherwise) permitted to be
incurred under the Indenture; (ii) Liens in favor of the Company or any of its
Restricted Subsidiaries; (iii) Liens on property of a Person existing at the
time such Person is merged with or into or consolidated with the Company or
any Restricted Subsidiary of the Company; provided, that such Liens were not
incurred in connection with, or in contemplation of, such merger or
consolidation and do not extend to any assets of the Company or any Restricted
Subsidiary of the Company other than the assets acquired in such merger or
consolidation; (iv) Liens on property of a Person existing at the time such
Person becomes a Restricted Subsidiary of the Company; provided that such
Liens were not incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary and do not extend to any assets of the
Company or any other Restricted Subsidiary of the Company; (v) Liens on
property existing at the time of acquisition thereof by the Company or any
Restricted Subsidiary of the Company; provided that such Liens were not
incurred in connection with, or in contemplation of, such acquisition and do
not extend to any assets of the Company or any of its Restricted Subsidiaries
other than the property so acquired; (vi) Liens to secure the performance of
statutory obligations, surety or appeal bonds or performance bonds, or
landlords', carriers', warehousemen's, mechanics', suppliers', materialmen's,
or other like Liens, in any case incurred in the ordinary course of business
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate process of law, if a reserve or other appropriate
provision, if any, as is required by GAAP shall have been made therefor; (vii)
Liens existing on the date of the Indenture; (viii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (ix) Liens to secure Indebtedness of any Restricted
Subsidiary permitted to be incurred by such Restricted Subsidiary pursuant to
the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock; (x) Liens securing Indebtedness incurred to refinance Indebtedness that
has been secured by a Lien permitted under the Indenture; provided that (a)
any such Lien shall not extend to or cover any assets or property not securing
the Indebtedness so refinanced and (b) the refinancing Indebtedness secured by
such Lien shall have been permitted to be incurred under the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock;" (xi) Liens in
favor of the lessee on instruments which are the subject of leases entered
into in the ordinary course of business; provided that any such Lien shall not
extend to or cover any assets or property of the Company and its Restricted
Subsidiaries that is not the subject of any such lease; (xii) Liens to secure
Attributable Debt and or that is permitted to be incurred pursuant to the
covenant entitled "Sale and Leaseback Transactions;" provided that any such
Lien shall not extend to or cover any assets of the Company or any
Guaranteeing Subsidiary other than the assets which are the subject of the
sale leaseback transaction in which the Attributable Debt is incurred; and
(xiii) Liens in connection with attachments or judgments (including judgment
or appeal bonds), provided that the judgment secured shall, within 45 days
after the entry thereof, have been discharged or execution thereof stayed
pending appeal (and the stay thereof not at any time lifted).
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"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted
Subsidiaries; provided that: (i) the principal amount of such Permitted
Refinancing Indebtedness does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith);
(ii) such Permitted Refinancing Indebtedness has a final maturity date at
least as late as the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased, or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to,
the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iv) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased, or refunded ranks
pari passu in right of payment with the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and ranks pari passu with, or is subordinated in right of payment to, the
Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (v) such Indebtedness
is incurred by the Company or by the Restricted Subsidiary who is the obligor
on the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
charitable foundation, unincorporated organization, government or any agency
or political subdivision thereof or any other entity.
"Redeemable Capital Stock" means any shares of any class or series of
Capital Stock, that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is
or upon the happening of an event or passage of time would be required to be
redeemed prior to the Stated Maturity with respect to the principal of any
Note or is redeemable at the option of the holder thereof at any time prior to
any such Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to any such Stated Maturity.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the referent Person that is
not an Unrestricted Subsidiary.
"Senior Debt" means (a) with respect to the Company, (i) all Obligations
permitted to be incurred pursuant to the Indenture under or in respect of the
Credit Facility and (ii) any other Indebtedness permitted to be incurred by
the Company under the terms of the Indenture and any Hedging Obligation
permitted to be incurred under the terms of the Indenture, unless the
instrument under which the foregoing is incurred expressly provides that it is
on a parity with or subordinated in right of payment to the Notes and (b) with
respect to any Guaranteeing Subsidiary, (i) all Obligations permitted to be
incurred pursuant to the Indenture under or in respect of the Credit Facility
and (ii) any other Indebtedness permitted to be incurred by such Guaranteeing
Subsidiary under the terms of the Indenture and any Hedging Obligation
permitted to be incurred under the terms of the Indenture, unless the
instrument under which the foregoing is incurred expressly provided that such
Indebtedness is on parity with or subordinated in right of payment to the
Subsidiary Guarantee of such Guaranteeing Subsidiary. Notwithstanding anything
to the contrary in the foregoing, Senior Debt will not include (w) any
liability for federal, state, local or other taxes; (x) any Indebtedness of
the Company or any Guaranteeing Subsidiary to the Company or any Subsidiary of
the Company or any of their respective Affiliates, (y) any trade payables or
(z) any Indebtedness that is incurred in violation of the Indenture.
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"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest thereon, is due and payable.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or one or more Subsidiaries of such Person (or any combination
thereof).
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary: (i) has no
Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (iii) is a Person with respect
to which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (a) to subscribe for additional Equity Interests
or (b) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; and (iv) has
not guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Company or any of its Restricted Subsidiaries. Any
such designation by the Board of Directors shall be evidenced to the Trustee
by filing with the Trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the covenant entitled "Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company shall be in default
of such covenant from the date of such incurrence). The Board of Directors of
the Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock"
and (ii) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the total of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by
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(b) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
OLD NOTES; REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company and the
Guaranteeing Subsidiaries agreed to file with the Commission an Exchange Offer
Registration Statement with respect to the issue of the New Notes. If (i) the
Company is not required to file the Exchange Offer Registration Statement or
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of
Transfer Restricted Securities notifies the Company within the specified time
period that (A) it is prohibited by law or Commission policy from
participating in the Exchange Offer, (B) that it may not resell the New Notes
acquired by it in the 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 or (C) that it is a
broker-dealer and owns Notes acquired directly from the Company or an
affiliate of the Company, the Company will file with the Commission a
registration statement to cover resales of the Notes by the Holders thereof
who satisfy certain conditions relating to the provision of information in
connection with such registration statement (the "Shelf Registration
Statement"). The Company has agreed to use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer
Restricted Securities" means each Old Note until the earlier of (i) the date
on which such Old Note has been exchanged by a person other than a broker-
dealer for a New Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of an Old Note for a New Note, the date on
which such New Note 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 Offer Registration Statement, (iii) the date on which such Old
Note 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 Old Note is distributed to the public pursuant to Rule 144 under the
Securities Act.
The Registration Rights Agreement provides that (i) the Company will file an
Exchange Offer Registration Statement with the Commission on or prior to June
15, 1998, (ii) the Company will use its best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission on or prior
to August 29, 1998, (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Company will commence the Exchange
Offer and use its best efforts to issue on or prior to 45 days after the date
on which the Exchange Offer Registration Statement is declared effective by
the Commission, New Notes in exchange for all Old Notes tendered prior thereto
in the Exchange Offer, (iv) if obligated to file the Shelf Registration
Statement, the Company will file the Shelf Registration Statement with the
Commission on or prior to 60 days after such filing obligation arises and use
its best efforts to cause the Shelf Registration to be declared effective by
the Commission on or prior to 135 days after such obligation arises and (v)(A)
in certain circumstances, cause the Exchange Offer Registration Statement to
remain effective and usable for a period of 180 days following the initial
effectiveness thereof and (B) cause the Shelf Registration Statement to remain
effective and usable for a period of two years following the initial
effectiveness thereof or such shorter period ending when all the New Notes
available for sale thereunder have been sold. If (a) the Company fails to file
any of the Registration Statements required by the Registration Rights
Agreement on or before the date specified for such filing, (b) any of such
Registration Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness, (c) the Company fails to
consummate the Exchange Offer within 45 days after the date on which the
Exchange Offer Registration Statement is declared effective or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights
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Agreement (each such event referred to in clauses (a) through (d) above as a
"Registration Default"), then the Company will pay to each Holder of Old
Notes, with respect to the first 90-day period immediately following the
occurrence of such Registration Default in an amount equal to $.05 per week
per $1,000 principal amount of Old Notes held by such Holder ("Liquidated
Damages"). The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Old Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up
to a maximum amount of Liquidated Damages of $.50 per week per $1,000
principal amount of Old Notes. All accrued Liquidated Damages will be paid by
the Company on each Damages Payment Date to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no such accounts
have been specified. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Holders of Old Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the same periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above. Any Holder of Transfer Restricted
Securities who elects not to participate in the Exchange Offer could be deemed
to be less liquid than if such Holder participated in the Exchange Offer.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
RELATING TO THE EXCHANGE OFFER
The following is a summary of the principal U.S. federal income tax
consequences resulting from the exchange of the Old Notes for New Notes in the
Exchange Offer. This summary does not purport to consider all the possible
U.S. federal tax consequences of the purchase, ownership or disposition of the
Notes and is not intended to reflect the particular tax position of any
beneficial owner. It deals only with Old Notes and New Notes held as capital
assets. Moreover, except as expressly indicated, it does not address
beneficial owners that may be subject to special tax rules, such as banks,
insurance companies, dealers in securities or currencies, purchasers that hold
Old Notes or New Notes as a hedge against currency risks or as part of a
straddle with other investments or as part of a "synthetic security" or other
integrated investment (including a "conversion transaction") comprised of a
Note and one or more other investments, or purchasers that have a "functional
currency" other than the U.S. dollar. Except to the extent discussed below
under "Non-U.S. Holders", this summary is not applicable to persons other than
"U.S. Holders" (defined below). This summary is based upon the U.S. federal
tax laws and regulations as now in effect and as currently interpreted and
does not take into account possible changes in such tax laws or such
interpretations, any of which may be applied retroactively. It does not
include any description of the tax laws of any state, local or foreign
government that may be applicable to the Notes or holders thereof. Persons
considering the exchange of their Old Notes for New Notes should consult their
own tax advisors concerning the application of the U.S. federal tax laws to
their particular situations as well as any consequences to them under the laws
of any other taxing jurisdiction.
U.S. HOLDERS
Payments of Interest. In general, interest on a New Note will be taxable to
a beneficial owner who or which is (i) an individual who is a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized under the laws of the United States or any state thereof
(including the District of Columbia), (iii) an estate or trust subject to
United States federal income taxation on its income without regard to its
source or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
persons who otherwise would be a U.S. Holder has the authority to control all
substantial decisions of the trust (a "U.S. Holder") as ordinary income at the
time it is received or accrued, depending on the holder's method of accounting
for tax purposes.
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Exchange Offer. The exchange of Old Notes for New Notes pursuant to the
Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. As a result, there will be no federal
income tax consequences to holders exchanging the Old Notes pursuant to the
Exchange Offer.
NON-U.S. HOLDERS
Under present United States federal income and estate tax law and subject to
the discussion of backup withholding below:
(a) payments of principal and interest on the New Notes by the Company or
any agent of the Company to any Holder that is not a U.S. Holder (a "Non-
U.S. Holder") will not be subject to United States federal withholding tax,
provided that (i) the Non-U.S. Holder does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock
of the Company entitled to vote, (ii) the Non-U.S. Holder is not a
controlled foreign corporation that is related to the Company (directly or
indirectly) through stock ownership and (iii) either (A) the beneficial
owner of the Old Notes or the New Notes certifies to the Company or its
agent, under penalties of perjury, that he is not a "United States person"
(as defined in the Code) and provides his name and address, or (B) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
(a "financial institution") and holds the Notes on behalf of the beneficial
owner certifies to the Company or its agent under penalties of perjury that
such statement has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof;
(b) a Non-U.S. Holder will not be subject to United States federal
withholding tax on gain realized on the sale, exchange or redemption of New
Note; and
(c) a New Note held by an individual who at the time of death is not a
citizen or resident of the United States will not be subject to United
States federal estate tax as a result of such individual's death if, at the
time of such death, the individual did not actually or constructively own
10% or more of the total combined voting power of all classes of stock of
the Company entitled to vote and the income on the New Notes would not have
been effectively connected with the conduct of a trade or business by the
individual in the United States.
Regulations proposed by the Internal Revenue Service, if finalized in their
current form, would modify the certification requirements described in
clause(a)(iii) above with respect to certain payments made after such
regulations become effective.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and interest on the New Note is effectively connected with the conduct of such
trade or business, the Non-U.S. Holder, although exempt from the withholding
tax discussed in the preceding paragraph (provided that such holder properly
claims such exemption by furnishing a properly executed IRS Form 4224 on or
before any payment due), may be subject to U.S. federal income tax on such
interest and gain on the sale, exchange or redemption of the New Note in the
same manner as if it were a U.S. Holder.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the New Notes are outstanding, the Company
is required to provide the IRS with certain information, including the
Holder's name, address and taxpayer identification number, the aggregate
amount of principal and interest paid to that Holder during the calendar year
and the amount of tax withheld, if any. This obligation, however, does not
apply with respect to certain U.S. Holders, including corporations, tax-exempt
organizations, qualified pension and profit sharing trust and individual
retirement accounts.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability,
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the Company, its agent or paying agents or a broker may be required to
"backup" withhold a tax equal to 31% of each payment of interest and principal
(and premium, if any) on the New Notes. This backup withholding is not an
additional tax and may be credited against the U.S. Holder's U.S. federal
income tax liability, provided that the required information is furnished to
the IRS.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Non-U.S. Holder of a New Note if such holder
has provided the required certification that it is not a United States person
as set forth in clause (iii) in the first paragraph under "--Non-U.S.
Holders", or has otherwise established an exemption (provided that neither the
Company not its agent has actual knowledge that the holder is a United States
person or that the conditions of any exemption are not in fact satisfied).
Payment of the proceeds from the sale of a New Note to or through a foreign
office of a broker generally will not be subject to information reporting or
backup withholding, except that information reporting may apply to such
payments if the broker is a United States person, a controlled foreign
corporation for United States tax purposes or a foreign person 50% or more of
whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the payment was effectively connected with
a U.S. trade or business. Payment of the proceeds from a sale of an Old Note
or New Note to or through the U.S. office of a broker is subject to
information reporting and backup withholding unless the holder or beneficial
owner certifies as to its taxpayer identification number of otherwise
establishes an exemption from information reporting and backup withholding.
The proposed Treasury Regulations, noted above, if adopted in their current
form, would also provide alternative certification requirements and means for
obtaining the exemption from withholding tax.
PLAN OF DISTRIBUTION
Each broker-dealer (a "Participating Broker-Dealer") that receives New 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 New Notes.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of such
New Notes received in exchange for Old Notes where such Old Notes are acquired
as a result of market-making activities or other trading activities. The
Company and the Guaranteeing Subsidiaries have agreed that for a period of 180
days after the Expiration Date, they will make this Prospectus, as it may be
amended or supplemented from time to time, available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, all
dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes by
Participating Broker-Dealers. New Notes received by Participating 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 New 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 at 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 Participating Broker-Dealer and/or the purchasers of
any such New Notes. Any Participating Broker-Dealer that resells New 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 New Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of New Notes and any commissions 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 a prospectus, and by delivering a
prospectus, a Participating 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 Expiration Date, the Company and the
Guaranteeing Subsidiaries promptly will send additional copies of this
Prospectus, as it may be amended or supplemented from time to
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time, to any Participating Broker-Dealer upon request. The Company and the
Guaranteeing Subsidiaries have agreed to pay all expenses incidental to the
Exchange Offer other than commissions and concessions of any brokers or
dealers and will indemnify holders of the Old Notes (including any broker-
dealers) against certain liabilities, including liabilities under the
Securities Act, as set forth in the Registration Rights Agreement.
LEGAL MATTERS
The legality of the New Notes offered hereby and the federal income tax
consequences of the Exchange Offer will be passed upon for the Company by Long
Aldridge & Norman LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of Pediatric Services of America, Inc.
and its consolidated subsidiaries as of September 30, 1997 and 1996 and for
each of the three years in the period ended September 30, 1997 (except for
Premier Medical Services, Inc. for the year ended September 30, 1995) included
in this Prospectus and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as stated in their report also included in
this Prospectus and Registration Statement. The consolidated financial
statements of Premier Medical Services, Inc. for the year ended September 30,
1995 (combined with those of the Company) have been audited by Deloitte &
Touche LLP as stated in their report included herein. Such financial
statements of the Company and its consolidated subsidiaries are included
herein in reliance upon the respective reports of such firms given upon their
authority as experts in accounting and auditing.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets as of September 30, 1997 and 1996........... F-3
Consolidated Statements of Income for the years ended September 30,
1997, 1996 and 1995.................................................... F-4
Consolidated Statements of Redeemable Preferred Stock, Common Stock and
Other Stockholders' Equity at October 1, 1994 and September 30, 1995,
1996 and 1997.......................................................... F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1997, 1996 and 1995.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets (unaudited) as of December 31,
1997 and September 30, 1997............................................ F-19
Condensed Consolidated Statements of Income (unaudited) for the three
months ended December 31, 1997 and 1996................................ F-20
Condensed Consolidated Statements of Cash Flows (unaudited) for the
three months ended December 31, 1997 and 1996.......................... F-21
Notes to Condensed Consolidated Financial Statements.................... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Pediatric Services of America, Inc.
We have audited the accompanying consolidated balance sheets of Pediatric
Services of America, Inc. ("PSA") as of September 30, 1997 and 1996, and the
related consolidated statements of income, redeemable preferred stock, common
stock and other stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1997. These financial statements are
the responsibility of PSA's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit
the consolidated statements of income, redeemable preferred stock, common
stock and other stockholders' equity and cash flows of Premier Medical
Services, Inc., a wholly-owned subsidiary, for the year ended September 30,
1995, which statements reflect total net revenue of 26% for 1995 of the
related consolidated financial statement total. Those statements were audited
by other auditors, whose report thereon has been furnished to us, and our
opinion, insofar as it relates to data included for Premier Medical Services,
Inc., is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of PSA at September 30, 1997 and
1996, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended September 30, 1997, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
November 18, 1997, except for Note 15
as to which the date is April 10, 1998
Atlanta, Georgia
F-2
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 500,629 $ 770,206
Accounts receivable, less allowances for doubtful
accounts of $10,036,000 and $8,523,000,
respectively..................................... 75,458,527 47,744,840
Prepaid expenses.................................. 507,905 460,850
Deferred income taxes............................. 3,879,862 3,524,265
Other current assets.............................. 3,481,517 2,065,314
------------ ------------
Total current assets............................ 83,828,440 54,565,475
Property and equipment:
Home care equipment held for rental............... 24,103,723 19,013,569
Furniture and fixtures............................ 6,979,170 4,910,212
Vehicles.......................................... 731,565 580,445
Leasehold improvements............................ 580,675 562,285
------------ ------------
32,395,133 25,066,511
Accumulated depreciation and amortization......... (15,678,405) (11,644,023)
------------ ------------
16,716,728 13,422,488
Other assets:
Goodwill, less accumulated amortization of
$3,695,000 and $2,333,000, respectively.......... 50,421,121 28,733,976
Certificates of need, less accumulated
amortization of $279,000 and $176,000,
respectively..................................... 1,542,996 1,171,772
Deferred financing fees, less accumulated
amortization of $192,000 and $76,000,
respectively..................................... 632,449 216,342
Noncompete agreements, less accumulated
amortization of $719,000 and $582,000,
respectively..................................... 320,555 368,333
Other............................................. 371,706 257,144
------------ ------------
53,288,827 30,747,567
------------ ------------
Total assets.................................... $153,833,995 $ 98,735,530
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 6,302,182 $ 5,779,594
Accrued compensation.............................. 5,146,786 3,581,013
Accrued insurance................................. 2,392,780 1,845,993
Other accrued liabilities......................... 3,559,100 2,724,454
Deferred revenue.................................. 852,899 792,139
Income taxes payable.............................. 1,119,526 1,852,128
Current maturities of long-term obligations from
related parties.................................. 2,163,101 --
Current maturities of long-term obligations....... 98,590 2,317,569
------------ ------------
Total current liabilities....................... 21,634,964 18,892,890
Long-term obligations from related parties, net of
current maturities................................ 3,887,339 --
Long-term obligations, net of current maturities... 61,124,757 23,637,954
Deferred income taxes.............................. 4,690,651 1,077,058
Minority interest in subsidiary.................... 815,794 935,035
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, no shares issued and outstanding..... -- --
Common stock, $.01 par value, 80,000,000 shares
authorized, 6,257,979 and 6,247,567 shares
issued and outstanding in 1997 and 1996,
respectively..................................... 62,580 62,476
Additional paid-in capital........................ 41,746,450 41,513,355
Retained earnings................................. 19,871,460 12,616,762
------------ ------------
Total stockholders' equity......................... 61,680,490 54,192,593
------------ ------------
Total liabilities and stockholders' equity......... $153,833,995 $ 98,735,530
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUE........................... $204,022,726 $163,804,464 $111,859,820
Costs and expenses:
Operating salaries, wages and
employee benefits................... 87,943,066 72,026,197 50,077,865
Other operating costs................ 75,385,617 60,096,166 39,086,858
Corporate, general and
administrative...................... 12,885,475 10,783,957 7,216,887
Provision for doubtful accounts...... 6,238,965 4,707,989 3,163,799
Depreciation and amortization........ 6,102,522 4,858,319 3,656,300
Combination costs.................... -- 1,165,600 --
------------ ------------ ------------
Total costs and expenses............. 188,555,645 153,638,228 103,201,709
------------ ------------ ------------
Operating income...................... 15,467,081 10,166,236 8,658,111
Interest expense...................... 3,534,262 1,778,384 1,643,459
------------ ------------ ------------
Income before minority interest,
income taxes and extraordinary item.. 11,932,819 8,387,852 7,014,652
Minority interest in loss of
subsidiary........................... 119,341 64,965 --
------------ ------------ ------------
Income before income taxes and
extraordinary item................... 12,052,160 8,452,817 7,014,652
Income taxes.......................... 4,797,462 3,406,484 2,803,156
------------ ------------ ------------
Income before extraordinary item...... 7,254,698 5,046,333 4,211,496
Extraordinary item, net of tax expense
of $521,000.......................... -- -- 781,220
------------ ------------ ------------
Net income............................ $ 7,254,698 $ 5,046,333 $ 4,992,716
============ ============ ============
Net income attributable to common and
common equivalent shares:
Income before extraordinary item...... $ 7,254,698 $ 5,046,333 $ 4,211,496
Less accretion on redeemable preferred
stock................................ -- (10,174) (35,952)
Less preferred stock dividends........ -- (85,750) (194,943)
------------ ------------ ------------
Income before extraordinary item
attributable to common and common
equivalent shares.................... 7,254,698 4,950,409 3,980,601
Extraordinary item, net of tax expense
of $521,000.......................... -- -- 781,220
------------ ------------ ------------
Net income attributable to common and
common equivalent shares............. $ 7,254,698 $ 4,950,409 $ 4,761,821
============ ============ ============
INCOME PER SHARE DATA:
Income before extraordinary item per
common share:
Basic................................ $ 1.16 $ 0.82 $ 0.86
Diluted.............................. 1.13 0.77 0.77
Extraordinary item per common share:
Basic................................ -- -- $ 0.17
Diluted.............................. -- -- 0.15
------------ ------------ ------------
Net income per common share:
Basic................................ $ 1.16 $ 0.82 $ 1.02
Diluted.............................. 1.13 0.77 0.92
============ ============ ============
Weighted average shares outstanding
(in thousands):
Basic................................ 6,257 6,057 4,655
Diluted.............................. 6,446 6,437 5,166
============ ============ ============
</TABLE>
See accompanying notes
F-4
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK,
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
----------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at October 1,
1994................... $ 1,867,283 $41,876 $17,150,539 $ 2,904,532 $20,096,947
Issuance of 14,300
shares of redeemable
convertible preferred
stock, net of issuance
costs of $38,000....... 1,392,000 -- -- -- --
54,748 shares of common
stock issued through
exercise of stock
options................ -- 548 85,991 -- 86,539
41,548 shares of common
stock issued in
connection with the
acquisition of
businesses............. -- 416 567,084 -- 567,500
Issuance of 1,319,915
shares of common stock
upon consummation of a
second public offering,
net of issuance costs
of $1,680,105.......... -- 13,199 19,095,357 -- 19,108,556
Accretion on redeemable
preferred stock........ 35,952 -- -- (35,952) (35,952)
Preferred stock
dividends.............. 194,943 -- -- (194,943) (194,943)
Net income.............. -- -- -- 4,992,716 4,992,716
----------- ------- ----------- ----------- -----------
Balances at September
30, 1995............... 3,490,178 56,039 36,898,971 7,666,353 44,621,363
63,563 shares of common
stock issued through
exercise of stock
options................ -- 636 355,356 -- 355,992
51,124 shares of common
stock issued in
connection with the
acquisition of a
business............... -- 511 999,489 -- 1,000,000
Accretion on redeemable
preferred stock........ 10,174 -- -- (10,174) (10,174)
Preferred stock
dividends.............. 85,750 -- -- (85,750) (85,750)
Conversion of preferred
stock upon business
combination............ (3,586,102) 3,324 3,261,505 -- 3,264,829
97,409 shares of common
stock issued from the
conversion of warrants
and stock options upon
the business
combination............ -- 974 (974) -- --
99,233 shares of common
stock issued upon the
exercise of warrants... -- 992 (992) -- --
Net income.............. -- -- -- 5,046,333 5,046,333
----------- ------- ----------- ----------- -----------
Balances at September
30, 1996............... -- 62,476 41,513,355 12,616,762 54,192,593
43,753 shares of common
stock issued through
exercise of stock
options................ -- 437 232,762 -- 233,199
33,341 shares of common
stock cancelled from
escrow................. -- (333) 333 -- --
Net income.............. -- -- -- 7,254,698 7,254,698
----------- ------- ----------- ----------- -----------
Balances at September
30, 1997............... $ -- $62,580 $41,746,450 $19,871,460 $61,680,490
=========== ======= =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................... $ 7,254,698 $ 5,046,333 $ 4,992,716
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization...... 6,102,522 4,858,319 3,656,300
Provision for doubtful accounts.... 6,238,965 4,707,989 3,163,799
Amortization of deferred financing
fees.............................. 115,621 48,713 27,456
Accrued interest on subordinated
note.............................. -- -- 181,210
Deferred income taxes.............. 3,257,996 (526,145) (562,844)
Minority interest in loss of
subsidiary........................ (119,341) (64,965) --
Extraordinary item, net of tax..... -- -- (781,220)
Changes in operating assets and
liabilities, net of effects from
acquisitions of businesses:
Accounts receivable............... (30,202,092) (20,258,758) (12,342,946)
Prepaid expenses.................. (44,955) 81,708 67,774
Other current assets.............. (1,377,765) (1,295,488) (93,850)
Accounts payable.................. 288,183 2,671,756 544,664
Income taxes payable.............. (752,602) 1,034,234 199,159
Accrued liabilities............... 2,206,288 1,281,231 1,480,443
------------ ------------ ------------
Net cash provided by (used in)
operating activities............... (7,032,482) (2,415,073) 532,661
INVESTING ACTIVITIES
Purchases of property and
equipment.......................... (6,866,888) (6,478,823) (3,811,372)
Acquisitions of businesses.......... (20,943,121) (4,780,619) (18,233,062)
Proceeds from minority partner in
joint venture...................... 100 1,000,000 --
Other, net.......................... 38,846 (56,204) 29,895
------------ ------------ ------------
Net cash used in investing
activities......................... (27,771,063) (10,315,646) (22,014,539)
FINANCING ACTIVITIES
Borrowings (payments) on revolving
line of credit, net................ -- (3,892,054) 866,554
Principal payments on long-term
debt............................... (9,231,503) (2,290,404) (22,900,780)
Borrowings on long-term debt........ 44,064,000 19,735,276 17,100,000
Deferred financing fees............. (531,728) (94,770) (80,000)
Issuance of common stock............ -- -- 19,108,556
Issuance of preferred stock......... -- -- 1,392,000
Payment of preferred stock
dividend........................... -- (280,693) --
Proceeds from exercise of stock
options............................ 233,199 223,008 86,539
------------ ------------ ------------
Net cash provided by financing
activities......................... 34,533,968 13,400,363 15,572,869
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents........................ (269,577) 669,644 (5,909,009)
Cash and cash equivalents at
beginning of year.................. 770,206 100,562 6,009,571
------------ ------------ ------------
Cash and cash equivalents at end of
year............................... $ 500,629 $ 770,206 $ 100,562
============ ============ ============
Supplemental disclosure of cash flow
information
Cash paid for interest.............. $ 2,957,313 $ 1,843,000 $ 1,635,000
============ ============ ============
Cash paid for income taxes.......... $ 4,344,976 $ 2,689,000 $ 3,163,000
============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Pediatric
Services of America, Inc. ("PSA" or "the Company") and its majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of net revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Deposits with banks are
federally insured in limited amounts.
Property and Equipment
Property and equipment are stated at cost and are depreciated on the
straight-line method over the related asset's estimated useful life, generally
five to ten years for assets other than home care equipment.
Other Assets
Goodwill represents the excess of the purchase price of acquired businesses
over the fair value of net assets acquired and is being amortized using the
straight-line method over thirty years. The carrying value of goodwill will be
reviewed if the facts and circumstances suggest that it may be impaired. If
this review indicates that goodwill will not be recoverable, as determined
based on the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the goodwill and related
assets will be reduced to their fair value.
Certificates of need are certificates which allow the Company to provide
home care services in sixteen counties in Maryland, the District of Columbia,
North Carolina, New Jersey and Washington. The certificates of need were
acquired in connection with business acquisitions by Premier Medical Services,
Inc. ("Premier") and business acquisitions by the Company. The certificates of
need are being amortized over their useful lives (see Note 5).
Financing fees incurred in connection with the new credit agreement (see
Note 4) are being amortized using the straight-line method over the term of
the agreement.
The cost of non-compete agreements with former owners of acquired businesses
are being amortized over the respective lives of each agreement (see Note 5).
Net Revenue
Net revenue represents the estimated net realizable amounts from patients,
third-party payors and others for patient services rendered. Such revenue is
recognized as the related services are performed. Approximately 36%, 37%, and
38% of the Company's net revenue for the years ended September 30, 1997, 1996
and 1995
F-7
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
respectively, were reimbursed under arrangements with Medicare and Medicaid.
Certain services are billed in advance of the Company rendering the related
services. Such amounts are deferred in the balance sheet until the related
services are performed.
Advertising Costs
Advertising costs are charged to expense in the period the costs are
incurred. Advertising expense was approximately $587,000, $354,000 and
$282,000 for the years ended September 30, 1997, 1996 and 1995, respectively.
Concentration of Credit Risk
The Company's principal financial instrument subject to potential
concentration of credit risk is trade accounts receivable. The concentration
of credit risk with respect to trade accounts receivable is limited due to the
large number of payors including Medicare and Medicaid, insurance companies,
and individuals and the diversity of geographic locations in which the Company
operates.
At September 30, 1997, the Company had one interest rate swap agreement with
a commercial bank (the "Counter Party"), having a cumulative notional
principal amount of $25 million. The Company pays a fixed rate of 6.61% plus
the applicable margin that varies from a minimum of .875% to a maximum of
1.625% and is based on the calculation of a leverage ratio. The interest rate
differential to be received or paid is recognized over the life of the
agreement as an adjustment to interest expense. The interest rate swap
terminates in June 2002. The Company is exposed to credit loss in the event of
non-performance by the Counter Party to the interest rate swap agreement.
However, the Company does not anticipate such non-performance.
Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Impact of Recently Issued Accounting Standards
In the first quarter of fiscal year 1997, the Company adopted the Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The adoption
of this Statement did not have a material effect on the Company's financial
position or on results of operations.
In the first quarter of fiscal year 1998, the Company will adopt Statement
of Financial Accounting Standards No. 131, "Reporting Aggregated Information
about a Business Enterprise." The adoption of this Statement will not have a
material effect on the Company's financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
Statement, which is effective for the Company's fiscal year ending September
30, 1999, establishes standards for the reporting and display of comprehensive
F-8
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
income and its components in a full set of general purpose financial
statements. The adoption of this Statement is not anticipated to have a
material effect on the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). The new accounting standards prescribed by SFAS
No. 123 are optional, and the Company is permitted to account for its stock
incentive and stock purchase plans under previously issued accounting
standards (See Note 7).
2. PREFERRED STOCK AND COMMON STOCK
On June 13, 1995, the Company issued 1,102,415 shares of its Common Stock
upon the closing of its second public offering for $15,890,077 in cash, net of
issuance costs of $1,473,435. Also, on July 11, 1995, the Company's
underwriters exercised their option to purchase 217,500 of additional shares
of Common Stock for $3,218,479 in cash, net of issuance costs of $206,670.
As of September 30, 1997 a total of 565,289 shares of Common Stock have been
reserved for future issuance.
Shares of Preferred Stock and Common Stock outstanding and related changes
for the three years ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE
PREFERRED COMMON
STOCK STOCK
----------- ---------
<S> <C> <C>
Balances at October 1, 1994......................... 20,000 4,187,641
Exercise of stock options......................... -- 54,748
Shares issued in connection with the acquisition
of a business.................................... -- 41,548
Issuance of preferred stock....................... 14,300 --
Issuance of common stock in second public
offering......................................... -- 1,319,915
------- ---------
Balances at September 30, 1995...................... 34,300 5,603,852
Exercise of stock options......................... -- 63,563
Exercise of warrants.............................. -- 99,233
Shares issued in connection with the acquisition
of a business.................................... -- 51,124
Conversion of warrants and stock options upon
business combination............................. -- 97,409
Conversion of preferred stock upon business
combination...................................... (34,300) 332,386
------- ---------
Balances at September 30, 1996...................... -- 6,247,567
Exercise of stock options......................... -- 43,753
Shares cancelled from escrow...................... -- (33,341)
------- ---------
Balances at September 30, 1997...................... -- 6,257,979
======= =========
</TABLE>
3. SHORT-TERM BORROWING ARRANGEMENTS
Premier had a $5,000,000 revolving line of credit agreement bearing interest
at the bank's prime interest rate plus 1.0%. Premier had outstanding
borrowings of $3,892,000 under this line of credit at September 30, 1995. On
May 20, 1996, the Company retired the debt and cancelled the credit agreement.
F-9
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM OBLIGATIONS
The Company's long-term obligations as of September 30, 1997 and 1996,
consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Note payable to bank............................... $61,000,000 $25,705,000
Related party notes payable........................ 6,050,440 --
Other notes payable................................ 223,347 250,523
----------- -----------
67,273,787 25,955,523
Less current maturities............................ 98,590 2,317,569
Less current maturities on related party notes
payable........................................... 2,163,101 --
----------- -----------
$65,012,096 $23,637,954
=========== ===========
</TABLE>
In May 1996, the Company amended its credit agreement (the "Amended Credit
Agreement") to increase the amount of financing available from $28 million to
$35 million, consisting of a $25 million revolving loan and a $10 million term
loan. Amounts available to borrow under the Amended Credit Agreement were
subject to limits as defined in the agreement. Borrowings under this facility
bore interest at LIBOR plus 1.5% (7.00% at September 30, 1996), the bank's
prime rate (8.25% at September 30, 1996) or at a rate equal to the bank's cost
of funds plus 1.5%, at the Company's option. The principal balance outstanding
at September 30, 1996 on the term loan was $10 million. The principal balance
outstanding on September 30, 1996 on the revolving loan was $15.7 million.
In December 1996, the Company again amended and restated the credit
agreement ("1996 Amended and Restated Credit Agreement") to further increase
the amount of available financing to $60 million, consisting of a $50 million
revolving loan and a $10 million term loan. An additional bank was added to
the credit agreement to expand the credit facility. The terms of the 1996
Amended and Restated Credit Agreement were consistent with the original terms
of the credit agreement.
In August 1997, the Company extended its existing credit facility. The
amount of financing increased to $100 million from $60 million consisting of a
$95 million revolving loan and a $5 million swingline facility. The loan is
due August 2002. A commitment fee ranging from .225% to .375% per annum is
charged on the average daily unused portion of the facility. Amounts available
to borrow under this agreement are subject to rate limits as defined in the
agreement. The revolving loan is collateralized by 100% of the voting stock of
the Company, requires the Company to maintain certain financial ratios and
places restrictions on the sale and purchase of assets, payment of dividends
and other distributions relating to the Company's outstanding capital stock.
Borrowings under this facility bear interest at LIBOR, the bank's prime rate
or at a rate equal to the bank's cost of funds, plus an applicable margin that
varies from a minimum of .875% to a maximum of 1.625% and is based on the
calculation of a leverage ratio. At September 30, 1997 the Company's
applicable margin was 1.25% and the interest rates under this facility at
September 30, 1997 ranged from 6.91% to 7.12%. The principle balance
outstanding at September 30, 1997 on the revolving loan was $61 million.
In connection with these extended agreements, the Company incurred loan
costs of approximately $532,000. These costs include loan closing fees, legal
and professional fees.
The subordinated note payable to Health Professionals, Inc. ("HPI") at
September 30, 1995 charged interest at the prime rate. In fiscal year 1995,
the Company restructured the note payable to HPI such that a prepayment on the
note of $830,000 resulted in a reduction of the debt of $2,132,034. The
difference is considered a gain on the extinguishment of the debt and is
recorded as an extraordinary item of $781,220, which is net of income taxes of
$520,814. In July 1996, the remaining outstanding balance of the note payable
was repaid and cancelled.
F-10
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company entered into twelve related party notes payable and thirteen
non-compete agreements with individuals in connection with the acquisition of
businesses. The notes are payable in monthly, quarterly or annual installments
and bear interest at rates ranging from 6.0% to 9.0%. The maturity dates range
from January 1998 to August 2000.
The aggregate amount of required principal payments during each of the next
five fiscal years and thereafter on all long-term obligations as of September
30, 1997 is as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-------------------------
<S> <C>
1998.......................................................... $ 2,261,691
1999.......................................................... 3,887,214
2000.......................................................... 114,517
2001 and thereafter........................................... 61,010,365
-----------
$67,273,787
===========
</TABLE>
Warrants were issued to a bank for the purchase of 124,094 shares of Common
Stock or Series B Preferred Stock at an exercise price of $0.01 per share.
Upon closing of the Company's initial public offering, warrants for 24,819
shares of Common Stock were exercised (see Note 2). As a result of the
termination of a put right and exercise of certain of the warrants, the
Company transferred $629,443 from redeemable warrants to Common Stock and
Additional Paid-in Capital. In May, 1996, the remaining warrants were
exercised for 99,233 shares of Common Stock and 42 shares of Common Stock,
were transferred to the Company as consideration for the exercise of the
warrants valued at $23.63 per share at the date of exercise.
Premier also issued common stock warrants in conjunction with financing
transactions. At September 30, 1995, Premier had outstanding warrants to
purchase 57,027 shares of Common Stock with exercise prices ranging from $5.70
to $11.40. Upon the business combination with the Company, the warrants were
exercised and converted into 35,069 shares of Common Stock.
5. ACQUISITIONS
The Company acquired thirteen companies and a home health agency with a
certificate of need during fiscal 1997, which were not deemed significant for
the disclosure of pro forma financial information. The aggregate fiscal year
net revenue for these acquisitions was approximately $28.9 million and total
net assets were $6.1 million. The aggregate purchase price of these companies
was approximately $25.5 million.
PSA entered into a Stock Exchange Agreement with Premier on February 29,
1996. Based on the exchange ratio set forth in the Stock Exchange Agreement,
PSA issued approximately 845,000 shares of its Common Stock for approximately
1,926,000 shares of Premier common stock outstanding, after giving effect to
the conversion of Premier redeemable convertible preferred stock, warrants and
certain options immediately prior to the transaction. The transaction has been
accounted for using the pooling-of-interests method and, as a result, the
financial position, results of operations and cash flows are presented as if
the combining companies had been consolidated for all periods presented.
Premier was incorporated in March 1993 and its results have been included
since that date. The consolidated financial statements for 1996 include the
costs related to the combination of approximately $1.2 million ($687,700 after
tax, or $0.11 per share). These costs consist primarily of payments required
under certain employment agreements due to a change in control of Premier and
professional fees.
F-11
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of net revenue, net income and related per share amounts of
the combined entities from October 1, 1995 through the end of the quarter
immediately preceding the date of the acquisition and fiscal 1995 are
presented in the following table.
<TABLE>
<CAPTION>
THREE MONTHS YEAR END
ENDED DECEMBER 31, SEPTEMBER 30,
1995 1995
------------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C>
Net revenue:
PSA, as previously reported................. $27,389 $ 83,224
Premier..................................... 9,521 28,636
------- --------
Combined net revenue........................ $36,910 $111,860
======= ========
Net Income:
PSA, as previously reported................. $ 1,335 $ 4,203
Premier..................................... 154 9
------- --------
Combined net income before extraordinary
item....................................... 1,489 4,212
Extraordinary item, net of tax.............. -- 781
------- --------
Combined net income......................... $ 1,489 $ 4,993
======= ========
Net income per share:
PSA, as previously reported................. $ 0.24 $ 0.93
Combined.................................... $ 0.24 $ 0.94
</TABLE>
On August 1, 1994, Premier acquired substantially all of the assets and
assumed certain liabilities of Peters Pediatrics Nursing Team, Inc. ("Peters")
which provides health care personnel to care for pediatric patients in their
homes. The purchase price consisted of a cash payment of $925,195, of which
$300,000 was allocated to a covenant not to compete, the issuance of 17,547
shares of Common Stock and the issuance of a contingent note payable. The
agreement requires the Company to pay the former owners $333,333 plus an
interest factor in each of November 1995, 1996 and 1997, should the Peters
business achieve specified revenue targets. In addition, the Company must pay
the former owners a designated percentage of fiscal 1995, 1996 and 1997
earnings over specified target amounts.
During fiscal 1997, the Peters business achieved certain specified revenue
and earnings targets, resulting in additional payments or obligations of
$368,602 which have been allocated to goodwill. Due to the uncertainty of
meeting the remaining performance targets, such amounts have not been recorded
as liabilities in these financial statements.
On October 3, 1994, the Company acquired all of the outstanding stock of
Oxygen Specialties, Inc. ("OSI"), a home medical equipment company
headquartered in New Orleans, Louisiana. The purchase price of $4.9 million
consisted of $4.7 million in cash and 16,393 shares of Common Stock valued at
$200,000. An additional $200,000 was paid at closing for a non-compete
agreement with the principal stockholders of OSI.
On March 31, 1995, the Company acquired all of the outstanding stock of
Pediatric Partners, Inc. ("PPI"), a health care company headquartered in
Atlanta, Georgia, specializing in pediatric home health care services for
medically fragile children, including intravenous therapies, nursing and home
care equipment. The purchase price of $9.2 million consisted of $8.9 million
in cash and 18,575 shares of Common Stock valued at $300,000. In addition, the
Company assumed a note payable due by PPI to a former stockholder of the
Company, T2 Medical, Inc., in the amount of $4.1 million (repaid during fiscal
1995) and paid $100,000 at closing for non-compete agreements with two PPI
stockholders.
F-12
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following represents unaudited pro forma consolidated results of
operations for the year ended September 30, 1995, assuming the above
acquisitions had occurred at the beginning of the year of acquisition:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1995
-------------
<S> <C>
Net revenue.................................................... $122,328,932
Income before extraordinary item............................... 4,172,100
Net income..................................................... 4,953,320
Income before extraordinary item per share..................... 0.78
Net income per share........................................... 0.93
</TABLE>
These unaudited pro forma consolidated results do not purport to be
indicative of the results or trends that actually would have been obtained if
the operations were combined during the periods presented, and is not intended
to be a projection of future results or trends.
The Company also acquired eight companies during fiscal 1996 and 1995, which
were not deemed significant for the disclosure of pro forma financial
information, with aggregate net revenue of approximately $16.6 million and
total assets of $3.1 million. The aggregate purchase price of these companies
was approximately $6.3 million.
The purchase method of accounting was used to record each of the above
acquisitions except Premier. Accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based on estimated fair values at
the purchase dates. Operating results for the acquired companies have been
included in the Company's consolidated results of operations from the
respective purchase dates.
6. LEASES
The Company leases office space as well as certain automobiles and medical
equipment under operating leases that expire at various dates through 2008.
Rent expense approximated $4,209,000, $3,978,000 and $3,089,000 under these
leases for the years ended September 30, 1997, 1996 and 1995, respectively.
At September 30, 1997 the future minimum lease payments under non-cancelable
operating leases with initial or remaining terms equal to or exceeding one
year were as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-------------------------
<S> <C>
1998.......................................................... $ 3,197,654
1999.......................................................... 2,417,440
2000.......................................................... 1,687,339
2001.......................................................... 971,115
2002 and thereafter........................................... 4,226,279
-----------
$12,499,827
===========
</TABLE>
7. STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
F-13
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's Stock Option Plan (the "Option Plan") provides for the
granting of stock options covering up to 700,000 shares of Common Stock, of
which 700,000 options have been granted to eligible participants as of
September 30, 1997. A proposal to increase the number of shares of Common
Stock issuable under the Option Plan from 700,000 shares to 1,750,000 shares
will be submitted to the shareholders at the 1998 Annual Meeting of
Shareholders. As of September 30, 1997, 101,575 options have been granted to
eligible participants, subject to approval of the increase in shares. If
shareholder approval of the increase in shares is not obtained, these options
will be void. Options may be issued as either incentive stock options or as
nonqualified stock options. Options may be granted only to those persons who
are officers or employees of the Company or to certain outside consultants.
The terms and conditions of options granted under the Option Plan, including
the number of shares, the exercise price and the time at which such options
become exercisable are determined by the Board of Directors. Upon the
occurrence of certain events, the vesting period of the options accelerate.
The term of options granted under the Option Plan are typically 3 to 5 years
but may not exceed 10 years. The Company has the right to repurchase the
Common Stock issued upon the exercise of these options at the then fair market
value of such shares, if the Company or the holders of such shares terminate
their employment with the Company.
Under the Company's Directors' Stock Option Plan, directors of the Company
who are not officers or employees of the Company will receive stock options
each year to purchase up to 6,000 shares of Common Stock, at an exercise price
equal to the fair market value on the date of grant and expiring 10 years
after issuance. The options vest on the first anniversary of their issuance,
provided that the grantee is then a director of the Company. A total of 95,000
shares of Common Stock have been reserved for issuance pursuant to options
granted under the Directors' Stock Option Plan of which 75,000 options have
been granted to eligible participants as of September 30, 1996. A proposal to
increase the number of shares of Common Stock issuable under the Directors'
Option Plan from 95,000 shares to 300,000 shares will be submitted to
shareholders at the 1998 Annual Meeting of Shareholders, together with a
proposal to permit discretionary grants under the plan. During fiscal year
1997, an additional 45,000 options were granted in excess of the 20,000
remaining options available to grant under the plan to eligible participants.
The options are subject to shareholder approval of the proposed amendments and
if shareholder approval of the increase of the proposed amendments is not
obtained, these options will be void.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method. The fair
value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions
for 1997 and 1996, respectively: risk-free interest rates of 5.99% and 6.40%;
a dividend yield of 0.0%; volatility factors of the expected market price of
the Company's common stock of 2.12 and a weighted-average expected life of the
option of 4 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
F-14
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The Company's pro forma
information follows (in thousands, except for earnings per share information):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Pro forma net income.......................................... $6,506 $4,708
Pro forma earnings per share
Basic....................................................... $ 1.04 $ 0.78
Diluted..................................................... $ 1.01 $ 0.73
</TABLE>
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE
SHARES PER SHARE
-------- --------------
<S> <C> <C>
Outstanding at October 1, 1994...................... 471,892 $ 4.21
Granted........................................... 189,509 16.97
Exercised......................................... (54,748) 1.59
Cancelled......................................... (20,517) 8.31
-------- ------
Outstanding at September 30, 1995................... 586,136 9.30
Granted........................................... 185,600 19.55
Exercised......................................... (124,707) 3.51
Cancelled......................................... (65,376) 11.92
-------- ------
Outstanding at September 30, 1996................... 581,653 13.20
Granted........................................... 194,500 18.46
Exercised......................................... (43,753) 5.33
Cancelled......................................... (20,537) 16.54
-------- ------
Outstanding at September 30, 1997................... 711,863 $15.02
======== ======
</TABLE>
At September 30, 1997, 1996 and 1995, options to acquire 322,821, 247,084,
and 223,122 shares, respectively, were exercisable. The weighted average fair
value of options granted in 1997 and 1996 was $7.97 and $8.64, respectively.
The following table summarizes the ranges of exercise prices and weighted
average contractual lives for options outstanding and the weighted average
exercise price for options exercisable as of September 30, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER WEIGHTED
REMAINING OPTIONS AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
-------------- ----------- ---------------- ----------- --------------
<S> <C> <C> <C> <C>
$0.014-$0.714 16,474 3.0 16,474 $ 0.47
1.43 12,017 4.3 12,017 1.43
4.29-5.70 114,016 5.4 95,746 4.46
8.00-10.26 45,731 6.7 38,084 8.85
13.38-19.87 478,625 8.6 144,000 17.89
20.00-24.75 45,000 9.2 16,500 24.58
------- --- ------- ------
711,863 7.8 322,821 $11.68
======= =======
</TABLE>
F-15
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
The provision for income taxes for the years ended September 30, 1997, 1996
and 1995 are summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................. $2,683,000 $3,421,000 $2,830,000
State................................... 503,000 642,000 536,000
---------- ---------- ----------
3,186,000 4,063,000 3,366,000
Deferred:
Federal................................. 1,357,021 (552,856) (480,540)
State................................... 254,441 (103,660) (82,304)
---------- ---------- ----------
1,611,462 (656,516) (562,844)
---------- ---------- ----------
$4,797,462 $3,406,484 $2,803,156
========== ========== ==========
</TABLE>
A reconciliation of the provision for income taxes to the statutory federal
income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Statutory rate of 34% applied to pre-tax
income................................. $4,097,734 $2,873,958 $2,385,000
State income taxes, net of federal tax
benefit................................ 448,340 338,113 302,300
Amortization of goodwill................ 202,992 192,630 136,000
Other, net.............................. 48,396 1,783 (20,144)
---------- ---------- ----------
$4,797,462 $3,406,484 $2,803,156
========== ========== ==========
</TABLE>
Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Allowance for doubtful accounts.................. $ -- $ 3,238,765
Mark to market accounting for accounts
receivable...................................... (2,448,500) --
Net operating loss carryforward.................. 1,830,844 96,000
Payroll related accruals......................... 495,566 394,568
Insurance related accruals....................... 1,068,684 701,436
Property and equipment and intangibles........... (2,242,151) (2,023,422)
Other, net....................................... 484,768 39,860
----------- -----------
Net deferred tax asset/(liability)............... $ (810,789) $ 2,447,207
=========== ===========
</TABLE>
Under new guidance issued by the Internal Revenue Service in December 1996,
the Company made an election entitling it to mark its accounts receivable to
market value for tax purposes. This election eliminated the deferred tax asset
relating to the allowance for doubtful accounts and established a new deferred
tax liability to reflect the new temporary difference.
The Company has approximately $4.8 million of net operating losses for
income tax purposes available to offset future taxable income. Such losses
expire $1.3 million by the year 2010 and $3.5 million by the year 2011.
F-16
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Long and short-term debt The carrying amounts of the Company's borrowings
under its short-term revolving credit agreements approximate their fair value.
The fair values of the Company's long-term debt are estimated using discounted
cash flow analysis, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements. The Company's amount of long-term
debt approximates its fair value.
10. EMPLOYEE SAVINGS PLAN
The Company has a contributory savings plan (the "Plan"), which qualifies
under Section 401(k) of the Internal Revenue Code, covering substantially all
of its employees. The Company, at its discretion, may match 33% of employee
contributions to a maximum of 6% of employee earnings each Plan year. Company
contributions to the Plan were approximately $277,000, $201,000 and $117,000
for the years ended September 30, 1997, 1996 and 1995, respectively.
11. COMMITMENTS AND CONTINGENCIES
As of September 30, 1997, the Company's professional liability insurance
policy is on a claims-made basis. Should this claims-made policy not be
renewed or replaced with equivalent insurance, claims based on occurrences
during its term but asserted subsequently would be uninsured.
The Company is subject to claims and suits arising in the ordinary course of
business. In the opinion of management, the ultimate resolution of such
pending legal proceedings will not have a material adverse effect on the
Company's consolidated financial position.
12. BASIC AND DILUTED NET INCOME PER SHARE
Basic net income per share is computed using the weighted average number of
shares of common shares outstanding during the period. Diluted net income per
share is computed using the weighted average number of common shares
outstanding and the dilutive effect of common equivalent shares (calculated
using the treasury stock method).
The following table sets forth the reconciliation of the denominators of the
basic and diluted earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Denominator for basic income per share-weighted
average shares.................................... 6,257 6,057 4,655
Effect of dilutive securities:
Warrants and options............................... 189 243 403
Conversion of preferred stock upon business
combination....................................... -- 137 --
Redeemable convertible preferred stock converted... -- -- 108
-------- -------- --------
Denominator for diluted income per share-adjusted
weighted average shares........................... 6,446 6,437 5,166
======== ======== ========
</TABLE>
F-17
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. UNAUDITED SUBSEQUENT EVENTS
As of December 1, 1997, the Company has acquired five companies subsequent
to September 30, 1997. These companies were not deemed significant for the
disclosure of pro forma financial information. The total purchase price of
these companies was approximately $18.8 million and were accounted for under
the purchase method of accounting.
On December 15, 1997, one of the Company's consolidated subsidiaries,
Insurance Medical Reporter, Inc. ("IMR"), purchased certain assets of
ChoicePoint Services, Inc., for $21.7 million and was accounted for under the
purchase method of accounting. This acquisition expanded IMR's product line
revenue from approximately $26 million to $85 million. IMR provides
paramedical examinations for the life and health insurance industries. This
acquisition was not deemed significant for the disclosure of pro forma
financial information.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER
-------------------------------
FISCAL 1996: FIRST SECOND THIRD FOURTH
- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue.................................... $36,910 $40,166 $43,033 $43,695
Operating income............................... 2,766 1,348 3,002 3,050
Income before income taxes..................... 2,496 948 2,413 2,595
Net income..................................... 1,489 576 1,401 1,580
Net income per share:
Basic......................................... 0.25 0.09 0.22 0.25
Diluted....................................... 0.23 0.08 0.22 0.25
</TABLE>
<TABLE>
<CAPTION>
QUARTER
-------------------------------
FISCAL 1997 FIRST SECOND THIRD FOURTH
- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue.................................... $46,554 $49,746 $53,890 $53,833
Operating income............................... 3,309 3,683 4,032 4,444
Income before income taxes..................... 2,774 2,903 3,064 3,311
Net income..................................... 1,656 1,733 1,839 2,026
Net income per share:
Basic......................................... 0.27 0.28 0.29 0.32
Diluted....................................... 0.26 0.27 0.29 0.31
</TABLE>
15. SUBSEQUENT EVENT
During the quarter ended December 31, 1997, the Company adopted SFAS
No. 128. Financial statements issued subsequent to the adoption of SFAS
No. 128 are required to disclose restated earnings per share for all periods
presented. Earnings per share amounts and related notes for all periods have
been restated to conform to the SFAS No. 128 requirements.
F-18
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 415 $ 501
Accounts receivable, less allowances for doubtful
accounts of $11,461 and $10,036, respectively..... 86,252 75,458
Prepaid expenses................................... 962 508
Deferred income taxes.............................. 3,400 3,880
Other current assets............................... 5,448 3,481
-------- --------
Total current assets................................ 96,477 83,828
Property and equipment:
Home care equipment held for rental................ 25,660 24,104
Furniture and fixtures............................. 8,860 6,979
Vehicles........................................... 789 731
Leasehold improvements............................. 631 581
-------- --------
35,940 32,395
Accumulated depreciation and amortization.......... (16,850) (15,678)
-------- --------
19,090 16,717
Other assets:
Goodwill, less accumulated amortization of $4,231
and $3,695, respectively.......................... 81,701 50,421
Certificates of need, less accumulated amortization
of $319 and $279, respectively.................... 2,929 1,543
Deferred financing fees, less accumulated
amortization of $237 and $192, respectively....... 588 632
Non-compete agreements, less accumulated
amortization of $757 and $719, respectively....... 306 321
Other.............................................. 426 372
-------- --------
Total assets........................................ $201,517 $153,834
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 7,408 $ 6,302
Accrued compensation............................... 4,753 5,147
Accrued insurance.................................. 2,643 2,393
Other accrued liabilities.......................... 6,144 3,559
Deferred revenue................................... 983 853
Income taxes payable............................... 1,709 1,119
Current maturities of long-term obligations from
related parties................................... 2,086 2,163
Current maturities of long-term obligations........ 105 99
-------- --------
Total current liabilities........................... 25,831 21,635
Long-term obligations from related parties net of
current maturities................................. 3,854 3,887
Long-term obligations, net of current maturities.... 86,102 61,125
Deferred income taxes............................... 5,132 4,691
Minority interest in subsidiary..................... 815 816
Stockholders' equity:
Preferred stock, $.01 par value, 2,000 shares
authorized; no shares issued and outstanding...... -- --
Common stock, $.01 par value, 80,000 shares
authorized; 7,109 shares at December 31, 1997 and
6,258 shares at September 30, 1997 issued and
outstanding, respectively......................... 70 63
Additional paid-in capital......................... 57,720 41,746
Retained earnings.................................. 21,993 19,871
-------- --------
Total stockholders' equity.......................... 79,783 61,680
-------- --------
Total liabilities & stockholders' equity............ $201,517 $153,834
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-19
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1997 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net revenue................................................ $ 61,559 $ 46,554
Costs and expenses:
Operating salaries, wages and employee benefits.......... 26,081 19,734
Other operating costs.................................... 22,943 17,948
Corporate, general and administrative.................... 3,836 2,772
Provision for doubtful accounts.......................... 1,833 1,375
Depreciation and amortization............................ 1,847 1,416
--------- ---------
Total costs and expenses............................... 56,540 43,245
--------- ---------
Operating income........................................... 5,019 3,309
Interest expense........................................... 1,466 575
--------- ---------
Income before minority interest and income taxes........... 3,553 2,734
Minority interest in loss of subsidiary.................... 1 40
--------- ---------
Income before income taxes................................. 3,554 2,774
Income taxes............................................... 1,432 1,118
--------- ---------
Net income................................................. $ 2,122 $ 1,656
========= =========
BASIC SHARE DATA:
Net income per common and common equivalent share........ $ 0.33 $ 0.27
========= =========
Weighted average common shares outstanding............... 6,504 6,249
========= =========
DILUTED SHARE DATA:
Net income per common and common equivalent share........ $ 0.32 $ 0.26
========= =========
Weighted average common shares outstanding............... 6,708 6,433
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-20
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1997 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................. $ 2,122 $ 1,656
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization.......................... 1,847 1,416
Provision for doubtful accounts........................ 1,833 1,375
Amortization of deferred financing fees................ 45 19
Deferred income taxes.................................. 922 --
Minority interest loss in subsidiary................... (1) (40)
Changes in operating assets and liabilities, net of
effects from acquisitions of businesses:
Accounts receivable.................................... (11,734) (7,031)
Prepaid expenses and other current assets.............. (1,764) (551)
Accounts payable....................................... 1,029 (360)
Income taxes........................................... 590 (281)
Accrued liabilities.................................... 2,108 1,036
--------- --------
Net cash used in operating activities.................... (3,003) (2,761)
INVESTING ACTIVITIES
Purchases of property and equipment.................... (1,774) (1,400)
Acquisitions of businesses............................. (19,736) (4,250)
Other, net............................................. (10) (378)
--------- --------
Net cash used in investing activities.................... (21,520) (6,028)
FINANCING ACTIVITIES
Principal payments on long-term debt................... (594) (91)
Borrowings on long-term debt........................... 25,000 8,850
Deferred financing fees................................ -- (179)
Proceeds from exercise of stock options................ 31 18
--------- --------
Net cash provided by financing activities................ 24,437 8,598
--------- --------
Decrease in cash and cash equivalents.................... (86) (191)
Cash and cash equivalents at beginning of year........... 501 770
--------- --------
Cash and cash equivalents at end of period............... $ 415 $ 579
========= ========
Supplemental disclosure of cash flow information:
Cash paid for interest................................. $ 1,262 $ 439
========= ========
Cash paid for income taxes............................. $ 50 $ 1,405
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-21
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--UNAUDITED
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Pediatric Services of America, Inc. (the "Company") and its majority-owned
subsidiaries have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Results of
operations for the three month period ended December 31, 1997 are not
necessarily indicative of the results to be expected for the entire fiscal
year ending September 30, 1998. These condensed consolidated financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended September 30, 1997 included in the Company's
Annual Report on Form 10-K for such year filed with the Securities and
Exchange Commission. Principal accounting policies are set forth in the
Company's 1997 Annual Report.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants,
and convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements. The dilutive effect of the weighted
average options included in the diluted earnings per share is 204,545 and
183,889 for the three months ended December 31, 1997 and 1996, respectively.
3. INTEREST RATE SWAP AGREEMENT
At December 31, 1997, the Company had one interest rate swap agreement with
a commercial bank (the "Counter Party"), having a cumulative notional
principal amount of $25 million. The Company pays a fixed rate of 6.61% plus
the applicable margin that varies from a minimum of .875% to a maximum of
1.625% and is based on the calculation of a leverage ratio. The interest rate
differential to be received or paid is recognized over the life of the
agreement as an adjustment to interest expense. The interest rate swap
terminates in June 2002. The Company is exposed to credit loss in the event of
non-performance by the Counter Party to the interest rate swap agreement.
However, the Company does not anticipate such non-performance.
4. ACQUISITIONS
On October 31, 1997, the Company purchased the assets and assumed certain
liabilities of Pediatric Physical Therapy, Inc. ("PPT"), a physical therapy
company in St. Louis, Missouri, for a total purchase price of $50,000,
consisting of $30,000 cash and $20,000 in the form of a note payable by the
Company. The Company assumed approximately $200,000 in indebtedness.
On November 7, 1997, the Company purchased substantially all of the assets
of Intra-Care, Inc. ("IC"), a home infusion and pharmaceutical company in
Little Falls, New Jersey, for a total purchase price of $7.5 million. The
purchase price consisted of $4.5 million in cash and $3.0 million in the form
of shares of the Company's Common Stock. The shares of Common Stock have been
placed in escrow and will be released upon the satisfaction of certain
conditions.
F-22
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--UNAUDITED--(CONTINUED)
On November 11, 1997, one of the Company's consolidated subsidiaries,
Insurance Medical Reporter, Inc. ("IMR"), purchased certain assets of American
Insurance Examiners, Inc. ("AIE"), a paramedical testing company in Los
Angeles, California, for a total cash purchase price of $1.225 million.
On November 21, 1997, the Company purchased substantially all of the assets
of Kids and Nurses, Inc. ("KAN"), a company specializing in prescribed
pediatrics extended care facilities. The total purchase price was $2.5 million
consisting of shares of the Company's Common Stock. A portion of the shares
have been placed in escrow for a period of one year from the closing date and
will be released upon the satisfaction of certain conditions. At closing, the
Company assumed and paid $750,000 indebtedness.
On December 1, 1997, the Company purchased substantially all of the assets
of Cyber Home Medical Equipment Corp., Inc. ("CHM"), a home medical equipment
company, in Rockville Center, New York, for a total purchase price of $1.25
million. The purchase price consisted of $550,000 in cash, $300,000 in the
form of a note payable by the Company and $400,000 in the form of shares of
the Company's Common Stock. The shares of Common Stock have been placed in an
escrow account for the term of one year from December 1, 1997 and will be
released upon the satisfaction of certain conditions. The note will be paid
quarterly over a three year period.
On December 15, 1997, one of the Company's consolidated subsidiaries, IMR,
purchased certain paramedical testing assets of ChoicePoint Services, Inc.
("PMI") for $21.7 million consisting of $11.7 million in cash and $10.0
million in the form of shares of the Company's Common Stock. For a one year
period, the Company has agreed to protect the average price received by PMI
upon disposition of the Company's shares.
On December 29, 1997, the Company purchased all of the assets and assumed
certain liabilities of Kid's Nurses, Inc. ("KN"), a pediatric nursing company
in St. Louis, Missouri, for a total purchase price of $350,000. The purchase
price consisted of $250,000 in cash, $50,000 in the form of a note payable by
the Company and $50,000 in the form of shares of the Company's Common Stock.
The shares have been placed in an escrow account until December 29, 1998 and
will be released upon the satisfaction of certain conditions. The note will be
paid annually over a two year period.
The purchase method of accounting was used to record each of the above
acquisitions. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on estimated fair values at the
purchase dates. Operating results for the acquired companies have been
included in the Company's consolidated results of operations from the
respective purchase dates.
The acquisitions of PPT, IC, AIE, KAN, CHM, PMI and KN are not considered
significant as defined by Regulation S-X Rule 1-02(w) and, therefore, the
consolidated financial statements do not reflect pro forma financial
information for these acquisitions.
F-23
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PEDIATRIC SERVICES OF
AMERICA, INC., THE INITIAL PURCHASERS OR ANY OF THEIR RESPECTIVE AGENTS. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF PEDIATRIC SERVICES OF AMERICA, INC. SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SO-
LICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 4
Incorporation by Reference............................................... 4
Prospectus Summary....................................................... 5
Risk Factors............................................................. 13
The Company.............................................................. 20
Use of Proceeds of New Notes............................................. 20
Use of Proceeds of Old Notes............................................. 20
Capitalization........................................................... 21
The Exchange Offer....................................................... 22
Selected Historical Consolidated Financial Data.......................... 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 32
Business................................................................. 39
Management............................................................... 57
Description of Credit Agreement.......................................... 58
Description of Notes..................................................... 59
Old Notes; Registration Rights........................................... 85
Certain Federal Income Tax Considerations Relating to the Exchange
Offer................................................................... 86
Plan of Distribution..................................................... 88
Legal Matters............................................................ 89
Experts.................................................................. 89
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$75,000,000
LOGO
OFFER TO EXCHANGE
10% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
($75,000,000 PRINCIPAL AMOUNT)
FOR ALL OUTSTANDING
10% SENIOR SUBORDINATED NOTES DUE 2008
($75,000,000 PRINCIPAL AMOUNT OUTSTANDING)
-------------
PROSPECTUS
-------------
MAY , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Ninth of the Company's Amended and Restated Certificate of
Incorporation and Article VI, Section 4 of the Company's Amended and Restated
Bylaws provide that each person who was or is made a party to, is threatened
to be made a party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that he is or was a person for whom he is a legal
representative, or is or was a director, officer, employee or agent of the
Company (or was serving at the request of the Company as a director, officer,
employee or agent of another entity, including employee benefit plans) will be
indemnified and held harmless by the Company to the fullest extent authorized
by the Delaware General Corporation Law as it currently exists or is later
amended. The Company shall be required to indemnify a person in connection
with a Proceeding initiated by such person only if the Proceeding was
authorized by the Board of Directors of the Company.
Under Section 145 of the Delaware General Corporation Law, a corporation may
indemnify a director, officer, employee or agent of the corporation (or other
entity if such person is serving in such capacity at the corporation's
request) against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. In the case of an action brought by or in the right of a
corporation, the corporation may indemnify a director, officer, employee or
agent of the corporation (or other entity if such person is serving in such
capacity at the corporation's request) against expenses (including attorneys'
fees) actually and reasonably incurred by him if he acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless a court determines that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnification for
such expenses as the court shall deem proper. Expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigation action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation.
Article Seventh of the Company's Amended and Restated Certificate of
Incorporation also provides that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for any acts or omissions not in good faith or which involve intentional
approval of misconduct or knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law or (iv) for any transaction in which the
director derived an improper personal benefit.
The Company maintains directors and officers liability insurance that will
insure against liabilities that directors or officers of the Company may incur
in such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. Reference is made to the Exhibit Index on Page II-2 filed as
part of this Registration Statement.
(b) No financial statement schedules are required to be filed.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
4.1 Indenture dated April 16, 1998 between the Registrants and SunTrust
Bank, Atlanta, relating to the 10% Senior Subordinated Notes due 2008
4.2 Form of Certificate of 10% Senior Subordinated Notes, Series A
(included as Exhibit B to Exhibit 4.1)
4.3 Form of Subsidiary Guarantee (included as Exhibit D to Exhibit 4.1)
4.4 Registration Rights Agreement dated April 16, 1998, among Pediatric
Services of America, Inc., Salomon Brothers Inc, NationsBank
Montgomery Securities LLC and First Union Capital Markets, a division
of Wheat First Securities, Inc.
5 Opinion of Long Aldridge & Norman LLP to Pediatric Services of
America, Inc. as to legality of the 10% Senior Subordinated Notes,
Series A and the Subsidiary Guarantees
8 Opinion of Long Aldridge & Norman LLP as to certain federal income
tax matters (included in Exhibit 5)
12 Computation of ratio of earnings to fixed charges (excluding interest
on deposits)
23.1 Consent of Ernst & Young LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Report of Independent Auditors, Deloitte & Touche LLP
23.4 Consent of Long Aldridge & Norman LLP (included in Exhibit 5)
23.5 Consent of Long Aldridge & Norman LLP (included in Exhibit 8)
24 Power of Attorney of certain officers and directors of the
Registrants (included on signature pages to Registration Statement)
25 Form T-1 Statement of Eligibility of SunTrust Bank, Atlanta
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agent Agreement
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) Each of the undersigned Registrants hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, as amended,
each filing of a Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
each undersigned Registrant pursuant to the foregoing provisions, or
otherwise, each Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by each undersigned Registrant of expenses incurred or paid by a
director, officer or controlling Person of each 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, each Registrant will, unless in the opinion of its counsel the
matter has been settled by the controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c) The undersigned Registrants hereby undertake 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 S-4, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt
II-2
<PAGE>
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.
(d) The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired or involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
Pediatric Services of America, Inc.
/s/ Joseph D. Sansone
By: _________________________________
JOSEPH D. SANSONE
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Joseph D. Sansone Chairman of the Board of Directors,
- --------------------------------------- President and Chief Executive
JOSEPH D. SANSONE Officer (Principal Executive
Officer)
/s/ Stephen M. Mengert Chief Financial Officer, Senior Vice
- --------------------------------------- President, Treasurer and Secretary
STEPHEN M. MENGERT (Principal Financial and Accounting
Officer)
/s/ Michael J. Finn Director
- ---------------------------------------
MICHAEL J. FINN
/s/ Adam O. Holzhauer Director
- ---------------------------------------
ADAM O. HOLZHAUER
/s/ Robert P. Pinkas Director
- ---------------------------------------
ROBERT P. PINKAS
/s/ Irving S. Shapiro Director
- ---------------------------------------
IRVING S. SHAPIRO
/s/ Richard S. Smith Director
- ---------------------------------------
RICHARD S. SMITH
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
PSA Properties Corporation
/s/ Susan E. Dignan
By: _________________________________
SUSAN E. DIGNAN
PRESIDENT (PRINCIPAL EXECUTIVE
OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Susan E. Dignan President and Director (Principal
- --------------------------------------- Executive Officer)
SUSAN E. DIGNAN
/s/ Joseph D. Sansone Treasurer, Secretary and Director
- --------------------------------------- (Principal Financial and Accounting
JOSEPH D. SANSONE Officer)
/s/ Victoria L. Garrett Director
- ---------------------------------------
VICTORIA L. GARRETT
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
PSA Licensing Corporation
/s/ Susan E. Dignan
By: _________________________________
SUSAN E. DIGNAN
PRESIDENT (PRINCIPAL EXECUTIVE
OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Susan E. Dignan President and Director (Principal
- --------------------------------------- Executive Officer)
SUSAN E. DIGNAN
/s/ Joseph D. Sansone Treasurer, Secretary and Director
- --------------------------------------- (Principal Financial and Accounting
JOSEPH D. SANSONE Officer)
/s/ Victoria L. Garrett Director
- ---------------------------------------
VICTORIA L. GARRETT
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
Pediatric Services of America, Inc.
/s/ Joseph D. Sansone
By: _________________________________
JOSEPH D. SANSONE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Joseph D. Sansone Chairman of the Board of Directors,
- --------------------------------------- President and Chief Executive
JOSEPH D. SANSONE Officer (Principal Executive
Officer)
/s/ Stephen M. Mengert Chief Financial Officer, Senior Vice
- --------------------------------------- President, Treasurer and Secretary
STEPHEN M. MENGERT (Principal Financial and Accounting
Officer)
/s/ Michael J. Finn Director
- ---------------------------------------
MICHAEL J. FINN
/s/ Adam O. Holzhauer Director
- ---------------------------------------
ADAM O. HOLZHAUER
/s/ Robert P. Pinkas Director
- ---------------------------------------
ROBERT P. PINKAS
/s/ Irving S. Shapiro Director
- ---------------------------------------
IRVING S. SHAPIRO
/s/ Richard S. Smith Director
- ---------------------------------------
RICHARD S. SMITH
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
Pediatric Services of America
(Connecticut), Inc.
/s/ Joseph D. Sansone
By: _________________________________
JOSEPH D. SANSONE
CHAIRMAN OF THE BOARD AND
PRESIDENT (PRINCIPAL EXECUTIVE
OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Joseph D. Sansone Chairman of the Board of Directors
- --------------------------------------- and President (Principal Executive
JOSEPH D. SANSONE Officer)
/s/ Stephen M. Mengert Chief Financial Officer, Vice
- --------------------------------------- President, Treasurer, Secretary and
STEPHEN M. MENGERT Director (Principal Financial and
Accounting Officer)
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
Premier Medical Services, Inc.
/s/ Joseph D. Sansone
By: _________________________________
JOSEPH D. SANSONE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Joseph D. Sansone Chairman of the Board of Directors,
- --------------------------------------- President and Chief Executive
JOSEPH D. SANSONE Officer (Principal Executive
Officer)
/s/ Stephen M. Mengert Chief Financial Officer, Treasurer,
- --------------------------------------- Secretary and Director (Principal
STEPHEN M. MENGERT Financial and Accounting Officer)
/s/ Susan E. Dignan Director
- ---------------------------------------
SUSAN E. DIGNAN
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
Pediatric Home Nursing Services,
Inc.
/s/ Joseph D. Sansone
By: _________________________________
JOSEPH D. SANSONE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Joseph D. Sansone Chairman of the Board of Directors,
- --------------------------------------- President and Chief Executive
JOSEPH D. SANSONE Officer (Principal Executive
Officer)
/s/ James R. Henderson Secretary (Principal Financial and
- --------------------------------------- Accounting Officer)
JAMES R. HENDERSON
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
Pediatric Partners, Inc.
/s/ Joseph D. Sansone
By: _________________________________
JOSEPH D. SANSONE
CHAIRMAN OF THE BOARD AND
PRESIDENT (PRINCIPAL EXECUTIVE
OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Joseph D. Sansone Chairman of the Board of Directors
- --------------------------------------- and President (Principal Executive
JOSEPH D. SANSONE Officer)
/s/ Stephen M. Mengert Chief Financial Officer, Treasurer,
- --------------------------------------- Secretary and Director (Principal
STEPHEN M. MENGERT Financial and Accounting Officer)
II-11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
Paramedical Services of America,
Inc.
/s/ Joseph D. Sansone
By: _________________________________
JOSEPH D. SANSONE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Joseph D. Sansone Chairman of the Board of Directors,
- --------------------------------------- President and Chief Executive
JOSEPH D. SANSONE Officer (Principal Executive
Officer)
/s/ Stephen M. Mengert Chief Financial Officer, Treasurer,
- --------------------------------------- Secretary and Director (Principal
STEPHEN M. MENGERT Financial and Accounting Officer)
II-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
Premier Nurse Staffing, Inc.
/s/ Joseph D. Sansone
By: _________________________________
JOSEPH D. SANSONE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Joseph D. Sansone Chairman of the Board of Directors,
- --------------------------------------- President and Chief Executive
JOSEPH D. SANSONE Officer (Principal Executive
Officer)
/s/ Stephen M. Mengert Chief Financial Officer, Treasurer,
- --------------------------------------- Secretary and Director (Principal
STEPHEN M. MENGERT Financial and Accounting Officer)
II-13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
Premier Certified Home Health
Services, Inc.
/s/ Joseph D. Sansone
By: _________________________________
JOSEPH D. SANSONE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Joseph D. Sansone Chairman of the Board of Directors,
- --------------------------------------- President and Chief Executive
JOSEPH D. SANSONE Officer (Principal Executive
Officer)
/s/ Stephen M. Mengert Chief Financial Officer, Treasurer,
- --------------------------------------- Secretary and Director (Principal
STEPHEN M. MENGERT Financial and Accounting Officer)
II-14
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORCROSS, STATE OF
GEORGIA, ON THIS 5TH DAY OF MAY, 1998.
ARO Health Services, Inc.
/s/ Joseph D. Sansone
By: _________________________________
JOSEPH D. SANSONE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Sansone, Stephen M. Mengert and Susan
E. Dignan and any of them, as his true and lawful attorneys-in-fact, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including any post-effective amendments) to this Registration
Statement on Form S-4, and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact
(or any of them) and agents or their substitutes, may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THIS 5TH DAY OF MAY, 1998.
SIGNATURES TITLE
/s/ Joseph D. Sansone Chairman of the Board of Directors,
- --------------------------------------- President and Chief Executive
JOSEPH D. SANSONE Officer (Principal Executive
Officer)
/s/ Stephen M. Mengert Chief Financial Officer, Treasurer,
- --------------------------------------- Secretary and Director (Principal
STEPHEN M. MENGERT Financial and Accounting Officer)
II-15
<PAGE>
Exhibit 4.1
================================================================================
PEDIATRIC SERVICES OF AMERICA, INC.
_________________________________
$100,000,000
10% SENIOR SUBORDINATED NOTES DUE 2008
________________________________
INDENTURE
Dated as of April 16, 1998
_______________________________
SUNTRUST BANK, ATLANTA
Trustee
_______________________________
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TRUST INDENTURE ACT SECTION INDENTURE SECTION
- --------------------------------------------------------------- -----------------------
<S> <C>
310 7.10
(a)(1)....................................................
(a)(2).................................................... 7.10
(a)(3).................................................... N.A.
(a)(4).................................................... N.A.
(a)(5).................................................... 7.10
(b)....................................................... 7.03; 7.10
(c)....................................................... N.A.
311 7.11
(a).......................................................
(b)....................................................... 7.11
(c)....................................................... N.A.
312 2.05
(a).......................................................
(b)....................................................... 13.03
(c)....................................................... 13.03
313 7.06
(a).......................................................
(b)(1).................................................... N.A.
(b)(2).................................................... 7.06; 7.07
(c)....................................................... 7.06; 13.02
(d)....................................................... 7.06
314 4.03; 13.05
(a).......................................................
(b)....................................................... N.A.
(c)(1).................................................... 13.04
(c)(2).................................................... 13.04
(c)(3).................................................... N.A.
(d)....................................................... N.A.
(e)....................................................... 13.05
(f)....................................................... N.A.
315 7.01
(a).......................................................
(b)....................................................... 7.05; 13.02
</TABLE>
- ---------------
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
<TABLE>
TRUST INDENTURE ACT SECTION INDENTURE SECTION
- --------------------------------------------------------------- -----------------------
<S> <C>
(c)....................................................... 7.01
(d)....................................................... 7.01
(e)....................................................... 6.11
316 2.08
(a) (last sentence).......................................
(a)(1)(A)................................................. 6.05
(a)(1)(B)................................................. 6.04
(a)(2).................................................... N.A.
(b)....................................................... 6.07
(c)....................................................... N.A.
317 6.08
(a)(1)....................................................
(a)(2).................................................... 6.09
(b)....................................................... 2.04
318 13.01
(a).......................................................
(b)....................................................... N.A.
(c)....................................................... 13.01
</TABLE>
N.A. means not applicable
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE...................................... 1
SECTION 1.01. Definitions............................................................... 1
SECTION 1.02. Other Definitions......................................................... 17
SECTION 1.03. Incorporation by Reference of Trust Indenture Act......................... 18
SECTION 1.04. Rules of Construction..................................................... 18
ARTICLE 2 THE NOTES....................................................................... 19
SECTION 2.01. Form and Dating........................................................... 19
SECTION 2.02. Execution and Authentication.............................................. 19
SECTION 2.03. Registrar and Paying Agent................................................ 20
SECTION 2.04. Paying Agent to Hold Money in Trust....................................... 20
SECTION 2.05. Registration of Transfer and Exchange..................................... 21
SECTION 2.06. Replacement Notes......................................................... 26
SECTION 2.07. Outstanding Notes......................................................... 27
SECTION 2.08. Treasury Notes............................................................ 27
SECTION 2.09. Temporary Notes........................................................... 27
SECTION 2.10. Cancellation.............................................................. 27
SECTION 2.11. Defaulted Interest........................................................ 28
SECTION 2.12. Notes Issuable in the Form of a Global Note............................... 28
SECTION 2.13. Additional Notes.......................................................... 30
ARTICLE 3 REDEMPTION AND PREPAYMENT....................................................... 30
SECTION 3.01. Notices to Trustee........................................................ 30
SECTION 3.02. Selection of Notes to be Purchased or Redeemed............................ 30
SECTION 3.03. Notice of Redemption...................................................... 31
SECTION 3.04. Effect of Notice of Redemption............................................ 32
SECTION 3.05. Deposit of Redemption or Purchase Price................................... 32
SECTION 3.06. Notes Redeemed in Part.................................................... 33
SECTION 3.07. Optional Redemption....................................................... 33
SECTION 3.08. Mandatory Redemption...................................................... 33
SECTION 3.09. Offer to Purchase by Application of Excess Proceeds....................... 34
ARTICLE 4 COVENANTS....................................................................... 36
SECTION 4.01. Payment of Notes.......................................................... 36
SECTION 4.02. Maintenance of Office or Agency........................................... 36
SECTION 4.03. Reports................................................................... 37
SECTION 4.04. Compliance Certificate.................................................... 38
SECTION 4.05. Taxes..................................................................... 39
SECTION 4.06. Stay, Extension and Usury Laws............................................ 39
SECTION 4.07. Restricted Payments....................................................... 39
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.08. Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries............................................................. 42
SECTION 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock................ 43
SECTION 4.10. Asset Sales............................................................... 44
SECTION 4.11. Transactions With Affiliates.............................................. 45
SECTION 4.12. Liens..................................................................... 46
SECTION 4.13. Sale and Leaseback Transactions........................................... 46
SECTION 4.14. Offer to Purchase Upon Change of Control.................................. 47
SECTION 4.15. Corporate Existence....................................................... 48
SECTION 4.16. Anti-Layering............................................................. 49
SECTION 4.17. Line of Business.......................................................... 49
ARTICLE 5 SUCCESSORS...................................................................... 49
SECTION 5.01. Merger, Consolidation, or Sale of Assets.................................. 49
SECTION 5.02. Successor Corporation Substituted......................................... 50
ARTICLE 6 DEFAULTS AND REMEDIES........................................................... 51
SECTION 6.01. Events of Default......................................................... 51
SECTION 6.02. Acceleration.............................................................. 53
SECTION 6.03. Other Remedies............................................................ 53
SECTION 6.04. Waiver of Past Defaults................................................... 54
SECTION 6.05. Control by Majority....................................................... 54
SECTION 6.06. Limitation on Suits....................................................... 54
SECTION 6.07. Rights of Holders of Notes to Receive Payment............................. 55
SECTION 6.08. Collection Suit By Trustee................................................ 55
SECTION 6.09. Trustee May File Proofs of Claim.......................................... 55
SECTION 6.10. Priorities................................................................ 56
SECTION 6.11. Undertaking for Costs..................................................... 56
ARTICLE 7 TRUSTEE......................................................................... 57
SECTION 7.01. Duties of Trustee......................................................... 57
SECTION 7.02. Rights of Trustee......................................................... 58
SECTION 7.03. Individual Rights of Trustee.............................................. 60
SECTION 7.04. Trustee's Disclaimer...................................................... 60
SECTION 7.05. Notice of Defaults........................................................ 60
section 7.06. Reports By Trustee to Holders of the Notes................................ 61
SECTION 7.07. Compensation and Indemnity................................................ 61
SECTION 7.08. Replacement of Trustee.................................................... 62
SECTION 7.09. Successor Trustee By Merger, etc.......................................... 63
SECTION 7.10. Eligibility; Disqualification............................................. 63
SECTION 7.11. Preferential Collection of Claims Against the Company..................... 63
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE........................................ 64
SECTION 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.................. 64
SECTION 8.02. Legal Defeasance and Discharge............................................ 64
SECTION 8.03. Covenant Defeasance....................................................... 65
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 8.04. Conditions to Legal or Covenant Defeasance................................ 65
SECTION 8.05. Deposited Money and Government Securities To Be Held in Trust;
Other Miscellaneous Provisions.......................................... 67
SECTION 8.06. Repayment to the Company.................................................. 67
SECTION 8.07. Reinstatement............................................................. 68
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER................................................ 68
SECTION 9.01. Without Consent of Holders of the Notes................................... 68
SECTION 9.02. With Consent of Holders of Notes.......................................... 69
SECTION 9.03. Compliance With Trust Indenture Act....................................... 71
SECTION 9.04. Revocation and Effect of Consents......................................... 71
SECTION 9.05. Notation on or Exchange of Notes.......................................... 72
SECTION 9.06. Trustee to Sign Amendments, etc........................................... 72
ARTICLE 10 SUBORDINATION.................................................................. 72
SECTION 10.01. Agreement to Subordinate.................................................. 72
SECTION 10.02. Liquidation; Dissolution; Bankruptcy...................................... 72
SECTION 10.03. Default on Designated Senior Debt......................................... 73
SECTION 10.04. Acceleration of Notes..................................................... 73
SECTION 10.05. When Distribution Must Be Paid Over....................................... 73
SECTION 10.06. Notice By Company......................................................... 74
SECTION 10.07. Subrogation............................................................... 74
SECTION 10.08. Relative Rights........................................................... 75
SECTION 10.09. Subordination May Not Be Impaired By Company.............................. 75
SECTION 10.10. Distribution or Notice to Representative.................................. 75
SECTION 10.11. Rights of Trustee and Paying Agent........................................ 76
SECTION 10.12. Authorization to Effect Subordination..................................... 77
SECTION 10.13. Amendments................................................................ 77
ARTICLE 11 GUARANTEE OF NOTES............................................................. 77
SECTION 11.01. Subsidiary Guarantees..................................................... 77
SECTION 11.02. Execution and Delivery of Subsidiary Guarantee............................ 78
SECTION 11.03. Guaranteeing Subsidiaries May Consolidate, etc., on Certain Terms......... 79
SECTION 11.04. Releases Following Sale of Assets......................................... 80
SECTION 11.05. Additional Guaranteeing Subsidiaries...................................... 81
SECTION 11.06. Limitation On Guaranteeing Subsidiary Liability........................... 81
SECTION 11.07. "Trustee" To Include Paying Agent......................................... 81
ARTICLE 12 SUBORDINATION OF SUBSIDIARY GUARANTEE.......................................... 82
SECTION 12.01. Agreement To Subordinate.................................................. 82
SECTION 12.02. Liquidation; Dissolution; Bankruptcy...................................... 82
SECTION 12.03. Default on Designated Guarantor Senior Debt............................... 82
SECTION 12.04. Acceleration of Notes..................................................... 83
SECTION 12.05. When Distribution Must Be Paid Over....................................... 83
SECTION 12.06. Notice By Guaranteeing Subsidiary......................................... 84
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 12.07. Subrogation............................................................... 84
SECTION 12.08. Relative Rights........................................................... 84
SECTION 12.09. Subordination May Not Be Impaired By Guaranteeing Subsidiary.............. 85
SECTION 12.10. Distribution or Notice to Representative.................................. 85
SECTION 12.11. Rights of Trustee and Paying Agent........................................ 85
SECTION 12.12. Authorization to Effect Subordination..................................... 86
SECTION 12.13. Amendments................................................................ 86
ARTICLE 13 MISCELLANEOUS.................................................................. 86
SECTION 13.01. Trust Indenture Act Controls.............................................. 86
SECTION 13.02. Notices................................................................... 86
SECTION 13.03. Communication By Holders of Notes with Other Holders of Notes............. 87
SECTION 13.04. Certificate and Opinion as to Conditions Precedent........................ 87
SECTION 13.05. Statements Required in Certificate or Opinion............................. 88
SECTION 13.06. Rules by Trustee and Agents............................................... 88
SECTION 13.07. No Personal Liability of Directors, Officers, Employees and
Stockholders............................................................ 88
SECTION 13.08. Governing Law............................................................. 89
SECTION 13.09. No Adverse Interpretation of Other Agreements............................. 89
SECTION 13.10. Successors................................................................ 89
SECTION 13.11. Severability.............................................................. 89
SECTION 13.12. Originals................................................................. 89
SECTION 13.13. Table of Contents, Headings, etc.......................................... 89
SIGNATURES................................................................................ 90
</TABLE>
iv
<PAGE>
INDENTURE dated as of April 16, 1998, between PEDIATRIC SERVICES OF
AMERICA, INC. ("the Company"), the Guaranteeing Subsidiaries (as hereinafter
defined) and SunTrust Bank, Atlanta, a Georgia banking corporation, as trustee
(the "Trustee").
The Company, the Guaranteeing Subsidiaries and the Trustee agree as
follows for the benefit of each other and for the equal and ratable benefit of
the holders (the "Holders") of the 10% Senior Subordinated Notes due 2008 (the
"Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person
and not satisfied at or prior to the closing of such transaction, and (ii)
Indebtedness secured by a Lien encumbering any assets acquired by such specified
Person.
"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 purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Agent" means the Registrar or any Paying Agent.
"Asset Sale" means (i) the sale, lease, conveyance, or other
disposition by the Company or any of its Restricted Subsidiaries of any assets
(including, without limitation, by way of a sale and leaseback transaction)
other than in the ordinary course of business and (ii) the issue or sale by the
Company or any of its Restricted Subsidiaries of Equity Interests of any of the
Company's Restricted Subsidiaries, in the case of clauses (i) and (ii), whether
in a single transaction or a series of related transactions (a) that have a fair
market value in excess of $2.0 million or (b) for net proceeds in excess of $2.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the
Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company
or to another Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii)
a Restricted Payment that is permitted by Section
<PAGE>
4.07 and (iv) the sale and leaseback of any assets within 90 days of the
acquisition of such assets will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock and (iii) in the case of a partnership,
partnership interests (whether general or limited).
"Cash Equivalents" means (i) U.S. dollars, (ii) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than one year from the
date of acquisition, (iii) certificates of deposit and eurodollar time deposits
with maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank deposits,
in each case with any commercial bank or trust company having capital and
surplus in excess of $500 million, (iv) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial institution meeting
the qualifications specified in clause (iii) above, (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies
("S&P") and in each case maturing within one year after the date of acquisition,
(vi) investment funds investing 95% of their assets in securities of the types
described in clauses (i)-(v) above, (vii) readily marketable direct obligations
issued by any state of the United States of America or any political subdivision
thereof having one of the two highest rating categories obtainable from either
Moody's or S&P and (viii) Indebtedness with a rating of "A" or higher from S&P
or "A2" or higher from Moody's.
2
<PAGE>
"Change of Control" means the occurrence of any of the following: (i)
any sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as defined in Section 13(d) of the Exchange Act) or
"group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act); (ii)
the adoption of a plan for the liquidation or dissolution of the Company; (iii)
the Company consolidates with, or merges with or into, another "person" (as
defined above) or "group" (as defined above), in a transaction or series of
related transactions in which the Voting Stock of the Company is converted into
or exchanged for cash, securities or other property, other than any transaction
where (A) the outstanding Voting Stock of the Company is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee corporation and (B) either (1) the "beneficial owners" (as defined in
Rule 13d-3 and 13d-5 under the Exchange Act) of the outstanding Voting Stock of
the Company immediately prior to such transaction own beneficially, directly or
indirectly through one or more Subsidiaries, not less than a majority of the
total outstanding Voting Stock of the surviving or transferee corporation
immediately after such transaction or (2) if, immediately prior to such
transaction the Company is a direct or indirect Subsidiary of any other Person
(each such other Person, the "Holding Company"), the "beneficial owners" (as
defined above) of the outstanding Voting Stock of such Holding Company
immediately prior to such transaction own beneficially, directly or indirectly
through one or more Subsidiaries, not less than a majority of the outstanding
Voting Stock of the surviving or transferee corporation immediately after such
transaction; (iv) the consummation of any transaction or series of related
transactions (including, without limitation, by way of merger or consolidation)
the result of which is that any "person" (as defined above) or "group" (as
defined above) becomes the "beneficial owner" (as defined above) of more than
50% of the voting power of the Voting Stock of the Company or (v) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company, was approved by a vote of a majority of the
directors of the Company 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 then in
office.
"Commission" means the Securities and Exchange Commission.
"Consolidated EBITDA" means, with respect to any Person for any
period, the Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period, plus, to the extent deducted in computing
Consolidated Net Income, (i) provision for taxes based on income or profits of
such Person and its Restricted Subsidiaries for such period, (ii) Consolidated
Interest Expense of such Person for such period, (iii) depreciation and
amortization (including amortization of goodwill and other intangibles) and all
other non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted
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Subsidiaries for such period and (iv) any extraordinary or non-recurring loss
and any net loss realized in connection with either any Asset Sale or the
extinguishment of Indebtedness, in each case, on a consolidated basis determined
in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other non-cash
charges of, a Restricted Subsidiary of a Person shall be added to Consolidated
Net Income to compute Consolidated EBITDA only to the extent (and in the same
proportion) that the Net Income of such Restricted Subsidiary was included in
calculating the Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the interest expense of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP
(including amortization of original issue discount and deferred financing costs
(except as set forth in the proviso to this definition), non-cash interest
payments, the interest component of all payments associated with Capital Lease
Obligations, net payments, if any, pursuant to Hedging Obligations and imputed
interest with respect to Attributable Debt; provided, however, that in no event
shall any amortization of deferred financing costs incurred on or prior to the
date of the Indenture in connection with the Credit Agreement or any
amortization of deferred financing cost incurred in connection with the issuance
of the Notes be included in Consolidated Interest Expense).
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid to the referent Person or a Restricted
Subsidiary thereof in cash, (ii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be included, (iii) the cumulative effect of a change in
accounting principles shall be excluded, (iv) the portion of net income of the
Company and its Consolidated Subsidiaries allocable to investments in
unconsolidated Persons to the extent that cash dividends or distributions have
not actually been received by the Company or one of its Consolidated
Subsidiaries shall be excluded and (v) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of Net Income
is not, at the date of determination, permitted without any prior governmental
approval (which has not been obtained) or, directly or indirectly, 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.
"Consolidated Net Worth" means, with respect to any Person at any
date, the consolidated stockholders' equity of such Person less the amount of
such stockholders'
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equity attributable to Redeemable Capital Stock of such Person and its
Subsidiaries, as determined in accordance with GAAP.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 13.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Agreement" means that certain revolving credit and security
agreement, providing for up to $100.0 million aggregate principal amount of
borrowings, dated as of August 15, 1997 and as amended through the date of the
Indenture, by and among the Company, certain Subsidiaries, the several lenders
party thereto and NationsBank, N.A., as Administrative Agent, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
supplemented, restructured, renewed, restated, refunded, replaced, extended or
refinanced from time to time (together with any such amendment, modification,
supplement, restructuring, renewal, restatement, refunding, replacement,
extension or refinancing (collectively, a "Refinancing") to or of any of the
foregoing (collectively, a "Modification") or any Modification, ad infinitum,
including, without limitation, any agreement modifying the maturity or
amortization schedule of or refinancing or refunding all or any portion of the
Indebtedness thereunder or increasing the amount that may be borrowed under such
agreement or any successor agreement. For purposes of this definition, "Credit
Agreement" includes that certain Revolving Credit Promissory Note between
Pediatric Services of America, Inc., a Georgia corporation and wholly owned
subsidiary of the Company and NationsBank, N.A. dated February 26, 1998. The
Company shall promptly notify the Trustee of any Refinancing of a Credit
Facility.
"Credit Facility" means the Credit Agreement and one or more borrowing
arrangements entered into by and between the Company and/or one or more of its
Subsidiaries and a commercial bank or other institutional lender, including any
related notes, security documentation, guarantees, collateral documents,
instruments and agreements executed in connection therewith, in each case as
amended, modified, supplemented, restructured, renewed, restated, refunded,
replaced, extended or refinanced from time to time on one or more occasions.
The Company shall promptly notify the Trustee of any Refinancing of a Credit
Facility.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Definitive Notes" means any Notes other than a Global Note.
"Depositary" means, with respect to Notes issuable or issued in whole
or in part in global form hereunder, unless otherwise specified by the Company
pursuant to Section 2.12, The Depository Trust Company, New York, New York, or
any successor thereto
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registered as a clearing agency under the Exchange Act or other applicable
statute or regulations.
"Designated Guarantor Senior Debt" means, with respect to any
Guaranteeing Subsidiary, (i) so long as any Indebtedness of such Guaranteeing
Subsidiary is outstanding under the Credit Agreement, such Indebtedness, and
(ii) any other Senior Debt of a Guaranteeing Subsidiary permitted under the
Indenture the principal amount of which is $10.0 million or more and that has
been designated in writing by the Guaranteeing Subsidiary to the Trustee as
"Designated Guarantor Senior Debt."
"Designated Senior Debt" means (i) so long as any Indebtedness is
outstanding under the Credit Agreement, such Indebtedness, and (ii) after
repayment in full of any Outstanding Indebtedness under the Credit Agreement,
any other Senior Debt permitted under the Indenture the principal amount of
which is $10.0 million or more and that has been designated in writing by the
Company as "Designated Senior Debt."
"Disqualified Stock" means that portion of 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 (other than an
event which would constitute a Change of Control), matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control) on or prior to the final maturity
date of the Notes.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Excess Amount" means, with respect to any Credit Facility, the amount
by which aggregate payments of principal made thereunder exceed the aggregate
payments of principal required to be made through the date of determination, in
respect of any term Indebtedness, under the amortization schedule of such Credit
Facility.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means Notes having terms substantially identical in
all respects to the Rule 144A Notes for which they are to be exchanged in the
Exchange Offer, except that (i) the Exchange Notes will have been registered
under the Securities Act and, therefore, will not bear legends restricting the
transfer thereof, and (ii) Holders of Exchange Notes will not be entitled to
certain rights of holders of Rule 144A Notes under the Registration Rights
Agreement.
"Exchange Offer" means the offer the Company is to make pursuant to
the Registration Rights Agreement to exchange Rule 144A Notes for Exchange
Notes.
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"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than the Indebtedness under the Credit Agreement)
in existence on the date hereof until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Restricted
Subsidiaries for such period to the Fixed Charges of such Person and its
Restricted Subsidiaries for such period. In the event that the Company or any
of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but on or prior to the date on which
the event for which the calculation of the Fixed Charge Coverage Ratio is made
(the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. For purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period, and "Fixed Charge Coverage Ratio" and shall give pro forma effect to the
Indebtedness and the Consolidated EBITDA of the Person which is the subject of
any such acquisition, including any pro forma adjustments to the Consolidated
EBITDA of such Person which would be required or permitted as a result of such
acquisition by Article 11 of Regulation S-X promulgated by the Commission under
the Securities Act if such financials were included in a registration statement
filed under the Securities Act and (ii) the Consolidated EBITDA attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded.
"Fixed Charges" means, with respect to any Person for any period, the
sum of (i) the Consolidated Interest Expense of such Person for such period and
(ii) any interest expense on Indebtedness of another Person that is (a)
Guaranteed by the referent Person or one of its Restricted Subsidiaries (whether
or not such Guarantee is called upon) or (b) secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such Lien is called
upon); provided that with respect to clause (ii)(b), the amount of Indebtedness
(and attributable interest expense) shall be equal to the lesser of (I) the
principal amount of the Indebtedness secured by the assets of such Person or one
of its Restricted Subsidiaries and (II) the fair market value (as determined by
the Board of Directors of such Person and set forth in an Officers' Certificate
delivered to the Trustee) of the assets securing such Indebtedness and (iii) the
product of (A) all cash dividend payments (and non-cash dividend payments in the
case of a Person that is a Subsidiary) on any series of preferred stock of such
Person, times (B) a fraction, the numerator of which
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is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, the Commission or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect from time to
time; provided, however, that all reports and other financial information
provided by the Company to the Holders, the Trustee and/or the Commission shall
be prepared in accordance with GAAP, as in effect on the date of such report or
other financial information.
"Global Note" means a Note which is executed by the Company and
authenticated and delivered by the Trustee to the Depositary or pursuant to the
Depositary's instruction, all in accordance with this Indenture and pursuant to
a written order of the Company, which shall be registered in the name of the
Depositary or its nominee and which shall represent, and shall be denominated in
an amount equal to the aggregate principal amount of, all of the Notes or any
portion thereof, but not including any Notes that are no longer outstanding, and
having the same terms, including, without limitation, the same original issue
date, date or dates on which principal is due, and rate of interest.
"Government Securities" means direct obligations of, or obligations
guaranteed by the United States of America for the payment of which guarantee or
obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect hereof), of all or any part of any
Indebtedness.
"Guarantee Obligations" means any principal, interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
date provided in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law), penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable with
respect to the Subsidiary Guarantees.
"Guaranteeing Subsidiary" means each of (i) the Restricted
Subsidiaries of the Company in existence on the date of the Indenture and (ii)
any future Restricted Subsidiary and their respective successors and assigns.
"Health Care Related Business" means a business whose revenues result
from the provision of health care related services, which term for purposes
hereof shall include health care information services and children's services.
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"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, (ii) other agreements
or arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates and (iii) indemnity agreements and arrangements
entered into in connection with the agreements and arrangements described in
clauses (i) and (ii).
"Holder" means a Person in whose name a Note is registered.
"Incur" or "incur" means, with respect to any Indebtedness (including
Acquired Debt), to create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable for or with respect to, or become responsible for,
the payment of such Indebtedness (including Acquired Debt); provided that (i)
neither the accrual of interest nor the accretion of original issue discount
shall be considered an incurrence of Indebtedness and (ii) the assumption of
Indebtedness by the surviving entity of a transaction permitted by Section
11.03(a) hereof or the last sentence of Section 5.01 hereof in existence at the
time of such transaction shall not be deemed an incurrence of Indebtedness. The
term "incurrence" has corresponding meaning.
"Indebtedness" means, with respect to any Person without duplication,
any indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
representing Capital Lease Obligations or the deferred and unpaid balance of the
purchase price of any property, except any such balance that constitutes an
accrued expense or trade payable, or representing any Hedging Obligations if and
to the extent any of the foregoing indebtedness (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person), the maximum fixed repurchase price of
Disqualified Stock issued by such Person and the liquidation preference of
preferred stock issued by such Person, in each case if held by any Person other
than the Company or a Wholly Owned Restricted Subsidiary of the Company, and, to
the extent not otherwise included, the Guarantee by such Person of any such
indebtedness of any other Person.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Indirect Participant" means a Person who holds an interest through
a Participant.
"Interest Payment Date" shall have the meaning assigned to such term
in the Notes.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of loans
(including Guarantees), advances
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or capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, and all other items that are or would be classified as investments
on a balance sheet prepared in accordance with GAAP; provided that an
acquisition of assets, Equity Interests or other securities by the Company for
consideration consisting of common equity securities of the Company shall not be
deemed to be an Investment. If the Company or any Restricted Subsidiary of the
Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of the Company, or any Restricted Subsidiary of
the Company issues Equity Interests, such that, after giving effect to any such
sale or disposition, such Person is no longer a Restricted Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale, disposition or issuance equal to the fair market value of the
Equity Interests of such Person held by the Company or such Restricted
Subsidiary immediately following any such sale, disposition or issuance.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at the principal corporate trust office
of the Trustee or at a place of payment are authorized by law, regulation or
executive order to remain closed. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and
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sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof, amounts required to be applied to the
repayment of Indebtedness (other than long-term Indebtedness of a Restricted
Subsidiary of such Person and Indebtedness under the Credit Facility) secured by
a Lien on the asset or assets that are the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Note Custodian" means the Trustee, as custodian for the Depositary
with respect to the Notes in global form, or any successor entity thereto.
"Notes" means the Rule 144A Notes and Exchange Notes issued under
this Indenture.
"Obligations" means any principal, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided in the documentation with respect thereto, whether or not such interest
is an allowed claim under applicable law), penalties, fees, indemnifications,
reimbursements, damages, guarantees and other liabilities payable under the
documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, the General Counsel or any Vice-President of such
Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, delivered to the Trustee that meets
the requirements of Section 13.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
13.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
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"Pari Passu Indebtedness" means Indebtedness of the Company which
ranks pari passu in right of payment with the Notes.
"Permitted ChoicePoint Payment" means a cash payment required to be
made to ChoicePoint pursuant to Section 2.01(c) of the Asset Purchase Agreement,
effective as of December 2, 1997, by and among ChoicePoint, ChoicePoint, Inc.,
Insurance Medical Reporter, Inc. and the Company (without giving effect to any
amendment thereto that may be entered into by the parties thereto); provided
that at the time any such payment is made (i) no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence thereof
and (ii) the Company would be able to incur at least $1.00 of additional
Indebtedness under the Fixed Charge Coverage Ratio in Section 4.09 hereof.
"Permitted Investments" means (i) Investments in the Company or in a
Restricted Subsidiary of the Company (including, without limitation, Guarantees
of the Indebtedness and/or other Obligations of the Company and/or any Wholly
Owned Restricted Subsidiary of the Company, so long as such Indebtedness and/or
other Obligations are permitted under the Indenture), (ii) Investments in Cash
Equivalents, (iii) Investments by the Company or any Wholly Owned Restricted
Subsidiary of the Company in, or the purchase of the securities of, a Person if,
as a result of such Investment, (a) such person becomes a Restricted Subsidiary
of the Company or (b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company, (iv)
Investments in accounts and notes receivable acquired in the ordinary course of
business, (v) any non-cash consideration received in connection with an Asset
Sale that complies with Section 4.10 hereof, (vi) Investments in connection with
Hedging Obligations permitted to be incurred under Section 4.09 hereof and (vii)
Investments, not to exceed $10.0 million at any given time outstanding, in
corporations, limited liability companies, partnerships (including limited
liability partnerships), joint ventures or similar investment entities, provided
any such entity is engaged in a Health Care Related Business.
"Permitted Junior Securities" means debt securities of the Company
that are unsecured and subordinated at least to the same extent as the Notes to
Senior Debt of the Company and guarantees of any such debt by any Guaranteeing
Subsidiary that are unsecured and subordinated at least to the same extent as
the Subsidiary Guarantee of such Guaranteeing Subsidiary to the Senior Debt of
such Guaranteeing Subsidiary, as the case may be, and has a final maturity date
at least as late as the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Notes.
"Permitted Liens" means (i) Liens on property of the Company and any
Guaranteeing Subsidiary securing (a) Senior Debt and/or (b) Hedging Obligations
(with respect to Senior Debt or otherwise) permitted to be incurred under the
Indenture; (ii) Liens in favor of the Company or any of its Restricted
Subsidiaries; (iii) Liens on property of a Person existing at the time such
Person is merged with or into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided, that such Liens
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were not incurred in connection with, or in contemplation of, such merger or
consolidation and do not extend to any assets of the Company or any Restricted
Subsidiary of the Company other than the assets acquired in such merger or
consolidation; (iv) Liens on property of a Person existing at the time such
Person becomes a Restricted Subsidiary of the Company; provided that such Liens
were not incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary and do not extend to any assets of the Company
or any other Restricted Subsidiary of the Company; (v) Liens on property
existing at the time of acquisition thereof by the Company or any Restricted
Subsidiary of the Company; provided that such Liens were not incurred in
connection with, or in contemplation of, such acquisition and do not extend to
any assets of the Company or any of its Restricted Subsidiaries other than the
property so acquired; (vi) Liens to secure the performance of statutory
obligations, surety or appeal bonds or performance bonds, or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's, or other like
Liens, in any case incurred in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provision, if any, as is
required by GAAP shall have been made therefor; (vii) Liens existing on the date
of the Indenture; (viii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (ix) Liens to secure
Indebtedness of any Restricted Subsidiary permitted to be incurred by such
Restricted Subsidiary pursuant to Section 4.09 hereof; (x) Liens securing
Indebtedness incurred to refinance Indebtedness that has been secured by a Lien
permitted under the Indenture; provided that (a) any such Lien shall not extend
to or cover any assets or property not securing the Indebtedness so refinanced
and (b) the refinancing Indebtedness secured by such Lien shall have been
permitted to be incurred under Section 4.09 hereto; (xi) Liens in favor of the
lessee on instruments which are the subject of leases entered into in the
ordinary course of business; provided that any such Lien shall not extend to or
cover any assets or property of the Company and its Restricted Subsidiaries that
is not the subject of any such lease; (xii) Liens to secure Attributable Debt
and or that is permitted to be incurred pursuant to Section 4.13 hereof;
provided that any such Lien shall not extend to or cover any assets of the
Company or any Guaranteeing Subsidiary other than the assets which are the
subject of the sale leaseback transaction in which the Attributable Debt is
incurred; and (xiii) Liens in connection with attachments or judgments
(including judgment or appeal bonds), provided that the judgment secured shall,
within 45 days after the entry thereof, have been discharged or execution
thereof stayed pending appeal (and the stay thereof not at any time lifted).
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount of such Permitted Refinancing
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the
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<PAGE>
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date at least as late as
the final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iv) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased, or refunded ranks pari passu in right of payment
with the Notes, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and ranks pari passu with, or is
subordinated in right of payment to, the Notes on terms at least as favorable to
the Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (v) such Indebtedness is incurred by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Redeemable Capital Stock" means any shares of any class or series of
Capital Stock, that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be required to be
redeemed prior to the Stated Maturity with respect to the principal of any Note
or is redeemable at the option of the holder thereof at any time prior to any
such Stated Maturity, or is convertible into or exchangeable for debt securities
at any time prior to any such Stated Maturity.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of , 1998 by and between the Company, and the
Initial Purchasers, as such agreement may be amended, modified or supplemented
from time to time.
"Representative" means the Administrative Agent under the Credit
Agreement until the Indebtedness owing under the Credit Agreement is paid in
full and the commitments thereunder have been terminated, and thereafter the
indenture trustee or other trustee, agent or representative for any other Senior
Debt or Guarantor Senior Debt.
"Responsible Officer," when used with respect to the Trustee, means
any officer within the corporate trust administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to
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<PAGE>
those performed by any of the above designated officers who in any case is
located at the Corporate Trust Office of the Trustee and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary.
"Rule 144A Notes" means the Company's 10% Senior Subordinated Notes
due 2008, as initially issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means (a) with respect to the Company, (i) all
Obligations under or in respect of the Credit Facility permitted to be incurred
at the time incurred pursuant to Section 4.09 of the Indenture and (ii) any
other Indebtedness permitted to be incurred by the Company under the terms of
the Indenture and any Hedging Obligation permitted to be incurred under the
terms of the Indenture, unless the instrument under which the foregoing is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the Notes and (b) with respect to any Guaranteeing Subsidiary, (i)
all Obligations permitted under or in respect of the Credit Facility permitted
to be incurred at the time incurred pursuant to Section 4.09 of the Indenture
and (ii) any other Indebtedness permitted to be incurred by such Guaranteeing
Subsidiary under the terms of the Indenture and any Hedging Obligation permitted
to be incurred under the terms of the Indenture, unless the instrument under
which the foregoing is incurred expressly provided that such Indebtedness is on
parity with or subordinated in right of payment to the Subsidiary Guarantee of
such Guaranteeing Subsidiary. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (w) any liability for federal, state,
local or other taxes; (x) any Indebtedness of the Company or any Guaranteeing
Subsidiary to the Company or any Subsidiary of the Company or any of their
respective Affiliates, (y) any trade payables or (z) any Indebtedness of the
type described in clauses (a) (ii) and (b) (ii) of the preceding sentence that
is incurred in violation of the Indenture provided, that this clause (z) shall
not be read to negate the requirement in clauses (a) (i) and (b) (i) of the
preceding sentence that Obligations under or in respect of the Credit Facility
be permitted at the time incurred under Section 4.09 of the Indenture to qualify
as Senior Debt.
"Shelf Registration Statement" means the Registration Statement with
respect to the Notes which the Company is required to file pursuant to the
Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
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<PAGE>
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or one
or more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means any guarantee of the Notes by a
Guaranteeing Subsidiary.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.
"Transfer Restricted Securities" means Notes or beneficial interests
therein that bear or are required to bear the legend set forth in Section 2.05
hereof.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to
a Board Resolution, but only to the extent that such Subsidiary: (i) has no
Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (iii) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (a) to subscribe for additional Equity Interests or (b) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (iv) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing
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<PAGE>
conditions and was permitted by Section 4.07 hereof. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under Section 4.09 hereof, the Company shall be in default of such covenant
from the date of such incurrence). The Board of Directors of the Company may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 4.09 hereof and
(ii) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the then
outstanding principal amount of such Indebtedness into (ii) the total of the
product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
"Affiliate Transaction" 4.11
"Asset Sale Offer" 3.09
"Change of Control Offer" 4.14
"Change of Control Payment" 4.14
"Change of Control Payment Date" 4.14
"Covenant Defeasance" 8.03
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
"Event of Default" 6.01
"Excess Proceeds" 4.10
"Legal Defeasance" 8.02
"Offer Amount" 3.09
"Offer Period" 3.09
"Paying Agent" 2.03
"Purchase Date" 3.09
"Registrar" 2.03
"Restricted Payments" 4.07
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
All terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by Commission rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires,
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural
include the singular;
(e) provisions apply to successive events and transactions;
(f) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections
or rules adopted by the Commission from time to time; and
(g) for purposes of making any determination of any amount under any
single definition set forth in Section 1.01 hereof, such
determination shall be made without double counting of any item;
provided that with respect to the definition of "Fixed Charge
Coverage Ratio" it shall not be deemed to be double counting if an
item is included in the calculation of each of "Consolidated
EBITDA" and "Fixed Charges."
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<PAGE>
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING.
The Rule 144A Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A. Subject to Section 2.06, the
---------
Rule 144A Notes shall be in an aggregate principal amount no greater than
$100,000,000, including any additional Notes issued pursuant to this Indenture
in aggregate principal amount no greater than $25,000,000, having identical
terms and conditions to the Notes offered hereby; provided, that if Exchange
Notes are issued hereunder pursuant to the Exchange Offer, the aggregate maximum
principal amount of Rule 144A Notes shall be reduced by the principal amount of
Exchange Notes so issued. The Exchange Notes, when and if issued, and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit B. Subject to Section 2.06, the Exchange Notes shall be in an aggregate
- ---------
principal amount no greater than $100,000,000 less the principal amount of Rule
144A Notes not exchanged for the Exchange Notes in the Exchange Offer. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be in denominations of $1,000 and integral
multiples thereof.
The Notes may be initially issued either in the form of a Global Note
or Notes or in the form of Definitive Notes or both. A Global Note shall
represent such of the outstanding Notes as shall be specified therein and shall
provide that it shall represent the aggregate amount of outstanding Notes from
time to time endorsed thereon and that the aggregate amount of outstanding Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the amount of
outstanding Notes represented thereby shall be made by the Trustee or an Agent
thereof, at the direction of the Trustee, in accordance with written
instructions given by the Holder thereof. Definitive Notes shall be printed,
lithographed or engraved or produced by any combination of these methods on
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Notes may be listed, all as
determined by the officers executing such Notes, as evidenced by their execution
of such Notes.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and to the extent
applicable, the Company, the Guaranteeing Subsidiaries and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature.
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If an Officer whose signature is on a Note no longer holds that office
at the time the Note is authenticated, the Note nevertheless shall be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall authenticate Notes for original issue up to the
aggregate principal amount stated in paragraph 4 of the Notes, upon a written
order of the Company signed by two Officers. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount except as provided in
Section 2.06.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. 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 agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain or cause to be maintained through the
Trustee or such other Person as may be appointed hereunder an office or agency
where Notes may be presented for registration of transfer or for exchange
("Registrar") and an office or agency where Notes may be presented for payment
("Paying Agent"). The Registrar shall keep a register of the Notes and of their
transfer and exchange. The Company may appoint one or more co-registrars and
one or more additional paying agents. The term "Registrar" includes any co-
registrar and the term "Paying Agent" includes any additional paying agent. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company shall notify the Trustee in writing of the name and address of any
Agent not a party to this Indenture, such notification to be delivered, together
with a certificate of such Agent that it agrees to perform its duties in
accordance with the procedures established by the Trustee and with the terms of
this Indenture, to the Trustee prior to the date such Agent assumes its duties
hereunder. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of the
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of or premium, if any, or interest on the Notes, and will notify the
Trustee of any default by the Company in making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay all money
held by it to the Trustee. The Company at any time may require a Paying Agent
to pay all money held by it to the Trustee. Upon payment over to the Trustee,
the Paying Agent (if other than the Company or a
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<PAGE>
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent.
SECTION 2.05. REGISTRATION OF TRANSFER AND EXCHANGE.
(a) With respect to the transfer and exchange of Definitive Notes:
when Definitive Notes are presented to the Trustee with the request (x) to
register the transfer of the Definitive Notes or (y) to exchange such Definitive
Notes for an equal principal amount of Definitive Notes of other authorized
denominations, the Trustee shall register the transfer or make the exchange as
requested if its requirements for such transactions are met; provided, however,
that the Definitive Notes presented or surrendered for register of transfer or
exchange:
(A) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Trustee duly executed
by the Holder thereof or by its attorney, duly authorized in writing; and
(B) shall, in the case of Transfer Restricted Securities that are
Definitive Notes, except if exchanged for an Exchange Note in the Exchange
Offer, be accompanied by the following additional information and
documents, as applicable
(1) if such Transfer Restricted Security is being delivered
to the Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to
that effect (in substantially the form of Exhibit C hereto); or
---------
(2) if such Transfer Restricted Security is being
transferred to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in reliance on Rule 144A
under the Securities Act or pursuant to an effective registration
statement under the Securities Act, a certification to that
effect (in substantially the form of Exhibit C hereto); or
---------
(3) if such Transfer Restricted Security is being
transferred pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act or in reliance
on another exemption from the registration requirements of the
Securities Act, a certification to that effect (in substantially
the form of Exhibit C hereto) and an opinion of counsel
---------
reasonably acceptable to the Company and to the Registrar to the
effect that such transfer is in compliance with the Securities
Act.
(b) The following restrictions apply to any transfer of a Definitive
Note for a beneficial interest in a Global Note. A Definitive Note may not be
exchanged for a
21
<PAGE>
beneficial interest in a Global Note except until and upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive Note,
duly endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Trustee, together with:
(A) if such Definitive Note is a Transfer Restricted Security and
such transfer is not being made in connection with the Exchange Offer,
certification, substantially in the form of Exhibit C hereto, that such
---------
Definitive Note is being transferred to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act) in accordance with Rule
144A under the Securities Act; and
(B) whether or not such Definitive Note is a Transfer Restricted
Security, written instructions directing the Trustee to make an endorsement
on the Global Note to reflect an increase in the aggregate principal amount
of the Notes represented by the Global Note,
then the Trustee shall cancel such Definitive Note and cause, in accordance with
the standing instructions and procedures existing between it and the Depositary,
the aggregate principal amount of Notes represented by the Global Note to be
increased accordingly. If no Global Notes are then outstanding, the Company
shall issue and, upon receipt of a written authentication order in the form of
an Officers' Certificate, the Trustee shall authenticate a new Global Note in
the appropriate principal amount.
(c) The transfer and exchange of Global Notes or beneficial interests
therein shall be effected through the Depositary, in accordance with this
Indenture (including the restrictions on transfer set forth herein) and the
procedures of the Depositary therefor.
(d) With respect to the transfer of a beneficial interest in a Global
Note for a Definitive Note:
(A) Any person having a beneficial interest in a Global Note may
upon request exchange such beneficial interest for a Definitive Note. Upon
receipt by the Trustee of written instructions or such other form of
instructions as is customary for the Depositary or its nominee on behalf of
any person having a beneficial interest in a Global Note constituting a
Transfer Restricted Security only, except if exchanged for an Exchange Note
in the Exchange Offer, the following additional information and documents
(all of which may be submitted by facsimile):
(1) if such beneficial interest is being transferred to the
person designated by the Depositary as being the beneficial
owner, a certification from such person to that effect (in
substantially the form of Exhibit C hereto); or
---------
22
<PAGE>
(2) if such beneficial interest is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act or pursuant to an effective registration statement
under the Securities Act, a certification to that effect from the
transferor (in substantially the form of Exhibit C hereto); or
---------
(3) if such beneficial interest is being transferred
pursuant to an exemption from registration in accordance with
Rule 144 under the Securities Act or in reliance on another
exemption from the registration requirements of the Securities
Act, a certification to that effect from the transferee or
transferor (in substantially the form of Exhibit C hereto) and an
---------
opinion of counsel from the transferee or transferor reasonably
acceptable to the Company and to the Registrar to the effect that
such transfer is in compliance with the Securities Act,
then the Trustee will cause, in accordance with the standing instructions and
procedures existing between it and the Depositary, the aggregate principal
amount of the Global Note to be reduced and, following such reduction, the
Company will execute and, upon receipt of a written authentication order in the
form of an Officers' Certificate, the Trustee will authenticate and deliver to
the transferee a Definitive Note.
(B) Definitive Notes issued in exchange for a beneficial interest
in a Global Note pursuant to this Section 2.05 shall be registered in such
names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
in writing instruct the Trustee. The Trustee shall deliver such Definitive
Notes to the persons in whose name such Notes are so registered.
(e) Notwithstanding any other provisions of this Indenture (other than
the provisions set forth in subsection (f) of this Section 2.05), a Global Note
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.
(f) The following relates to the authentication of Definitive Notes in
the absence of the Depositary. If at any time: (i) the Depositary for the
Notes notifies the Company that the Depositary is unwilling or unable to
continue as Depositary for the Global Notes and a successor Depositary for the
Global Notes is not appointed by the Company within 90 days after delivery of
such notice; or (ii) the Company, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Notes under this
Indenture, then the Company will execute, and the Trustee, upon receipt of a
written order in the form of an Officers' Certificate requesting the
authentication and delivery of Definitive Notes, will authenticate and deliver
Definitive Notes, in an aggregate
23
<PAGE>
principal amount equal to the principal amount of the Global Notes, in exchange
for such Global Notes.
(g) (1) Except as otherwise agreed to by the Company, the Trustee and
the Holder thereof or as permitted by the following paragraph (B), each Rule
144A Note certificate evidencing the Global Notes and the Definitive Notes (and
all Notes other than Exchange Notes issued in exchange therefor or substitution
thereof) shall bear a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR
NOT SUBJECT TO, REGISTRATION UNDER SUCH LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY UNLESS SUCH
OFFER, SALE OR OTHER TRANSFER IS (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON THE HOLDER REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (a)(2), (a)(3) OR
(a)(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS PURCHASING FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR,"
FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR
(E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, AND IN EACH OF THE FOREGOING CASES SUCH
OFFER, SALE OR OTHER TRANSFER IS IN COMPLIANCE WITH ANY APPLICABLE STATE
SECURITIES LAWS, SUBJECT TO THE COMPANY'S
24
<PAGE>
AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT
TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN
EACH OF THE FOREGOING CASES PROVIDED THAT A CERTIFICATE OF TRANSFER IN THE
FORM PROVIDED FOR IN THE INDENTURE IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF
THE THEN HOLDER OF THIS SECURITY AFTER THE RESALE RESTRICTION TERMINATION
DATE. ANY TRANSFEREE OF THIS SECURITY SHALL BE DEEMED TO HAVE REPRESENTED
EITHER (X) THAT IT IS NOT USING THE ASSETS OF AN EMPLOYEE BENEFIT PLAN
SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT ("ERISA") OR THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, TO PURCHASE THIS SECURITY OR (Y)
THAT ITS PURCHASE AND CONTINUED HOLDING OF THE SECURITY WILL BE COVERED BY
A U.S. DEPARTMENT OF LABOR CLASS EXEMPTION (WITH RESPECT TO PROHIBITED
TRANSACTIONS UNDER SECTION 406(a) OF ERISA).
(B) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global Note)
pursuant to Rule 144 under the Securities Act or an effective registration
statement under the Securities Act (including the Shelf Registration
Statement):
(1) in the case of any Transfer Restricted Security that is
a Definitive Note, the Registrar shall permit the Holder thereof
to exchange such Transfer Restricted Security for a Definitive
Note that does not bear the legend set forth above and rescind
any restriction on the transfer of such Transfer Restricted
Security; and
(2) any such Transfer Restricted Security represented by a
Global Note shall not be subject to the provisions set forth in
(i) above (such sales or transfers being subject only to the
provisions of Section 2.05(c) hereof); provided, however, that
with respect to any request for an exchange of a Transfer
Restricted Security that is represented by a Global Note for a
Definitive Note that does not bear a legend, which request is
made in reliance upon Rule 144 or an effective registration
statement, the Holder thereof shall certify in writing to the
Registrar that such request is being made pursuant to Rule 144 or
an effective registration statement (such certification to be
substantially in the form of Exhibit C hereto) and, in the case
---------
of a transfer pursuant to Rule 144, accompanied by an opinion of
counsel reasonably acceptable to the Company and to the Registrar
to the effect that such transfer is in compliance with the
Securities Act.
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<PAGE>
(h) At such time as all beneficial interests in a Global Note have
either been exchanged for Definitive Notes, redeemed, repurchased or cancelled,
such Global Note shall be returned to or retained and cancelled by the Trustee.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for Definitive Notes, redeemed, repurchased or cancelled, the
principal amount of Notes represented by such Global Note shall be reduced and
an endorsement shall be made on such Global Note, by the Trustee or the Note
Custodian, at the direction of the Trustee, to reflect such reduction.
(i) All Definitive Notes and Global Notes issued upon any registration
of transfer or exchange of Definitive Notes or Global Notes shall be the valid
obligations of the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Definitive Notes or Global Notes
surrendered upon such registration of transfer or exchange.
The Registrar shall not be required (A) to issue, to register the
transfer of or to exchange Notes during a period beginning at the opening of
business 15 days before the day of any selection of Notes for redemption under
Section 3.02 hereof and ending at the close of business on the day of selection,
(B) to register the transfer of or to exchange any Note so selected for
redemption in whole or in part, except the unredeemed portion of any Note being
redeemed in part or (C) to register the transfer of or to exchange a Note
between a record date and the next succeeding Interest Payment Date.
No service charge shall be made to a Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable and any other expenses (including the fees
and expenses of the Trustee) in connection therewith (other than such transfer
tax or similar governmental charge payable upon exchanges pursuant to Section
2.06 or 9.05).
SECTION 2.06. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by two Officers, shall authenticate a replacement
Note if the Trustee's requirements are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
the 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 for their
expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company.
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<PAGE>
SECTION 2.07. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation and those described in this Section 2.07 as not outstanding.
If a Note is replaced pursuant to Section 2.06, it ceases to be
outstanding.
If the principal amount of any Note is considered paid under Section
4.01, it ceases to be outstanding and interest on it ceases to accrue as of the
date it is deemed paid. Upon a "legal defeasance" pursuant to Section 8.02 or a
"covenant defeasance" pursuant to Section 8.03, the Notes shall be deemed to be
outstanding or not outstanding as provided in the applicable Section 8.02 or
8.03.
Except as set forth in Section 2.08, a Note does not cease to be
outstanding because the Company or an Affiliate holds the Note.
SECTION 2.08. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or any Guaranteeing Subsidiary or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Notes which a Responsible Officer of the
Trustee actually knows are so owned shall be so disregarded.
SECTION 2.09. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes. Without unreasonable delay,
the Company shall prepare and the Trustee shall authenticate definitive Notes in
exchange for temporary Notes.
SECTION 2.10. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation, and, upon request of the
Company, certification of their destruction shall be delivered to the Company
unless, by a written order signed by two Officers, the Company shall direct that
canceled Notes be returned to it. The Company may not issue new Notes to
replace Notes that it has paid or that have been delivered to the Trustee for
cancellation.
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SECTION 2.11. DEFAULTED INTEREST.
If the Company or any Guaranteeing Subsidiary defaults in a payment of
interest on the Notes, it shall pay the defaulted interest in any lawful manner
plus, to the extent lawful, interest payable on the defaulted interest, to the
Persons who are Holders on a subsequent special record date, in each case at the
rate provided in the Notes. The Company, with the consent of the Trustee, shall
fix each such special record date and payment date. At least 15 days before the
special record date, the Company (or, upon written request of the Company, the
Trustee, in the name of and at the expense of the Company) shall mail to Holders
a notice that states the special record date, the related payment date and the
amount of such interest to be paid.
SECTION 2.12. NOTES ISSUABLE IN THE FORM OF A GLOBAL NOTE.
(a) If the Company shall establish that the Notes are to be issued in
whole or in part in the form of one or more Global Notes, then the Company shall
execute and the Trustee or an agent thereof shall, in accordance with Section
2.02 and the written order of the Company delivered to the Trustee or its agent
thereunder, authenticate and deliver such Global Note or Notes, which (i) shall
represent, and shall be denominated in an amount equal to the aggregate
principal amount of the outstanding Notes to be represented by such Global Note
or Notes, or such portion thereof as the Company shall specify in a written
order of the Company signed by two Officers, (ii) shall be registered in the
name of the Depositary for such Global Note or Notes or its nominee, (iii) shall
be delivered by the Trustee or its agent to the Depositary or pursuant to the
Depositary's instruction and (iv) shall bear a legend substantially to the
following effect: "Unless and until it is exchanged in whole or in part for
securities in definitive form, this security may not be transferred except as a
whole by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary. Unless this certificate is presented by an authorized
representative of the Depositary to the Company or its agent for registration of
transfer, exchange, or payment, and any certificate issued is registered in the
name of the nominee of the Depositary or in such other name as is requested by
an authorized representative of the Depositary (and any payment is made to the
nominee of the Depositary or to such other entity as is requested by an
authorized representative of the Depositary), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, the nominee of the Depositary, has an interest herein."
(b) Notwithstanding any other provision of this Section 2.12 or of
Section 2.05, and subject to the provisions of paragraph (c) below, a Global
Note may be transferred, in whole but not in part and in the manner provided in
Section 2.05, only to a nominee of the Depositary for such Global Note, or to
the Depositary, or a successor Depositary for such Global Note selected or
approved by the Company, or to a nominee of such successor Depositary.
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<PAGE>
(c) (i) If at any time the Depositary for a Global Note notifies the
Company that it is unwilling or unable to continue as Depositary for such Global
Note or if at any time the Depositary for the Notes shall no longer be eligible
or in good standing under the Exchange Act or any other applicable statute or
regulation, the Company shall appoint a successor Depositary with respect to
such Global Note. If a successor Depositary for such Global Note is not
appointed by the Company within 90 days after the Company receives such notice
or becomes aware of such ineligibility, the Company and the Guaranteeing
Subsidiaries will execute, and the Trustee or an agent thereof, upon receipt of
a written order of the Company signed by two Officers for the authentication and
delivery of individual Definitive Notes in exchange for such Global Note, will
authenticate and deliver, individual Definitive Notes of like tenor and terms in
an aggregate principal amount equal to the principal amount of the Global Note
in exchange for such Global Note.
(ii) The Company may at any time and in its sole discretion determine
that the Notes issued in the form of one or more Global Notes shall no longer be
represented by such Global Note or Notes. In such event the Company will
execute, and the Trustee, upon receipt of a written order of the Company signed
by two Officers for the authentication and delivery of individual Definitive
Notes in exchange in whole or in part for such Global Note, will authenticate
and deliver individual Definitive Notes of like tenor and terms in an aggregate
principal amount equal to the principal amount of such Global Note or Notes in
exchange for such Global Note or Notes.
(iii) If specified by the Company pursuant to a written order of the
Company signed by two Officers, the Depositary for a Global Note may surrender
such Global Note in exchange in whole or in part for individual Definitive Notes
of like tenor and terms on such terms as are acceptable to the Company and such
Depositary. Thereupon the Company shall execute, and the Trustee or an agent
thereof, upon a written order of the Company signed by two Officers, shall
authenticate and deliver, without service charge, (1) to each Person specified
by such Depositary a new Definitive Note or Notes of like tenor and terms and of
any authorized denomination as requested by such Person in an aggregate
principal amount equal to and in exchange for such Person's beneficial interest
as specified by such Depositary in the Global Note; and (2) to such Depositary a
new Global Note of like tenor and terms and in an authorized denomination equal
to the difference, if any, between the principal amount of the surrendered
Global Note and the aggregate principal amount of Definitive Notes delivered to
Holders thereof.
(iv) In any exchange provided for in (i), (ii) or (iii) of this
paragraph (c), the Company will execute and the Trustee or an agent thereof will
authenticate and deliver individual Definitive Notes in registered form in
authorized denominations. Upon the exchange of the entire principal amount of a
Global Note for individual Definitive Notes, such Global Notes shall be
cancelled by the Trustee or an agent thereof. Except as provided in (iii)
above, Definitive Notes issued in exchange for a Global Note pursuant to this
Section shall be registered in such names and in such authorized denominations
as the Depositary for such Global Note, pursuant to instructions from its direct
or indirect participants or otherwise, shall instruct either the Trustee or the
Registrar. Such Trustee
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<PAGE>
or the Registrar shall deliver such Definitive Notes to the Persons in whose
names such Notes are so registered.
SECTION 2.13. ADDITIONAL NOTES.
In addition to the $75,000,000 aggregate principal amount of Notes
issued pursuant to a Purchase Agreement among the Company and Salomon Brothers
Inc., NationsBanc Montgomery Securities LLC and First Union Capital Markets, a
division of Wheat First Securities, Inc., dated April 13, 1998 (the "Purchase
Agreement"), the Company may issue up to $25,000,000 aggregate principal amount
of additional Notes having identical terms and conditions to the Notes issued
pursuant to the Purchase Agreement and subject to compliance with all provisions
of this Indenture, including, without limitation, Section 4.09 hereof. Any
additional Notes so issued will be part of the same issue as, and will vote on
all matters with, the Notes offered pursuant to, the Purchase Agreement.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date (unless a
shorter period is acceptable to the Trustee), an Officers' Certificate setting
forth (i) the Section of this Indenture pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed and (iv) the redemption price.
If the Company is required to make an offer to purchase Notes pursuant
to the provisions of Sections 3.09 or 4.14 hereof, it shall furnish to the
Trustee, at least 30 days before the scheduled purchase date, an Officers'
Certificate setting forth (i) the Section of this Indenture pursuant to which
the offer to purchase shall occur, (ii) the terms of the offer, (iii) the
purchase price, (iv) the principal amount of the Notes to be purchased, (v) the
purchase date, (vi) a statement to the effect that all conditions precedent
required to be met as part of such offers to purchase have been met and (vii)
further setting forth a statement to the effect that (a) the Company or one of
its Restricted Subsidiaries has effected an Asset Sale and there are Excess
Proceeds aggregating more than $10.0 million or (b) a Change of Control has
occurred, as applicable.
SECTION 3.02. SELECTION OF NOTES TO BE PURCHASED OR REDEEMED.
If less than all of the Notes are to be redeemed at any time,
selection of the Notes for redemption shall be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, if the Notes are not so listed, on a pro rata
basis, by lot or by such other method as the Trustee
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<PAGE>
deems fair and appropriate; provided that no Notes with a principal amount of
$1,000 or less shall be redeemed in part.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
purchase or redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be purchased or
redeemed, the entire outstanding amount of Notes held by such Holder, even if
not a multiple of $1,000, shall be redeemed. Except as provided in the
preceding sentence, 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, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at its registered
address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price and accrued interest and Liquidated Damages,
if any;
(c) 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 upon surrender of such Note, a new Note or Notes
in principal amount equal to the unredeemed portion shall be
issued upon surrender of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest and Liquidated Damages, if any, on Notes called
for redemption cease to accrue on and after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being
redeemed; and
(h) 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.
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At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date (or such shorter period as shall be acceptable to the Trustee),
an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph. The notice mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Note shall not affect the validity of the
proceeding for the redemption of any other Note.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
Redemption Date at the redemption price, plus accrued and unpaid interest and
Liquidated Damages, if any, to such date. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION OR PURCHASE PRICE.
On or before 12:00 p.m. (New York City time) on each redemption date
or the date on which Notes must be accepted for purchase pursuant to Section
3.09 or 4.14, the Company shall deposit with the Trustee or with the Paying
Agent money sufficient to pay the redemption price of and accrued and unpaid
interest and Liquidated Damages, if any, on all Notes to be redeemed or
purchased on that date. The Trustee or the Paying Agent shall promptly return
to the Company upon its written request any money deposited with the Trustee or
the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of (including any applicable premium), accrued interest on and
Liquidated Damages, if any, all Notes to be redeemed or purchased.
If Notes called for redemption or tendered in an Asset Sale Offer or
Change of Control Offer are paid or if the Company has deposited with the
Trustee or Paying Agent money sufficient to pay the redemption or purchase price
of, unpaid and accrued interest and Liquidated Damages, if any, on all Notes to
be redeemed or purchased on and after the redemption or purchase date, interest
and Liquidated Damages, if any, shall cease to accrue on the Notes or the
portions of Notes called for redemption or tendered and not withdrawn in an
Asset Sale Offer or Change of Control Offer (regardless of whether certificates
for such securities are actually surrendered). Notwithstanding Sections 3.09 and
Sections 3.14, if a Note is redeemed or purchased on or after an interest record
date but on or prior to the related interest payment date, then any accrued and
unpaid interest and Liquidated Damages, if any, shall be paid to the Person in
whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, and Liquidated
Damages, if any, from the redemption or purchase date
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until such principal is paid, and to the extent lawful, on any interest not paid
on such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at the Company's option prior to April 15, 2003. Thereafter, the
Notes shall be subject to redemption at the option of the Company, in whole or
in part, 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 and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.............................. 105.000%
2004.............................. 103.333%
2005.............................. 101.667%
2006 and thereafter............... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 15, 2001,
the Company on one or more occasions may redeem up to 25% of the aggregate
principal amount of Notes originally issued with any of the net proceeds of one
or more public offerings of common stock of the Company at a redemption price of
110.000% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable date of redemption;
provided that at least 75% of the aggregate principal amount of the Notes remain
outstanding immediately after the occurrence of each such redemption.
Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Sections 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under the Sections 3.09, 4.10 and 4.14 hereof, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
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SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), it shall follow the procedures specified below:
The Asset Sale Offer shall remain open for a period of twenty (20)
Business Days after the Commencement Date relating to such Asset Sale Offer,
except to the extent that a longer period is required by applicable law (as so
extended, the "Offer Period"). No later than five Business Days after the
termination of the Offer Period (the "Purchase Date"), the Company shall
purchase the principal amount of Notes required to be purchased pursuant to
Sections 3.02 and 4.10 hereof (the "Offer Amount") or, if less than the Offer
Amount has been tendered, all Notes tendered in response to the Asset Sale
Offer.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no additional
interest or Liquidated Damages, if any, shall be payable to Holders who tender
Notes pursuant to the Asset Sale Offer.
No later than the date which is five (5) Business Days after the date
on which the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company shall notify the Trustee of such Asset Sale Offer in accordance with
Section 3.09 hereof and commence or cause to be commenced the Asset Sale Offer
on a date no later than fifteen (15) Business Days after such notice (the
"Commencement Date").
On the Commencement Date of any Asset Sale Offer, the Company shall
send or cause to be sent, by first class mail, a notice to the Trustee and each
of the Holders. Such notice, which shall govern the terms of the Asset Sale
Offer, shall contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to the Asset Sale Offer and shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrue interest;
(d) that, unless the Company defaults in the payment of the purchase
price, any Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest and Liquidated Damages, if any, after the Purchase
Date;
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(e) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice not later than the close of business on the last
day of the Offer Period;
(f) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives,
not later than the close of business on the last day of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Note purchased;
(g) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased); and
(h) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
On or before 12:00 p.m. (New York City time) on each Purchase Date,
the Company shall irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to a
principal amount of Notes equal to the Offer Amount, together with accrued and
unpaid interest and Liquidated Damages, if any, thereon, to be held for Payment
in accordance with the terms of this Section 3.09. On the Purchase Date, the
Company shall, to the extent lawful, (i) accept for payment, on a pro rata basis
to the extent necessary, the Offer Amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer, or if less than the Offer Amount has been
tendered, all Notes tendered, (ii) deliver or cause the Paying Agent or
depositary, as the case may be, to deliver to the Trustee Notes so accepted and
(iii) deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, the depositary or the Paying Agent, as
the case may be, shall promptly (but in any case not later than three (3)
Business Days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, plus any accrued and unpaid interest and
Liquidated Damages, if any, thereon, and the Company shall promptly issue a new
Note, and the Trustee, shall authenticate and mail or deliver such new Note, to
such Holder, equal in principal amount to any unpurchased portion of such
Holder's Notes surrendered. Any Note not so accepted shall be promptly mailed
or delivered by the Company to the Holder thereof. The Company shall publicly
announce in a newspaper of
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general circulation or in a press release provided to a nationally recognized
financial wire service the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01, 3.02, 3.05 and 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. The Company shall pay all Liquidated Damages, if any, in the same manner
on the dates and in the amounts set forth in the Registration Rights Agreement.
Principal, premium, if any interest and Liquidated Damages, if any, shall be
considered paid for all purposes hereunder on the date the Paying Agent, if
other than the Company or a Subsidiary thereof, holds as of 12:00 p.m. (New York
City time) money deposited by the Company in immediately available funds and
designated for and sufficient to pay all such principal, premium, if any,
interest and Liquidated Damages, if any, then due.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee or Registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company 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 Corporate Trust Office of the
Trustee.
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 designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such
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purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03 hereof.
SECTION 4.03. REPORTS.
Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company shall furnish to
the Holders of Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its Restricted Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports.
In addition, whether or not required by the rules and regulations of the
Commission, from and after the consummation of the Exchange Offer or the
effectiveness of the Shelf Registration Statement (as defined in the
Registration Rights Agreement), the Company will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and the Guaranteeing Subsidiaries have agreed that, for so long as any
Notes remain outstanding, they will furnish to 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. The
Company shall at all times comply with TIA Section 314(a).
The financial information to be distributed to Holders of Notes shall
be filed with the Trustee and mailed to the Holders at their addresses appearing
in the register of Notes maintained by the Registrar, within 120 days after the
end of the Company's fiscal years and within 60 days after the end of each of
the first three quarters of each such fiscal year.
The Trustee shall have no responsibility for the accuracy,
completeness, form or content of any information furnished by the Company
pursuant to this Section 4.03.
The Company shall provide the Trustee with a sufficient number of
copies of all reports and other documents and information and if requested by
the Company the Trustee will deliver such reports to the Holders under this
Section 4.03.
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SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) 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 Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and fulfilled its
obligations under this Indenture (including with respect to any Restricted
Payments made during such year, the basis upon which the calculations required
by Section 4.07 hereof were computed, which calculations may be based on the
Company's latest available financial statements), and further stating, as to
each such Officer signing such certificate, that to the best of his or her
knowledge each entity has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and is not 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 is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of, interest
or Liquidated Damages, if any, on the Notes is prohibited or if such event has
occurred, a description of the event and what action the Company is taking or
proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accounts, in connection with the year-end
financial statements delivered pursuant to Section 4.03 hereof, the Company
shall use its best efforts to deliver a written statement of the Company's
independent public accountants (who shall be a firm of established national
reputation reasonably satisfactory to the Trustee) that in making the
examination necessary for certification of such financial statements, nothing
has come to their attention that would lead them to believe that the Company has
violated any provisions of Article Four or Section 5.01 hereof or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation. In the event that such written statement of the Company's independent
public accountants cannot be obtained, the Company shall deliver an Officer's
Certificate certifying that it has used its best efforts to obtain such
statements and was unable to do so.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
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SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies payable by the Company or any of its Subsidiaries, except such as are
contested in good faith and by appropriate proceedings and with respect to which
appropriate reserves have been taken in accordance with GAAP.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each Guaranteeing Subsidiary 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 advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Indenture; and the
Company and each Guaranteeing Subsidiary (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any distribution (including in connection with any merger or consolidation)
on account of any Equity Interests of the Company or any of its Restricted
Subsidiaries (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to the Company or any Wholly Owned Restricted Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company, any of its Restricted Subsidiaries or any other
Affiliate of the Company (other than any such Equity Interests owned by the
Company or any Wholly Owned Restricted Subsidiary of the Company); (iii) make
any principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated in right of payment to
the Notes or a Subsidiary Guarantee, except at the original final maturity
thereof or in accordance with the scheduled mandatory redemption or repayment
provisions set forth in the original documentation governing such Indebtedness
(but not pursuant to any mandatory offer to repurchase upon the occurrence of
any event); or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, and
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(b) the Company would be able to incur at least $1.00 of additional
Indebtedness under the Fixed Charge Coverage Ratio test set forth
in the first paragraph of Section 4.09 hereof, and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of this Indenture (excluding
Restricted Payments permitted by clauses (ii), (iii), (v), (vi)
and (ix) of the next succeeding paragraph), is less than the sum
of (1) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the date of the Indenture
to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time
of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, minus 100% of such deficit), plus
(2) 100% of the aggregate net cash proceeds received by the
Company from contributions of capital or the issue or sale since
the date of the Indenture of Equity Interests of the Company or
the amount by which Indebtedness of the Company or its Restricted
Subsidiaries is reduced on the Company's balance sheet upon the
conversion of debt securities of the Company into Equity
Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted
into Disqualified Stock), plus (3) to the extent that any
Restricted Investment that was made after the date of the
Indenture is sold for cash or otherwise liquidated or repaid for
cash other than to the Company as a Restricted Subsidiary, the
cash return of capital with respect to such Restricted Investment
equal to the amount of the Original Investment (less the cost of
disposition, if any); provided, however, that no cash proceeds
received by the Company from the issue or sale of any Equity
Interests issued by the Company will be counted in determining
the amount available for Restricted Payments under this clause
(c) to the extent such proceeds were used to redeem, repurchase,
retire or acquire any Equity Interests of the Company pursuant to
clause (ii) of the next succeeding paragraph, to defease, redeem
or repurchase any subordinated Indebtedness pursuant to clause
(iii) of the next succeeding paragraph or to purchase, redeem
or acquire any shares of capital stock of the Company or options
on such shares pursuant to clause (iv) of the next succeeding
paragraph.
The foregoing provisions will not prohibit any or all of the following
(each and all of which (1) constitutes an independent exception to the foregoing
provisions and (2) may occur in addition to any action permitted to occur under
any other exception): (i) the payment of any dividend within 60 days after the
date of declaration thereof, if at such
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date of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the net proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (c)(2) of the preceding paragraph; (iii) the defeasance,
redemption or repurchase of subordinated Indebtedness with the net proceeds from
an incurrence of Permitted Refinancing Indebtedness or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(2) of the
preceding paragraph; (iv) the funding of loans (but not including the
forgiveness of any such loan) to executive officers, directors or shareholders
for relocation loans, bonus advances and other purposes consistent with past
practices or the purchase, redemption or other acquisition for value of shares
of Capital Stock of the Company (other than Disqualified Stock) or options on
such shares held by the Company's or the Restricted Subsidiaries' officers or
employees or former officers or employees (or their estates or trusts or
beneficiaries under their estates or trusts for the benefit of such
beneficiaries) upon the death, disability, retirement or termination of
employment of such current or former officers or employees pursuant to the terms
of an employee benefit plan or any other agreement pursuant to which such shares
of Capital Stock or options were issued or pursuant to a severance, buy-sell or
right of first refusal agreement with such current or former officers or
employees; provided that the aggregate amount of any such loans funded and cash
consideration paid, or distributions made, pursuant to this clause (iv) does not
in any one fiscal year exceed $1.0 million; (v) the payment of dividends by a
Restricted Subsidiary on any class of common stock of such Restricted Subsidiary
if such dividend is paid pro rata to all holders of such class of common stock;
(vi) the repurchase of any class of common stock of a Restricted Subsidiary if
such repurchase is made pro rata with respect to such class of common stock;
(vii) any other Restricted Payment (other than (A) a dividend or other
distribution on account of any Equity Interests of the Company or any of its
Restricted Subsidiaries and (B) a purchase, redemption or other acquisition of
any Equity Interests of the Company, any of its Restricted Subsidiaries or any
Affiliate of the Company) if the amounts thereof, together with all other
Restricted Payments made pursuant to this clause since the date of the Indenture
do not exceed $10.0 million; (viii) Permitted Choice Point Payments; and (ix)
the redemption, repurchase, or other acquisition of Notes.
The Board of Directors may designate any Restricted Subsidiary to be
an Unrestricted Subsidiary; provided, however, that (i) no Default or Event of
Default shall have occurred and be continuing or would arise therefrom, (ii)
such designation, when considered as an Investment as described in the next
sentence, is at that time permitted under this Section 4.07 and (iii)
immediately after giving effect to such designation, the Company would be able
to incur at least $1.00 of additional Indebtedness under the Fixed Charge
Coverage Ratio set forth in the first paragraph of Section 4.09 hereof. All
such
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outstanding Investments shall be deemed to constitute Restricted Investments in
an amount equal to the greater of (i) the net book value of such Investments at
the time of such designation and (ii) the fair market value of such Investments
at the time of such designation. Such designation shall only be permitted if
such Restricted Investment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, which calculations
shall be based upon the Company's latest available financial statements.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or consensual restriction on the
ability of any Restricted Subsidiary to: (i)(A) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries on its
Capital Stock or (B) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries; (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries; or (iii) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness, as in effect on the date of the Indenture; (b) any Credit
Facility, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive in the aggregate than those contained in the Credit Agreement as in
effect on the date of the Indenture; (c) the Indenture and the Notes; (d)
applicable law; (e) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries, as in
effect at the time of acquisition (except to the extent such Indebtedness was
incurred in connection with, or in contemplation of, such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired; provided that in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred; (f)
customary non-assignment provisions in leases and other agreements entered into
in the ordinary course of business and consistent with past practices; (g)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired; (h) Permitted Refinancing Indebtedness; provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive in the aggregate than those
contained in the agreements governing the Indebtedness being refinanced; or (i)
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Equity Interests or property or assets of a Restricted
Subsidiary;
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provided that such restrictions are limited to the Restricted Subsidiary that is
the subject of such agreement.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur, contingently or otherwise, any
Indebtedness (including Acquired Debt) and the Company will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company and its
Guaranteeing Subsidiaries may Incur Indebtedness (including Acquired Debt) and
the Company may issue shares of Disqualified Stock if the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock issued
would have been at least (x) 2.0 to 1 if such incurrence or issuance occurs on
or before March 31, 2001, or (y) 2.25 to 1 if such incurrence or issuance occurs
at any time thereafter, in each case, determined on a pro forma basis (including
a pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period.
The foregoing provisions will not apply to any of the following (each
and all of which (1) may be issued or incurred, (2) constitute an independent
exception to the foregoing provisions and (3) may be incurred in addition to any
other Indebtedness permitted to be incurred under any other exception): (i) the
incurrence by the Company or any Guaranteeing Subsidiary of Indebtedness and
letters of credit pursuant to the Credit Facility in an aggregate principal
amount at any one time outstanding not exceeding $100.0 million (A) less the
aggregate amount of all mandatory repayments (a "Mandatory Repayment")
permanently reducing the principal of any term Indebtedness under the Credit
Facility that have been made since the date of the Indenture (or which would
otherwise have been required to have been made but for the fact that a prior
optional repayment has been made permanently reducing the principal of any term
Indebtedness under the Credit Facility) pursuant to the amortization schedule of
the Credit Facility (other than any Mandatory Repayment made concurrently with
refinancing or refunding of the Credit Facility) and (B) less the aggregate
amount of all Net Proceeds of Asset Sales applied pursuant to clause (a) of the
first sentence of the second paragraph under Section 4.10 hereof to permanently
reduce Indebtedness (and, in the case of revolving Indebtedness, the
commitments) under the Credit Facility or to cash collateralize letters of
credit and permanently reduce commitments with respect to revolving Indebtedness
under the Credit Facility; provided that the amount of Indebtedness permitted to
be incurred pursuant to the Credit Facility in accordance with this clause (i)
shall be in addition to any Indebtedness permitted to be incurred pursuant to
the Credit Facility or otherwise in reliance on, and in accordance with, clause
(viii) of this paragraph; (ii) the incurrence by the Company and any
Guaranteeing Subsidiary of Indebtedness represented by the Notes offered hereby
(and excluding any additional Notes issued pursuant to the Indenture) and any
Subsidiary Guarantee; (iii) Existing Indebtedness; (iv) the incurrence by the
Company
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or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in
exchange for, or the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund, Indebtedness that was permitted by the Indenture;
(v) the incurrence by the Company or any of its Wholly Owned Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Wholly Owned Restricted Subsidiaries; provided, however, that (a) any
subsequent issuance or transfer (other than for security purposes) of Equity
Interests and (b) any subsequent sale or other transfer (including for security
purposes other than to secure Indebtedness permitted to be incurred pursuant to
clause (i) of this paragraph) of such Indebtedness, in each case, that results
in any such Indebtedness being held by a Person other than the Company or any of
its Wholly Owned Restricted Subsidiaries shall be deemed to constitute an
incurrence of such Indebtedness by the Company or such Wholly Owned Restricted
Subsidiary, as the case may be; (vi) the incurrence by the Company or any of its
Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose
of fixing or hedging (a) interest rate risk with respect to any floating rate
Indebtedness of such Person so long as such floating rate Indebtedness is
permitted by the terms of the Indenture to be outstanding or (b) exchange rate
risk with respect to agreements or indebtedness of such Person payable or
denominated in a currency other than U.S. dollars; (vii) the incurrence by the
Company and any Guaranteeing Subsidiary of Indebtedness in an aggregate
principal amount at any time outstanding not to exceed $15.0 million; and (viii)
Obligations in respect of performance and surety bonds provided by the Company
or any Guaranteeing Subsidiary in the ordinary course of business.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (as determined in good
faith by the Board of Directors of the Company and set forth in an Officers'
Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor received by the Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents; provided that the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet), of the Company or any Restricted Subsidiary (other than liabilities that
are by their terms subordinated to the Notes or, in the case of liabilities of a
Restricted Subsidiary, the Subsidiary Guarantee of such Subsidiary) that are
assumed by the transferee of any such assets and (y) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary from
such transferee that are converted by the Company or such Restricted Subsidiary
into cash (to the extent of the cash received) within 180 days after receipt,
shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (a) to repay
Senior Debt or Pari Passu Indebtedness (provided that if the Company shall so
reduce Pari Passu Indebtedness, it will equally and ratably make an Asset Sale
Offer (in accordance with the
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procedures set forth below for an Asset Sale Offer) to all Holders) and/or (b)
to an investment in another business, the making of a capital expenditure or the
acquisition of other tangible assets, product distribution rights or
intellectual property or rights thereto, in each case, in a line of business
permitted by Section 4.17. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce borrowings under the Credit
Agreement or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds."
If and when the aggregate amount of Excess Proceeds exceeds $10.0
million, the Company shall (i) make an offer to purchase to all Holders of Notes
and (ii) prepay, purchase or redeem (or make an offer to do so) any other Pari
Passu Indebtedness of the Company in accordance with provisions (if any)
requiring the Company to prepay, purchase or redeem such Indebtedness with the
proceeds from any asset sales (or offer to do so), pro rata in proportion to the
respective principal amounts (or accreted value, as applicable) of the Notes and
such other Indebtedness required to be prepaid, purchased or redeemed or
tendered for pursuant to such offer (an "Asset Sale Offer"), to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase, in accordance with the procedures set forth in
Section 3.09.
An Asset Sale Offer shall be made pursuant to the provisions of
Section 3.09 hereof.
The Asset Sale Offer shall be made by the Company in compliance with
all applicable laws, including, without limitation, Rule 14e-1 under the
Exchange Act and the rules thereunder, to the extent applicable, and all other
applicable federal and state securities laws.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
could have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; (ii) if such Affiliate
Transaction involves aggregate consideration in excess of $2.0 million, the
Company delivers to the Trustee a resolution of the Board of Directors of the
Company set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and such Affiliate Transaction is
approved by a majority of the disinterested members of the Board of Directors of
the Company; and (iii) if such Affiliate Transaction involves aggregate
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consideration in excess of $5.0 million, the Company delivers to the Trustee an
opinion as to the fairness of such Affiliate Transaction from a financial point-
of-view issued by an investment bank or accounting firm of national standing;
provided, however, that (a) any employment, consulting or similar agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business of the Company or such Restricted Subsidiary, (b)
transactions between or among the Company and/or its Restricted Subsidiaries,
(c) payment of employee benefits, including wages, salary, bonuses, retirement
plans and stock options and director fees in the ordinary course of business and
(d) Restricted Payments described under clauses (i), (iv), (v), (vi), (vii) and
(ix) of the second paragraph of Section 4.07 hereof, in each case, shall not be
deemed Affiliate Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien (other than Permitted Liens) securing any Obligations on any
property or asset now owned or hereafter acquired, or on any income or profits
therefrom or assign or convey any right to receive income therefrom, unless the
Notes, and the Subsidiary Guarantees, as applicable, are either (i) secured by a
Lien on such property, assets, income or profits that is senior in priority to
the Lien securing such other Obligations, if such other Obligations are
subordinated in right of payment to the Notes and/or the Subsidiary Guarantees
or (ii) equally and ratably secured by a Lien on such property, assets, income
or profits with the Lien securing such other Obligations if such other
Obligations are pari passu in right of payment to the Notes and/or the
Subsidiary Guarantees.
SECTION 4.13. SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company and any Guaranteeing Subsidiary may enter into a sale and leaseback
transaction if (i) the Company or such Guaranteeing Subsidiary could have
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09 hereof, (ii) the Lien to
secure such Indebtedness does not extend to or cover any assets of the Company
or such Guaranteeing Subsidiary other than the assets which are the subject of
the sale and leaseback transaction, (iii) the gross cash proceeds of such sale
and leaseback transaction are at least equal to the fair market value (as
determined in good faith by the Board of Directors of the Company and set forth
in an Officers' Certificate delivered to the Trustee) of the property that is
the subject of such sale and leaseback transaction and (iv) the transfer of
assets in such sale and leaseback transaction is permitted by, and the proceeds
of such transaction are applied in compliance with, Section 4.10 hereof.
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SECTION 4.14. OFFER TO PURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, each Holder of Notes shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company shall mail a notice to each Holder stating:
(a) that the Change of Control Offer is being made pursuant to this
Section 4.14 and that all Notes properly tendered will be
accepted for payment;
(b) the purchase price and the purchase date (the "Change of Control
Payment Date"), which will be no earlier than 30 days nor later
than 60 days from the date such notice is mailed;
(c) that any Note not properly tendered will continue to accrue
interest;
(d) that, unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest, and
Liquidated Damages, if any, after the Change of Control Payment
Date;
(e) that Holders electing to have any Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Notes,
with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Notes completed, or transfer by book-entry, to
the Paying Agent at the address specified in the notice not later
than the close of business on the Change of Control Payment Date;
(f) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on
the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of Notes delivered for purchase, and a statement
that such Holder is withdrawing his election to have such Notes
purchased;
(g) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry),
which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof; and
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(h) the circumstances and material facts regarding such Change of
Control (including, but not limited to, information with respect
to pro forma and historical financial information after giving
effect to such Change of Control, and information regarding the
Person or Persons acquiring control).
On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. Prior to complying
with the provisions of this Section 4.14, but in any event within 90 days
following a Change of Control, the Company shall either repay all outstanding
Senior Debt or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Debt to permit the repurchase of Notes required by
this Section 4.14. The Company shall publicly announce in a newspaper of
national circulation or in a press release provided to a nationally recognized
financial wire service the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
Notwithstanding the provisions hereof, the Company shall 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 accordance with the provisions hereof
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Change of Control provisions described above shall be applicable
whether or not any other provisions of this Indenture are applicable.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
SECTION 4.15. CORPORATE EXISTENCE.
Subject to Section 4.14 and Article 5 hereof, as the case may be, the
Company and each of the Guaranteeing Subsidiaries shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time)
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of the Company or any such Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and its Subsidiaries;
provided, that the Company shall not be required to preserve any such right,
license or franchise, or the corporate, partnership or other existence of any of
its Subsidiaries, if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries, taken as a whole, and that the loss thereof is
not adverse in any material respect to the Holders of the Notes.
SECTION 4.16. ANTI-LAYERING.
The Company shall not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is both (a) subordinate or
junior in right of payment to any Senior Debt and (b) senior in any respect in
right of payment to the Notes; and no Guaranteeing Subsidiary shall incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is both (a) subordinate or junior in right of payment to its Senior Debt
and (b) senior in any respect in right of payment to its Subsidiary Guarantee.
SECTION 4.17. LINE OF BUSINESS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries, to engage in any business other than a Health Care Related
Business; provided, however, that the Company will not be deemed to be in
violation of this covenant so long as the Company does not derive any material
portion of its consolidated revenues or Consolidated EBITDA from a business that
is not a Health Care Related Business.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving entity), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another Person unless (i) the
Company is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized and existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) immediately after
giving effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), the Consolidated Net Worth of the Company or the surviving
entity, as the case may be, is at least equal to the Consolidated Net Worth of
the Company immediately before such transaction or series of transactions; (iii)
the Person formed by or surviving any such consolidation or merger (if
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other than the Company) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made assumes all the
obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in form reasonably satisfactory to the Trustee; (iv)
immediately after such transaction, no Default or Event of Default exists; and
(v) the Company or the Person formed by or surviving any such consolidation or
merger, or to which such sale, assignment, transfer, lease, conveyance or other
disposition will have been made will, at the time of such transaction after
giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09 hereof. The foregoing will
not prohibit a consolidation or merger between the Company and a Wholly Owned
Restricted Subsidiary, the transfer of all or substantially all of the
properties or assets of the Company to a Wholly Owned Restricted Subsidiary or
the transfer of all or substantially all of the properties or assets of a Wholly
Owned Restricted Subsidiary to the Company; provided that if the Company is not
the surviving entity of such transaction or the Person to which such transfer is
made, the surviving entity or the Person to which such transfer is made shall
comply with clause (iii) of this paragraph.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, that, (i)
solely for the purposes of computing Consolidated Net Income for purposes of
clause (b) of the first paragraph of Section 4.07 hereof, the Consolidated Net
Income of any person other than the Company and its Restricted Subsidiaries
shall be included only for periods subsequent to the effective time of such
merger, consolidation, combination or transfer of assets; and (ii) in the case
of any sale, assignment, transfer, lease, conveyance, or other disposition of
less than all of the assets of the predecessor Company, the predecessor Company
shall not be released or discharged from the obligation to pay the principal of
or interest on the Notes.
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ARTICLE 6
DEFAULTS AND
REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(i) default for 30 days in the payment when due of interest or
Liquidated Damages, if any, with respect to the Notes
(whether or not prohibited by Article 10 or Article 12
hereof);
(ii) default in payment when due of principal or premium, if any,
on the Notes at maturity, upon redemption or otherwise
(whether or not prohibited by Article 10 or Article 12
hereof);
(iii) failure by the Company or any Guaranteeing Subsidiary for 30
days after receipt of notice from the Trustee or Holders of
at least 25% in principal amount of the Notes then
outstanding to comply with the provisions described under
Sections 4.07, 4.09, 4.10, 4.13, 4.14 or 5.01 hereof;
(iv) failure by the Company or any Guaranteeing Subsidiary for 60
days after notice from the Trustee or the Holders of at
least 25% in principal amount of the Notes then outstanding
to comply with its other agreements in this Indenture or the
Notes;
(v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or
Guarantee now exists, or is created after the date hereof,
which default (A) (i) is caused by a failure to pay when due
at final stated maturity (giving effect to any grace period
related thereto) principal of such Indebtedness (a "Payment
Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and (B) in each
case, the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity
of which has been accelerated as a result of any matter
contemplated in clause (v)(A)(i) or (v)(A)(ii), aggregates
$7.5 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries
to pay final judgments (to the extent not covered by
insurance or as to
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which the insurer has not acknowledged coverage in writing)
aggregating in excess of $7.5 million, which judgments are
not paid, fully bonded, discharged or stayed within 60 days
after their entry;
(vii) the Company or any Restricted Subsidiary that is a
Significant Subsidiary or group of Restricted Subsidiaries
that, together would constitute a Significant Subsidiary,
pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against
it in an involuntary case in which it is the debtor,
(c) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(d) makes a general assignment for the benefit of its
creditors, or
(e) admits in writing its inability generally to pay its
debts as the same become due;
(viii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company or any Restricted
Subsidiary that is a Significant Subsidiary or group of
Restricted Subsidiaries that, together, would constitute a
Significant Subsidiary of the Company in an involuntary case
in which it is the debtor,
(b) appoints a Custodian of the Company or any Restricted
Subsidiary that is a Significant Subsidiary or group of
Restricted Subsidiaries that, together, would constitute a
Significant Subsidiary of the Company or for all or
substantially all of the property of the Company or any
Restricted Subsidiary that is a Significant Subsidiary or
group of Restricted Subsidiaries that, together, would
constitute a Significant Subsidiary of the Company, or
(c) orders the liquidation of the Company or any
Restricted Subsidiary that is a Significant Subsidiary or
group of Restricted Subsidiaries that, together, would
constitute a Significant Subsidiary of the Company and the
order or decree contemplated in clauses (i), (ii) or (iii)
remains unstayed and in effect for 60 consecutive days; or
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(ix) the termination of the Subsidiary Guarantee(s) of either a
Guaranteeing Subsidiary that is a Significant Subsidiary or
group of Guaranteeing Subsidiaries that together constitute
a Significant Subsidiary for any reason not permitted by
this Indenture, or the denial of any Person acting on behalf
of any such Guaranteeing Subsidiary or Group of Guaranteeing
Subsidiaries of its Obligations under any such Subsidiary
Guarantee(s).
To the extent that the last day of the period referred to in clauses
(i), (iii), (iv) or (vi) of the immediately preceding paragraph is not a
Business Day, then the first Business Day following such day shall be deemed to
be the last day of the period referred to in such clauses. Any "day" will be
deemed to end as of 11:59 p.m., New York City time.
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default with respect to
the Company specified in clauses (vii) and (viii) of Section 6.01 hereof) occurs
and is continuing, the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Notes may declare the unpaid principal of,
premium, if any, accrued and unpaid interest and Liquidated Damages, if any, on
all the Notes to be due and payable by notice in writing to the Company (and the
Trustee, if given by the Holders) specifying the respective Event of Default and
that it is a "notice of acceleration" (the "Acceleration Notice"), and the same
(i) shall become immediately due and payable or (ii) if there are any amounts
outstanding under the Credit Facility, shall become immediately due and payable
upon the first to occur of an acceleration under the Credit Facility or five
Business Days after receipt by the Company and the Representative under the
Credit Facility of such Acceleration Notice but only if such Event of Default is
then continuing. If an Event of Default with respect to the Company specified in
clauses (vii) or (viii) of Section 6.01 hereof occurs, all outstanding Notes
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority in principal amount of the then outstanding Notes by written
notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (except non-payment of principal or interest that has become
due solely because of the acceleration) have been cured or waived.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, interest and Liquidated Damages, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
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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 of a Note 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. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for 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
hereunder, except a continuing Default or Event of Default in the payment of
principal of or premium, if any, or interest or Liquidated Damages, if any, on
the Notes. Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability. The Trustee may take any other action which it
deems proper which is not inconsistent with any such direction.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture,
the Subsidiary Guarantees or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default or the Trustee receives such notice
from the Company;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue
the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense;
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(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium, if any, interest,
and Liquidated Damages, if any, on the Note, on or after the respective due
dates expressed in the Note (including in connection with an offer to purchase),
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 specified in Section 6.01(i) or (ii) hereof
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to 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,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
securities or property payable or deliverable upon the conversion or exchange of
the Notes or on any such claims and any custodian in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and
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counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the
extent that the payment of any such compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. 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 or the rights of any Holder, 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 pursuant to this Article 6, it shall
pay out the money in the following order:
FIRST: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all reasonable compensation, expense
and liabilities actually incurred, and all reasonable advances made, by the
Trustee and the reasonable costs and expenses of collection;
SECOND: to holders of Senior Debt to the extent required by Article
10 or 12 hereof;
THIRD: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, interest, and Liquidated Damages, if any,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium, if any, interest, and
Liquidated Damages, if any, respectively;
FOURTH: without duplication, to the Holders for any other Obligations
owing to the Holders under this Indenture and the Notes; and
FIFTH: to the Company, the Guaranteeing Subsidiaries or to such party
as a court of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes 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 a 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,
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including reasonable attorneys' fees, against any party litigant in 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 of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing of which it
has knowledge, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture and use the same degree of
case and skill in its exercise, as a prudent man would exercise
of use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture or the TIA and
the Trustee need perform only those duties that are
specifically set forth in this Indenture or the TIA and
no others, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own
willful 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
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proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(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 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee
shall be under no obligation to exercise any of its rights and
powers under this Indenture at the request of any Holders, unless
such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with
the Company. Money held in trust by the Trustee need not be
segregated from other funds except to the extent required by law.
(g) The Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proven
that the Trustee was negligent in ascertaining the pertinent
facts.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely on the truth of the statements
and correctness of the opinions contained in, and shall be
protected from acting or refraining from acting upon, any
document 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 require
an Officers' Certificate or an Opinion of Counsel or both. 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. Prior to taking, suffering or admitting any
action, the Trustee may consult with counsel of the Trustee's own
choosing and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection
from liability in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
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(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within
the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or any
Guaranteeing Subsidiary shall be sufficient if signed by an
Officer of the Company or Guaranteeing Subsidiary, as applicable.
(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 or
direction of any of the Holders unless such Holders shall have
offered to the Trustee reasonable security or indemnity
satisfactory to the Trustee against the costs, expenses and
liabilities that might be incurred by it in compliance with such
request or direction.
(g) The Trustee is not required to take notice or deemed to have
notice of any default or Event of Default hereunder, except an
Event of Default under Section 6.01(i) or (ii), unless a
Responsible Officer of the Trustee has received notice in writing
of such default or Event of Default from the Company or from the
holders of at least 25% in aggregate principal amount of the
Outstanding Securities of the series so affected, and in absence
of any such notice, the Trustee may conclusively assume that no
default or Event of Default exists.
(h) The Trustee is not required to give any bond or surety with
respect to the performance of its duties or the exercise of its
powers under this Indenture.
(i) The Trustee's immunities and protections from liability and its
rights to compensation and indemnification in connection with the
performance of its duties under this Indenture shall extend to
the Trustee's officers, directors, agents and employees. Such
immunities and protections and right to indemnification, together
with the Trustee's right to compensation, shall survive the
Trustee's resignation or removal and final payment of the
Securities.
(j) The Trustee shall have no responsibility for any information in
any offering memorandum or other disclosure material distributed
with respect to any series of Securities, and the Trustee shall
have no responsibility for compliance with any state or federal
securities laws in connection with the Securities, other than the
filing of any
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documents required to be filed by an indenture trustee pursuant
to the Trust Indenture Act.
(k) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence
of indebtedness or other paper or document, but the Trustee, in
its sole discretion, may make such further inquiry or
investigations into such facts or matters as it may see fit, and,
if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records
and premises of the Company and its Restricted Subsidiaries,
personally or by one or more agents and attorneys.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner of Notes and may otherwise deal with the Company, the Guaranteeing
Subsidiaries or any Affiliate of the Company with the same rights it would have
if it were not Trustee. However, in the event that the Trustee acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue as Trustee or resign. Any Agent may
do the same with like rights and duties. The Trustee is also subject to
Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture, the Subsidiary Guarantees or
the Notes, it shall not be accountable for the Company's use of the proceeds
from the Notes or any money paid to the Company or upon the Company's direction
under any provision of this Indenture, it shall not be responsible for the use
or application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee to the extent provided in Section
7.02(g) hereof, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment on any Note pursuant to Section
6.01(i) or (ii) hereof, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
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SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA -section- 313(a) (but if no event
described in TIA -section- 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA -section- 313(b). The Trustee shall also transmit by mail
all reports as required by TIA -section- 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Company has informed the Trustee in writing the
Notes are listed in accordance with TIA -section- 313(d). The Company shall
promptly notify the Trustee when the Notes are listed on any stock exchange and
of any delisting thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company and the Guaranteeing Subsidiaries shall pay to the Trustee
from time to time reasonable compensation for its acceptance of this Indenture
and services hereunder. To the extent permitted by law, the Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee promptly upon request
for all reasonable disbursements, advances and expenses incurred or made by it
in addition to the compensation for its services. Such expenses shall include
the reasonable compensation, disbursements and expenses of the Trustee's agents
and counsel.
The Company and the Guaranteeing Subsidiaries shall indemnify, jointly
and severally, the Trustee against any and all losses, liabilities or expenses
incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Company and the Guaranteeing
Subsidiaries (including this Section 7.07) and defending itself against any
claim (whether asserted by the Company, the Guaranteeing Subsidiaries or any
Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder except to the extent any
such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Company and the Guaranteeing Subsidiaries
promptly of any claim for which it may seek indemnity. Failure by the Trustee
to so notify the Company and the Guaranteeing Subsidiaries shall not relieve the
Company and the Guaranteeing Subsidiaries of its obligations hereunder. The
Company and the Guaranteeing Subsidiaries shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Company and the Guaranteeing Subsidiaries shall pay the reasonable fees and
expenses of such counsel. The Company and the Guaranteeing Subsidiaries need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
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The obligations of the Company and the Guaranteeing Subsidiaries under
this Section 7.07 shall survive the satisfaction and discharge of this
Indenture.
To secure the Company's and the Guaranteeing Subsidiaries' payment
obligations in this Section 7.07, the Trustee shall have a Lien prior to the
Notes on all money or property held or collected by the Trustee, except that
held in trust to pay principal, interest and Liquidated Damages, if any, on
particular Notes. Such Lien shall survive the satisfaction and discharge of
this Indenture and the resignation or removal of the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(vii) or (viii) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA -section-
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
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.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company 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 then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
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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 Notes 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, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and the duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of its
succession to the Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee; provided
that all sums owing to the Trustee hereunder have been paid and subject to the
Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Company's obligations under Section
7.07 hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee or any Agent consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee or any Agent.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities. The Trustee and its direct parent shall at all times have a
combined capital surplus of at least $50.0 million as set forth in its most
recent annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA -section- 310(a)(1), (2) and (5). The Trustee is subject to
TIA -section- 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to 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 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes and
Subsidiary Guarantees upon compliance with the conditions set forth below in
this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and each Guaranteeing Subsidiary
shall, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be deemed to have been discharged from its obligations with respect to
all outstanding Notes and Subsidiary Guarantees on the date the conditions set
forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose,
Legal Defeasance means that the Company and each Guaranteeing Subsidiary shall
be deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes and Subsidiary Guarantees, which shall thereafter be deemed to
be "outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and Subsidiary Guarantees
and this Indenture (and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following provisions which shall survive until otherwise terminated or
discharged hereunder:
(a) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, interest and Liquidated
Damages, if any, on such Notes when such payments are due or on the
redemption date, as the case may be, from the trust referred to in Section
8.04(a),
(b) the Company's obligations with respect to such Notes under
Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10 and 4.02 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee,
including, without limitation, thereunder Section 7.07, 8.05 and 8.07
hereunder and the Company's obligations in connection therewith, and
(d) the provisions of this Article 8.
Subject to compliance with this Article 8, the Company may exercise its option
under this Section 8.02 notwithstanding the prior exercise of its option under
Section 8.03 hereof.
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SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and each Guaranteeing Subsidiary
shall, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be released from its obligations under the covenants contained in
Sections 3.09, 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16,
4.17, 5.01 and 11.01 hereof with respect to the outstanding Notes and Subsidiary
Guarantees on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes and Subsidiary Guarantees
shall thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes and Subsidiary Guarantees shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to
the outstanding Notes and Subsidiary Guarantees, the Company, its Subsidiaries
or any Guaranteeing Subsidiary may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.01
hereof, but, except as specified above, the remainder of this Indenture and such
Notes and Subsidiary Guarantees shall be unaffected thereby. In addition, upon
the Company's exercise under Section 8.01 hereof of the option applicable to
this Section 8.03 hereof, subject to the satisfaction of the conditions set
forth in Section 8.04 hereof, Sections 6.01(iii) through 6.01(vi) and Section
6.01(ix) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes and Subsidiary Guarantees:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, (i) cash in United States
dollars, (ii) non-callable Government Securities which through the
scheduled payment of principal, premium, if any, interest and Liquidated
Damages, if any, in respect thereof in accordance with their terms will
provide, not later than one day before the due date of payment, cash in
United States dollars in an amount, or (iii) a combination thereof, in such
amounts as shall be sufficient, in the opinion of a nationally recognized
firm of independent public accountants reasonably acceptable to the Trustee
expressed in a written certification thereof delivered to the Trustee, to
pay and discharge the principal of, premium, if any, interest and
Liquidated Damages, if any, on the outstanding Notes on the stated maturity
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;
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(b) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date hereof, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Holders of the outstanding Notes shall not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance
and shall be subject to federal income tax on the same amounts, in the same
manner and at the same time as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes shall not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance and
shall be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Section 6.01(vii) and
(viii) hereof are concerned, at any time in the period ending on the 91st
day after the date of deposit (it being understood that this condition
shall not be deemed satisfied until the expiration of such period);
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the
trust funds shall not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others;
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with; and
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(i) the Trustee shall have received such other documents and
assurances as the Trustee shall have reasonably required.
(j) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound, it being specifically understood and agreed that
neither Legal Defeasance nor Covenant Defeasance shall occur while
Indebtedness is outstanding under the Credit Agreement (and commitments
shall exist thereunder) unless such defeasance is permitted by the Credit
Agreement or the requisite lenders thereto shall consent to such Legal
Defeasance or Covenant Defeasance.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal premium, if any, interest and
Liquidated Damages, if any, but such money need not be segregated from other
funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the written
request of the Company and be relieved of all liability with respect to any
money or non-callable Government Securities held by it as provided in Section
8.04 hereof which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are
in excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO THE COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
interest or
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Liquidated Damages, if any, on any Note and remaining unclaimed for one year
after such principal, and premium, if any, or interest or Liquidated Damages, if
any, has become due and payable shall be paid to the Company on its written
request or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Note shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining shall be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Company and the Guaranteeing
Subsidiaries under this Indenture, the Notes and the Subsidiary Guarantees shall
be revived and reinstated as though no deposit had occurred pursuant to Section
8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted
to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the
case may be; provided, however, that, if the Company makes any payment of
principal of, premium, if any, interest or Liquidated Damages, if any, on any
Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF THE NOTES.
Notwithstanding Section 9.02 of this Indenture, without the consent of
any Holder of Notes the Company, the Guaranteeing Subsidiaries and the Trustee
may amend or supplement this Indenture, the Subsidiary Guarantees or the Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
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(c) to provide for the assumption of the Company's or a Guaranteeing
Subsidiary's obligations to the Holders of the Notes in the case of a
merger, transfer of assets or consolidation pursuant to Article 5 or
Article 11 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Note;
(e) to comply with requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the TIA; and
(f) to allow any Guaranteeing Subsidiary to guarantee the Notes.
Upon the written request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, the Trustee shall join with the Company and
the Guaranteeing Subsidiaries in the execution of any amended or supplemental
Indenture authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations that may be therein contained,
but the Trustee shall not be obligated to enter into such amended or
supplemental Indenture that affects its own rights, duties or immunities under
this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided in (i) the fourth and fifth paragraphs of this
Section 9.02 and (ii) Sections 8.02, 8.03 and 8.04 hereof, in connection with
clause (b) below, with the consent of the Holders of at least a majority in
principal amount of the Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for Notes):
(a) this Indenture, the Notes or the Subsidiary Guarantees may be
amended or supplemented;
(b) the Guaranteeing Subsidiaries may be released from their
obligations under the Subsidiary Guarantees; and
(c) subject to Sections 6.02, 6.04 and 6.07 hereof, any existing
Default or Event of Default (other than a Default or Event of Default in the
payment of the principal of, or premium, if any, or interest or Liquidated
Damages, if any, on the Notes (except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Indenture, the Notes or the Subsidiary Guarantees may be waived.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
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indenture, and upon the filing with the Trustee of evidence aforesaid, and upon
receipt by the Trustee of the documents described in Section 9.06 hereof, the
Trustee shall join with the Company and the Guaranteeing Subsidiaries in the
execution of such amended or supplemental Indenture unless such amended or
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may, but shall not
be obligated to, enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
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 of each Note 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 amended or
supplemental Indenture or waiver.
Subject to Sections 6.02, 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company or the Guaranteeing
Subsidiaries with any provision of this Indenture, the Notes or the Subsidiary
Guarantees. However, without the consent of each Holder affected, an amendment,
or waiver may not (with respect to any Note or Subsidiary Guarantee held by a
non-consenting Holder):
(a) reduce the principal amount of Notes;
(b) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the
Notes or any Change of Control Offer;
(c) reduce the rate of or change the time for payment of interest or
Liquidated Damages, if any, on any Notes;
(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest or Liquidated Damages, if any,
on the Notes (except a rescission of acceleration of the Notes by
the Holders of at least a majority in aggregate principal amount
of the Notes and a waiver of the payment default that resulted
form such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in Section 6.04 or 6.07 hereof;
(g) waive a redemption or repurchase payment with respect to any
Note;
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(h) make any change in the foregoing amendment and waiver provisions
of this Article 9; or
(i) except as provided in Sections 8.02, 8.03 and 11.04 hereof,
release any of the Guaranteeing Subsidiaries from their
obligations under the Subsidiary Guarantees or make any change in
the Subsidiary Guarantees that would adversely affect the
Holders.
Notwithstanding the foregoing, Sections 3.09 and 4.10 may be amended
or supplemented only with the consent of the Holders of at least two-thirds in
principal amount of the Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for the Notes). In addition,
any amendment to the provisions of Article 10 or Article 12 of this Indenture
shall require the consent of the Holders of at least 75% in aggregate amount of
Notes then outstanding (including consents obtained in connection with a tender
offer or exchange offer for the Notes) if such amendment would adversely affect
the rights of the Holders of Notes.
In addition, any amendment to the subordination provisions of the
Indenture shall require the consent of the requisite lenders under the Credit
Facility and, if such amendment would adversely affect the rights of the Holders
of the Notes, of the Holders of at least 75% in aggregate amount of the Notes
then outstanding.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture, the Subsidiary
Guarantees or the Notes shall be set forth in an amended or supplemental
Indenture that complies with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note 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. However, any such Holder or subsequent Holder of a Note may revoke the
consent as to its Note if the Trustee receives written notice of revocation
before the date the waiver, supplement or amendment becomes effective. An
amendment, supplement or waiver becomes effective in accordance with its terms
and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date for
determining which Holders of the Notes must consent to such amendment,
supplement or waiver. If the Company fixes a record date, the record date shall
be fixed at (i) the later of 30 days prior to the first solicitation of such
consent or the date of the most recent list of Holders of Notes furnished for
the Trustee prior to such solicitation pursuant to Section 2.05 hereof or (ii)
such other date as the Company shall designate.
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SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if, in the reasonable judgment of the
Trustee the amendment or supplement does not adversely affect the rights,
duties, liabilities or immunities of the Trustee. The Company may not sign an
amendment or supplemental Indenture until the Board of Directors approves it. In
signing or refusing to sign any amended or supplemental indenture the Trustee
shall be entitled to receive and (subject to Section 7.01) shall be fully
protected in relying upon, in addition to the documents required by Section
13.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture, that it is not inconsistent herewith, and that it
will be valid and binding upon the Company and the Guaranteeing Subsidiaries in
accordance with its terms.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Note agrees, that
all Obligations on the Notes shall be subordinated in right of payment, to the
extent and in the manner provided in this Article 10, to the prior payment in
full in cash or Cash Equivalents of all Senior Debt, whether outstanding on the
date hereof or thereafter incurred.
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities, the holders of Senior Debt will be entitled to
receive payment in full in cash or Cash Equivalents of all Obligations due in
respect of such Senior Debt (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior Debt, whether or
not such interest is an allowed claim under applicable law) before the Holders
of Notes will be entitled to receive any payment with respect to the Notes.
Until all Obligations with respect to Senior Debt are paid in full in cash or
Cash Equivalents, any distribution to which the Holders of Notes would otherwise
be entitled shall be made to
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the holders of Senior Debt (except that Holders of Notes may receive (i)
Permitted Junior Securities and any other Permitted Junior Securities issued in
exchange for any Permitted Junior Securities and (ii) payments made from the
defeasance trust created pursuant to Article 8 hereof).
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company also may not make any payment upon or in respect of the
Notes (except that Holders of Notes may receive (i) Permitted Junior Securities
and any other Permitted Junior Securities issued in exchange for any Permitted
Junior Securities and (ii) payments made from the defeasance trust created
pursuant to Article 8 hereof), if (i) a default in the payment of the principal
of, premium, if any, or interest on Designated Senior Debt occurs and is
continuing (a "payment default") or (ii) any other default occurs and is
continuing with respect to Designated Senior Debt that permits holders of the
Designated Senior Debt as to which such default relates to accelerate its
maturity (a "non-payment default") and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Representative for the Senior
Debt.
The Company may and shall resume payments on the Notes (a) in the case
of a payment default, upon the date on which such default is cured or waived,
and (b) in the case of a non-payment default, the earlier of the date on which
such non-payment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated. No new period of payment blockage
may be commenced on account of any non-payment default unless and until (i) 360
days have elapsed since the initial effectiveness of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal, premium,
if any, Liquidated Damages, if any, and interest on the Notes that have come due
have been paid in full in cash. No non-payment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been cured or waived for a period of not less than 90
days.
SECTION 10.04. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of Default,
the Company shall provide the names of the Representatives of the Senior Debt to
the Trustee and the Trustee shall promptly notify such Representatives of Senior
Debt of the acceleration.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
Subject to the provisions of Section 10.11 hereof, in the event that
the Trustee receives any payment of any Obligations with respect to the Notes at
a time when the Trustee has received written notice that such payment is
prohibited by Section 10.02 or 10.03 hereof, such Payment shall be held by the
Trustee, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request to, the holders of Senior
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Debt as their interest may appear or their Representative under the indenture or
other agreement (if any) pursuant to which Senior Debt may have been issued, as
their interest may appear, for application to the payment of all Obligations
with respect to Senior Debt remaining unpaid to the extent necessary to pay such
Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
In the event that any Holder receives any payment of any Obligations
with respect to the Notes at a time when such payment is prohibited by Section
10.02 or 10.03 hereof, such payment shall be held by such Holder, in trust for
the benefit of, and shall be paid forthwith over and delivered, upon written
request to, the holders of Senior Debt as their interest may appear or their
Representative under the indenture or other agreement (if any) pursuant to which
Senior Debt may have been issued, as their interest may appear, for application
to the payment of all Obligations with respect to Senior Debt remaining unpaid
to the extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.06. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Notes to violate this Article 10, but failure to give such
notice shall not affect the subordination of the Notes to the Senior Debt as
provided in this Article 10.
The Company shall promptly notify holders of Senior Debt if payment of
the Notes is accelerated because of an Event of Default
SECTION 10.07. SUBROGATION.
After all Senior Debt is paid in full in cash or Cash Equivalents and
until the Notes are paid in full, Holders shall be subrogated (equally and
ratably with all other Indebtedness pari passu with the Notes) to the rights of
holders of Senior Debt to receive distributions applicable to Senior Debt to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Debt. A distribution made under this Article 10 to holders
of Senior Debt that otherwise would have been made to Holders
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is not, as between the Company and Holders, a payment by the Company on the
Senior Debt.
SECTION 10.08. RELATIVE RIGHTS.
This Article 10 defines the relative rights of the Holders and holders
of Senior Debt. Nothing in this Indenture shall:
(i) impair, as between the Company and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of, premium, if any, interest and Liquidated Damages, if
any, on the Notes in accordance with their terms;
(ii) affect the relative rights of Holders and creditors of the
Company other than their rights in relation to holders of Senior Debt;
or
(iii) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or an Event of Default (including,
without limitation, accelerating the maturity of the Notes), subject
to the rights of holders and owners of Senior Debt to receive
distributions and payments otherwise payable to Holders.
If the Company fails because of this Article 10 to pay principal of,
premium, if any, interest or Liquidated Damages, if any, on a Note on the due
date, the failure is nevertheless a Default or an Event of Default.
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the subordination of
the Indebtedness evidenced by the Notes shall be prejudiced or impaired by any
act or failure to act by the Company or any Holder or by the failure of the
Company or any Holder to comply with this Indenture.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or herself to be a
Representative to establish that such notice has been given by a Representative.
In the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior Debt to
participate in any payment or distribution pursuant to this Article 10, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Debt held by such Person,
the extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this Article 10, and if such evidence is not
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furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment. Upon any
payment or distribution of assets of the Company referred to in this Article 10,
the Trustee and the Holders shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction or upon any certificate of such
Representative or of the liquidating trustee or agent or other Person making any
distribution to the Trustee or to the Holders for the purpose of ascertaining
the Persons entitled to participate in such distribution, the holders of the
Senior Debt and other Indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article 10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to receive money and make payments on the Notes, unless a Responsible Officer of
the Trustee shall have received at its Corporate Trust Office at least two
Business Days prior to the date of such payment written notice that the payment
of any Obligations with respect to the Notes would violate this Article 10;
provided that this Section 10.11 shall not limit or modify the rights of holders
of Senior Debt to recover any such payments from the Holders of the Notes
pursuant to Sections 10.02, 10.03 and/or 10.05. Only the Company or a
Representative may give the notice. The Trustee shall not be charged with
knowledge of the curing of any Default or termination of the act or condition
preventing any payment hereunder unless and until the Trustee shall have
received an Officers' Certificate to such effect. Nothing in this Article 10
shall impair the claims of, or payments to, the Trustee under or pursuant to
Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights. Nothing in this Article 10 shall apply to the claims
of, or payments to, the Trustee under or pursuant to the provisions in this
Indenture regarding compensation and indemnification of the Trustee.
In the case that at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and then be acting under this
Indenture, the term "Trustee" as used in this Article 10 shall in such case
(unless the context otherwise requires) be construed as extending to and
including such Paying Agent within its meaning as fully for all intents and
purposes as if such Paying Agent were named in this Article 10 in addition to or
in place of the Trustee; provided, however, that this Section shall not apply to
the Company or any Affiliate of the Company if it or such Affiliate acts as
Paying Agent.
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SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof authorizes
and directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.09 hereof at least 30 days before the expiration of the time to file such
claim, a Representative of Designated Senior Debt is hereby authorized to file
an appropriate claim for and on behalf of the Holders of the Notes.
SECTION 10.13. AMENDMENTS.
Any amendment to the provisions of this Article 10 shall require the
consent of the Holders of at least 75% in aggregate amount of Notes then
outstanding if such amendment would adversely affect the rights of the Holders
of Notes. In addition, any amendment to the subordination provisions of the
Indenture shall require the consent of the requisite lenders under the Credit
Facility and, if such amendment would adversely affect the rights of the Holders
of the Notes, of the Holders of at least 75% in aggregate amount of the Notes
then outstanding.
ARTICLE 11
GUARANTEE OF NOTES
SECTION 11.01. SUBSIDIARY GUARANTEES.
Subject to Section 11.06 hereof, each of the Guaranteeing Subsidiaries
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Notes and the Obligations of the Company hereunder and
thereunder, that:
(a) the principal of, premium, if any, interest and Liquidated
Damages, if any, on the Notes will be promptly paid in full when due,
subject to any applicable grace period, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue
principal, premium, if any (to the extent permitted by law), interest on
any interest, if any, and Liquidated Damages, if any, on the Notes, and all
other payment Obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full and performed, all in
accordance with the terms hereof and thereof; and
(b) in case of any extension of time of payment or renewal of any
Notes or any of 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,
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redemption or otherwise. Failing payment when so due of any amount so
guaranteed or any performance so guaranteed for whatever reason the
Guaranteeing Subsidiaries will be jointly and severally obligated to pay
the same immediately.
An Event of Default under this Indenture or the Notes shall constitute
an event of default under the Subsidiary Guarantees, and shall entitle the
Holders to accelerate the Obligations of the Guaranteeing Subsidiaries hereunder
in the same manner and to the same extent as the Obligations of the Company.
The Guaranteeing Subsidiaries hereby agree that their 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 with respect to any
provisions hereof or thereof, the recovery of any judgment against the Company,
any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guaranteeing
Subsidiary.
Each Guaranteeing Subsidiary hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that this
Subsidiary Guarantee will not be discharged except by complete performance of
the Obligations contained in the Notes and this Indenture. If any Holder or the
Trustee is required by any court or otherwise to return to the Company, the
Guaranteeing Subsidiaries, or any Note Custodian, Trustee, liquidator or other
similar official acting in relation to either the Company or the Guaranteeing
Subsidiaries, any amount paid by either the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each Guaranteeing Subsidiary agrees that it shall not
be entitled to, and hereby waives, any right of subrogation in relation to the
Holders in respect of any Obligations Guaranteed hereby.
Each Guaranteeing Subsidiary further agrees that, as between the
Guaranteeing Subsidiaries, 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 6 for the purposes of this Subsidiary
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 declaration of acceleration of such Obligations as provided in
Article 6 hereof, such Obligations (whether or not due and payable) shall
forthwith become due and payable by the Guaranteeing Subsidiaries for the
purpose of this Subsidiary Guarantee. The Guaranteeing Subsidiaries shall have
the right to seek contribution from any non-paying Guaranteeing Subsidiary so
long as the exercise of such right does not impair the rights of the Holders
under the Subsidiary Guarantees.
SECTION 11.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
To evidence its Subsidiary Guarantee set forth in Section 11.01, each
Guaranteeing Subsidiary hereby agrees that a notation of such Subsidiary
Guarantee
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substantially in the form of Exhibit D shall be endorsed by an Officer of such
Guaranteeing Subsidiary on each Note authenticated and delivered by the Trustee
and that this Indenture shall be executed on behalf of such Guaranteeing
Subsidiary, by manual or facsimile signature, by an Officer of such Guaranteeing
Subsidiary.
Each Guaranteeing Subsidiary hereby agrees that its Subsidiary
Guarantee set forth in Section 11.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the
Subsidiary Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which a Subsidiary Guarantee is endorsed, the
Subsidiary Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set
forth in this Indenture on behalf of the Guaranteeing Subsidiaries.
SECTION 11.03. GUARANTEEING SUBSIDIARIES MAY CONSOLIDATE, ETC., ON CERTAIN
TERMS.
(a) Except as set forth in Articles 4 and 5 hereof, nothing contained
in this Indenture shall prohibit a merger between a Guaranteeing Subsidiary and
another Guaranteeing Subsidiary or a merger between a Guaranteeing Subsidiary
and the Company.
(b) Except as provided in Section 11.03(a) hereof or in a transaction
referred to in Section 11.04 hereof, no Guaranteeing Subsidiary may consolidate
with or merge with or into (whether or not such Guaranteeing Subsidiary is the
surviving Person), another Person, whether or not affiliated with such
Guaranteeing Subsidiary, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to another corporation, Person
or entity unless:
(i) subject to the provisions of Section 11.04, the Person formed by
or surviving any such consolidation or merger (if other than such
Guaranteeing Subsidiary) assumes all the obligations of such Guaranteeing
Subsidiary under the Notes and the Indenture pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee in
the Form of Exhibit E hereto;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default exists;
(iii) immediately after giving effect to such transaction or series
of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), the
Consolidated Net Worth of the Guaranteeing Subsidiary or the surviving
entity, as the case may be, is at least
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equal to the Consolidated Net Worth of the Guaranteeing Subsidiary
immediately before such transaction or series of transactions; and
(iv) the Company would be permitted by virtue of the Company's pro
forma Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio set forth in Section 4.09 hereof.
(c) In the case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor Person, by supplemental indenture,
executed and delivered to the Trustee and substantially in the form of Exhibit E
hereto, of the Subsidiary Guarantee and the due and punctual performance of all
of the covenants and conditions of this Indenture to be performed by the
Guaranteeing Subsidiary, such successor Person shall succeed to and be
substituted for the Guaranteeing Subsidiary with the same effect as if it had
been named herein as a Guaranteeing Subsidiary; provided that, solely for
purposes of computing Consolidated Net Income for purposes of clause (b) of the
first paragraph of Section 4.07 hereof, the Consolidated Net Income of any
Person other than the Company and its Restricted Subsidiaries shall only be
included for periods subsequent to the effective time of such merger,
consolidation, combination or transfer of assets. Such successor Person
thereupon may cause to be signed any or all of the Subsidiary Guarantees to be
endorsed upon all of the Notes issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee. All of the
Subsidiary Guarantees so issued shall in all respects have the same legal rank
and benefit under this Indenture as the Subsidiary Guarantees theretofore and
thereafter issued in accordance with the terms of this Indenture as though all
of such Subsidiary Guarantees had been issued at the date of the execution
hereof.
SECTION 11.04. RELEASES FOLLOWING SALE OF ASSETS.
Concurrently with the sale or other disposition of all or
substantially all of the assets of any Guaranteeing Subsidiary or all of the
Capital Stock of any Guaranteeing Subsidiary, such Guaranteeing Subsidiary (in
the event of a sale or other disposition of all of the Capital Stock of such
Guaranteeing Subsidiary) or the Person acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets of a
Guaranteeing Subsidiary) shall be released from and relieved of its Obligations
under its Subsidiary Guarantee or Section 11.03 hereof, as the case may be;
provided that
(i) In the event of an Asset Sale, the Net Proceeds from such sale
or other disposition are treated in accordance with the provisions of
Section 4.10 hereof and
(ii) the Company is in compliance with all other provisions of this
Indenture applicable to such disposition. Upon delivery by the Company to
the Trustee of an Officers' Certificate to the effect of the foregoing, the
Trustee shall execute any documents reasonably required in order to
evidence the release of any Guaranteeing Subsidiary from its Obligation
under its Subsidiary Guarantee. Any
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Guaranteeing Subsidiary not released from its Obligations under its
Subsidiary Guarantee shall remain liable for the full amount of principal
of, premium, If any, interest and Liquidated Damages, if any, on the Notes
and for the other Obligations of such Guaranteeing Subsidiary under the
Indenture as provided in this Article 11.
SECTION 11.05. ADDITIONAL GUARANTEEING SUBSIDIARIES.
Any Person that was not a Guaranteeing Subsidiary on the date of this
Indenture may become a Guaranteeing Subsidiary by executing and delivering to
the Trustee (a) a supplemental indenture in substantially the form of Exhibit E
and (b) an Opinion of Counsel to the effect that such supplemental indenture has
been duly authorized and executed by such Person and constitutes the legal,
valid, binding and enforceable obligation of such Person (subject to such
customary exceptions concerning creditors rights', fraudulent transfers, public
policy and equitable principles as may be acceptable to the Trustee in its
discretion).
SECTION 11.06. LIMITATION ON GUARANTEEING SUBSIDIARY LIABILITY.
For purposes hereof, each Guaranteeing Subsidiary's liability shall be
limited to the lesser of (i) the aggregate amount of the Obligations of the
Company under the Notes and this Indenture and (ii) the amount, if any, which
would not have (A) rendered such Guaranteeing Subsidiary "insolvent" (as such
term is defined in the United States Bankruptcy Code and in the Debtor and
Creditor Law of the State of New York) or (B) left such Guaranteeing Subsidiary
with unreasonably small capital at the time its Subsidiary Guarantee of the
Notes was entered into; provided that, it will be a presumption in any lawsuit
or other proceeding in which a Guaranteeing Subsidiary is a party that the
amount guaranteed pursuant to the Subsidiary Guarantee is the amount set forth
in clause (i) above unless any creditor, or representative of creditors of such
Guaranteeing Subsidiary, or debtor in possession or trustee in bankruptcy of the
Guaranteeing Subsidiary, otherwise proves in such a lawsuit that the aggregate
liability of the Guaranteeing Subsidiary is the amount set forth in clause (ii)
above. In making any determination as to solvency or sufficiency of capital of a
Guaranteeing Subsidiary in accordance with the previous sentence, the right of
such Guaranteeing Subsidiary to contribution from other Guaranteeing
Subsidiaries, and any other rights such Guaranteeing Subsidiary may have,
contractual or otherwise, shall be taken into account.
SECTION 11.07. "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 11 shall in each case (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully and for all intents and purposes as if such Paying
Agent were named in this Article 11 in place of the Trustee.
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ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTEE
SECTION 12.01. AGREEMENT TO SUBORDINATE.
The Guaranteeing Subsidiaries agree, and each Holder by accepting a
Note agrees, that all Guarantee Obligations, shall be subordinated in right of
payment, to the extent and in the manner provided in this Article 12, to the
prior payment in full in cash or Cash Equivalents of all Senior Debt, whether
outstanding on the date hereof or thereafter incurred.
SECTION 12.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of any Guaranteeing Subsidiary in a
liquidation or dissolution of such Guaranteeing Subsidiary or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to such
Guaranteeing Subsidiary or its property, an assignment for the benefit of
creditors or any marshalling of such Guaranteeing Subsidiary's assets and
liabilities, the holders of Senior Debt of such Guaranteeing Subsidiary will be
entitled to receive payment in full in cash or Cash Equivalents of all
Obligations due in respect of such Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Guarantor Senior Debt, whether or not such interest is an allowed claim under
applicable law) before the Holders of Notes will be entitled to receive any
payment under the Subsidiary Guarantee of such Guaranteeing Subsidiary, and
until all Obligations with respect to Senior Debt of any Guaranteeing Subsidiary
are paid in full in cash or Cash Equivalents, any payment or distribution under
the Subsidiary Guarantee of such Guaranteeing Subsidiary to which the Holders of
Notes would be entitled shall be made by such Guaranteeing Subsidiary to the
holders of Senior Debt of such Guaranteeing Subsidiary (except that Holders of
Notes may receive (i) Permitted Junior Securities and (ii) payments made from
the defeasance trust created pursuant to Article 8 hereof).
SECTION 12.03. DEFAULT ON DESIGNATED GUARANTOR SENIOR DEBT.
No Guaranteeing Subsidiary may make any payment upon or in respect of
such Guaranteeing Subsidiary's Subsidiary Guarantee (except that Holders of
Notes may receive (i) Permitted Junior Securities and any other Permitted Junior
Securities issued in exchange for any Permitted Junior Securities and (ii)
payments and other distributions made from the defeasance trust created pursuant
to Article 8 hereof) if a payment default with respect to Designated Senior Debt
occurs and is continuing or a non-payment default occurs and is continuing with
respect to Designated Senior Debt that permits holders of such Designated Senior
Debt as to which such default relates to accelerate its maturity and the Trustee
receives a Payment Blockage Notice from the holders of such Designated Senior
Debt.
Such Guaranteeing Subsidiary may and shall resume payments on its
Subsidiary Guarantee (a) in the case of a payment default, upon the date on
which such
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default is cured or waived and (b) in case of a non-payment default, the earlier
of the date on which such non-payment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been accelerated. No new
period of payment blockage may be commenced on account of any non-payment
default unless and until (i) 360 days have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, Liquidated Damages, if any,
and interest on the Notes that have become due have been paid in full in cash.
No non-payment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have been cured or
waived for a period of not less than 90 days.
SECTION 12.04. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of Default,
the Guaranteeing Subsidiary shall provide the names of the Representatives of
the Senior Debt to the Trustee and the Trustee shall promptly notify such
Representatives of Senior Debt of the acceleration.
SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee receives any payment of any Guarantee
Obligations with respect to a Guaranteeing Subsidiary at a time when the Trustee
has actual knowledge that such payment is prohibited by Section 12.02 or 12.03
hereof, such Payment shall be held by the Trustee, in trust for the benefit of,
and shall be paid forthwith over and delivered, upon written request to, the
holders of Senior Debt of such Guaranteeing Subsidiary as their interest may
appear or their Representative under the indenture or other agreement (if any)
pursuant to which such Senior Debt may have been issued, as their interest may
appear, for application to the payment of all Obligations with respect to such
Senior Debt remaining unpaid to the extent necessary to pay such Obligations in
full in accordance with their terms, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Debt.
In the event that any Holder receives any payment of any Guarantee
Obligations of a Guaranteeing Subsidiary at a time when such payment is
prohibited by Section 12.02 or 12.03 hereof, such payment shall be held by such
Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request to, the holders of Senior Debt of such
Guaranteeing Subsidiary as their interest may appear or their Representative
under the indenture or other agreement (if any) pursuant to which such Senior
Debt may have been issued, as their interest may appear, for application to the
payment of all Obligations with respect to such Senior Debt remaining unpaid to
the extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of such Senior Debt.
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With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 12, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the
Guaranteeing Subsidiaries or any other Person money or assets to which any
holders of Senior Debt shall be entitled by virtue of this Article 12, except if
such payment is made as a result of the willful misconduct or negligence of the
Trustee.
SECTION 12.06. NOTICE BY GUARANTEEING SUBSIDIARY.
Each Guaranteeing Subsidiary shall promptly notify the Trustee and the
Paying Agent of any facts known to such Guaranteeing Subsidiary that would cause
a payment of any Guarantee Obligations to violate this Article 12, but failure
to give such notice shall not affect the subordination of the Subsidiary
Guarantees to the Senior Debt as provided in this Article 12.
SECTION 12.07. SUBROGATION.
After all Senior Debt is paid in full in cash or Cash Equivalents and
until the Subsidiary Guarantees are paid in full, Holders shall be subrogated
(equally and ratably with all other Indebtedness pari passu with the Subsidiary
Guarantees) to the rights of holders of Senior Debt to receive distributions
applicable to Senior Debt to the extent that distributions otherwise payable to
the Holders have been applied to the payment of Senior Debt. A distribution made
under this Article 12 to holders of Senior Debt that otherwise would have been
made to Holders is not, as between the Guaranteeing Subsidiaries and Holders, a
payment by the Guaranteeing Subsidiaries on the Senior Debt.
SECTION 12.08. RELATIVE RIGHTS.
This Article 12 defines the relative rights of the Holders and holders
of Senior Debt. Nothing in this Indenture shall:
(i) impair, as between the Guaranteeing Subsidiaries and the
Holders, the obligation of the Guaranteeing Subsidiaries, which is absolute
and unconditional, to pay principal of, premium, if any, interest and
Liquidated Damages, If any, on the Notes in accordance with the terms of
the Subsidiary Guarantees;
(ii) affect the relative rights of Holders and creditors of the
Guaranteeing Subsidiaries other than their rights in relation to holders of
Senior Debt; or
(iii) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or an Event of Default, subject to the
rights of holders
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and owners of Senior Debt to receive distributions and payments otherwise
payable to Holders.
If any Guaranteeing Subsidiary fails because of this Article 12 to pay
its Guarantee Obligations in accordance with its Subsidiary Guarantee on the due
date, the failure is nevertheless a Default or an Event of Default.
SECTION 12.09. SUBORDINATION MAY NOT BE IMPAIRED BY GUARANTEEING SUBSIDIARY.
No right of any holder of Senior Debt to enforce the subordination of
the Guarantee Obligations shall be prejudiced or impaired by any act or failure
to act by the Guaranteeing Subsidiaries or any Holder or by the failure of the
Guaranteeing Subsidiaries or any Holder to comply with this Indenture.
SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of a Guaranteeing
Subsidiary referred to in this Article 12, the Trustee and the Holders shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other Person making any distribution to the
Trustee or to the Holders for the purpose of ascertaining the Persons entitled
to participate in such distribution, the holders of the Senior Debt and other
Indebtedness of such Guaranteeing Subsidiary, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article 12.
SECTION 12.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 12 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Subsidiary Guarantees, unless the Trustee shall have
received at its Corporate Trust Office at least 5 Business Days prior to the
date of such payment written notice that the payment of any Obligations with
respect to the Subsidiary Guarantees would violate this Article 12. Only the
Guaranteeing Subsidiaries or a Representative may give the notice. Nothing in
this Article 12 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights.
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SECTION 12.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof authorizes
and directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 12, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.09 hereof at least 30 days before the expiration of the time to file such
claim, a Representative of Designated Guarantor Senior Debt is hereby authorized
to file an appropriate claim for and on behalf of the Holders of the Notes.
SECTION 12.13. AMENDMENTS.
Any amendment to the provisions of this Article 12 shall require the
consent of the Holders of at least 75% in aggregate amount of Notes then
outstanding if such amendment would adversely affect the rights of the Holders
of Notes.
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 13.02. NOTICES.
Any notice or communication by the Company, any Guaranteeing
Subsidiary or the Trustee to the others is duly given if in writing and
delivered in Person or mailed by first class mail registered or certified,
return receipt requested), telecopier or overnight air courier guaranteeing next
day delivery, to the others' address:
If to the Company or any Guaranteeing Subsidiary:
Pediatric Services Of America
310 Technology Parkway
Norcross, GA 30092
Attention: General Counsel
With a copy to:
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Long, Aldridge & Norman, LLP
One Peachtree Center
Suite 5300
303 Peachtree Street
Atlanta, GA 30308
Attention: Thomas Wardell, Esq.
If to the Trustee:
SunTrust Bank, Atlanta
58 Edgewood Avenue
Suite 400
Atlanta, GA 30303
The Company, any Guaranteeing Subsidiary or the Trustee, by notice to
the others may designate additional or different addresses for subsequent
notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; 5 Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail to its address shown on the register kept by the Registrar. Any notice or
communication shall also be so mailed to any Person described in TIA Section
313(c), to the extent required by the TIA. 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
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or any Guaranteeing
Subsidiary to the Trustee to take any action under this Indenture, the Company
or such Guaranteeing Subsidiary shall furnish to the Trustee:
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(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 13.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 13.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 13.05. 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 a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of
TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) 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;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 13.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company or any Guaranteeing Subsidiary, as such, shall have any liability for
any obligations of the Company under the Notes, any Subsidiary Guarantee, this
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The
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waiver and release are part of the consideration for issuance of the Notes and
any Subsidiary Guarantee. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
SECTION 13.08. GOVERNING LAW.
The internal law of the State of New York shall govern and be used to
construe this Indenture, the Subsidiary Guarantees and the Notes.
SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 13.10. SUCCESSORS.
All agreements of the Company and the Guaranteeing Subsidiaries in
this Indenture and the Notes shall bind their respective successors and assigns.
All agreements of the Trustee in this Indenture shall bind its successors and
assigns.
SECTION 13.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes 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 13.12. ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC.
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 or provisions hereof.
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SIGNATURES
Dated as of April 16, 1998
---------
PEDIATRIC SERVICES OF AMERICA, INC.
Attest: /s/ Stephen M. Mengert By: /s/ Joseph D. Sansone
-------------------------- --------------------------------
Name: Joseph D. Sansone
Title: President
PSA Properties Corporation
Attest: /s/ Joseph D. Sansone By: /s/ Susan E. Dignan
-------------------------- --------------------------------
Name: Susan E. Dignan
Title: President
PSA Licensing Corporation
Attest: /s/ Joseph D. Sansone By: /s/ Susan E. Dignan
-------------------------- --------------------------------
Name: Susan E. Dignan
Title: President
Pediatric Services of America, Inc.
Attest: /s/ Stephen M. Mengert By: /s/ Joseph D. Sansone
-------------------------- --------------------------------
Name: Joseph D. Sansone
Title: President
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Pediatric Services of America, Inc.
Attest: /s/ Stephen M. Mengert By: /s/ Joseph D. Sansone
-------------------------- --------------------------------
Name: Joseph D. Sansone
Title: President
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Premier Medical Services, Inc.
Attest: /s/ Stephen M. Mengert By: /s/ Joseph D. Sansone
-------------------------- --------------------------------
Name: Joseph D. Sansone
Title: President
Pediatric Home Nursing Services, Inc.
Attest: /s/ Stephen M. Mengert By: /s/ Joseph D. Sansone
-------------------------- --------------------------------
Name: Joseph D. Sansone
Title: President
Pediatric Partners, Inc.
Attest: /s/ Stephen M. Mengert By: /s/ Joseph D. Sansone
-------------------------- --------------------------------
Name: Joseph D. Sansone
Title: President
ARO Health Services, Inc.
Attest: /s/ Stephen M. Mengert By: /s/ Joseph D. Sansone
-------------------------- --------------------------------
Name: Joseph D. Sansone
Title: President
Premier Nurse Staffing, Inc.
Attest: /s/ Stephen M. Mengert By: /s/ Joseph D. Sansone
-------------------------- --------------------------------
Name: Joseph D. Sansone
Title: President
Premier Certified Home Health
Services, Inc.
Attest: /s/ Stephen M. Mengert By: /s/ Joseph D. Sansone
-------------------------- --------------------------------
Name: Joseph D. Sansone
Title: President
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Paramedical Services of America, Inc.
Attest: /s/ Stephen M. Mengert By: /s/ Joseph D. Sansone
------------------------- --------------------------------
Name: Joseph D. Sansone
Title: President
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EXHIBIT A
---------
[LEGEND FOR GLOBAL SECURITY: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN
PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY
OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE
OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS SECURITY IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW
YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION UNDER SUCH LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY)
UNLESS SUCH OFFER, SALE OR OTHER TRANSFER IS (A) TO THE COMPANY, (B) PURSUANT TO
A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON WHO IS OR WHO THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR
<PAGE>
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (A)(2), (A)(3)
OR (A)(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR" FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION
WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO
ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, AND IN EACH OF THE FOREGOING CASES SUCH OFFER, SALE OR OTHER
TRANSFER IS IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, SUBJECT TO
THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN
EACH OF THE FOREGOING CASES PROVIDED THAT A CERTIFICATE OF TRANSFER IN THE FORM
PROVIDED FOR IN THE INDENTURE (A COPY OF WHICH MAY BE OBTAINED FROM THE TRUSTEE)
IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE THEN HOLDER OF THIS SECURITY AFTER THE RESALE
RESTRICTION TERMINATION DATE. ANY TRANSFEREE OF THIS SECURITY SHALL BE DEEMED TO
HAVE REPRESENTED EITHER (X) THAT IT IS NOT USING THE ASSETS OF AN EMPLOYEE
BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT ("ERISA") OR
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, TO PURCHASE THIS SECURITY OR (Y)
THAT ITS PURCHASE AND CONTINUED HOLDING OF THE SECURITY WILL BE COVERED BY A
U.S. DEPARTMENT OF LABOR CLASS EXEMPTION (WITH RESPECT TO PROHIBITED
TRANSACTIONS UNDER SECTION 406(A) OF ERISA).
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10% SENIOR SUBORDINATED NOTES DUE 2008
Cusip No. 705323 AA 1 $75,000,000
PEDIATRIC SERVICES OF AMERICA, INC.
promises to pay to
or registered assigns,
the principal sum of $
Dollars [OR SUCH GREATER OR LESSER AMOUNT AS INDICATED ON THE SCHEDULE OF
EXCHANGES OF DEFINITIVE NOTES ON THE REVERSE HEREOF ON , 2008]*
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Authentication: Dated: , 199_
This is one of the Notes referred
to in the within-mentioned Indenture.
as Trustee PEDIATRIC SERVICES OF AMERICA, INC.
By: By:
-------------------------------- -------------------------------
Authorized Officer
By:
-------------------------------
- -------------------
* This phrase should be included only if the Note is issued in global form.
A-3
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10% SENIOR SUBORDINATED NOTES DUE 2008
1. INTEREST. PEDIATRIC SERVICES OF AMERICA, INC., a Delaware
corporation, or its successor (the "Company"), promises to pay interest on the
principal amount of this Note at the rate of 10% per annum and shall pay the
Liquidated Damages, if any, payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. The Company will pay interest and
Liquidated Damages in United States dollars (except as otherwise provided
herein) semi-annually in arrears on April 15 and October 15, commencing on
October 15, 1998, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the
Notes shall accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of original issuance; provided that
if there is no existing Default or Event of Default in the payment of interest,
and if this Note is authenticated between a record date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such next succeeding Interest Payment Date, except in the case of the original
issuance of Notes, in which case interest shall accrue from the date of
authentication. The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, from time to time on demand at a rate that is 1.0% per annum in
excess of the rate then in effect; it shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages, if any (without regard to any
applicable grace periods), from time to time on demand at the same rate to the
extent lawful. Interest shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages, if any, to the Persons who
are registered Holders of Notes at the close of business on the April 1 or
October 1 next preceding the Interest Payment Date, even if such Notes are
cancelled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.11 of the Indenture with respect to defaulted
interest. The Notes shall be payable as to principal, premium, if any, interest
and Liquidated Damages, if any, at the office or agency of the Company
maintained for such purpose within the City and State of New York, or, at the
option of the Company, payment of interest may be made by check mailed to the
Holders at their addresses set forth in the register of Holders; provided that
payment by wire transfer of immediately available funds shall be required with
respect to principal of, and interest, premium and Liquidated Damages, if any,
on, all Global Notes and all other Notes the Holders of which shall have
provided written wire transfer instructions to the Company or the Paying Agent.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. PAYING AGENT AND REGISTRAR. Initially, SunTrust Bank, Atlanta,
the Trustee under the Indenture, shall act as Paying Agent and Registrar. The
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Company may change any Paying Agent or Registrar without notice to any Holder.
The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated
as of April 16, 1998 ("Indenture") between the Company, the Guaranteeing
Subsidiaries and the Trustee. The terms of the Notes include those stated in
the Indenture and those made a part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the
"TIA"). The Notes are subject to all such terms, and Holders are referred to
the Indenture and such Act for a statement of such terms. The Notes are general
unsecured Obligations of the Company limited to $75,000,000 in aggregate
principal amount, plus amounts, if any, sufficient to pay premium, if any,
interest or Liquidated Damages, if any, on outstanding Notes as set forth in
Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at the Company's option prior to April 15, 2003. Thereafter, the
Notes shall be subject to redemption at the option of the Company, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below together
with accrued and unpaid Interest and any Liquidated Damages, if any, thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on April 15 of the years indicated below:
Year Percentage
---- ----------
2003........................... 105.000%
2004........................... 103.333%
2005........................... 101.667%
2006 and thereafter............ 100.000%
Notwithstanding the foregoing, at any time prior to April 15, 2001, the
Company on one or more occasions may redeem up to 25% of the aggregate principal
amount of originally issued Notes with any of the net proceeds of one or more
public offerings of common stock of the Company at a redemption price of
110.000% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable date of redemption;
provided that at least 75% of the aggregate principal amount of the Notes remain
outstanding immediately after the occurrence of each such redemption.
Any redemption pursuant to Section 3.07 of the Indenture shall be made
pursuant to the provisions of Section 3.01 through 3.06 thereof.
A-5
<PAGE>
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be required to
make mandatory redemption or sinking fund payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase.
Within 30 days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control setting forth the procedures governing the Change of Control
Offer required by the Indenture.
(b) When the aggregate amount of Excess Proceeds held by the Company in
connection with an Asset Sale exceeds $10.0 million, the Company shall, pursuant
to Section 3.09 of the Indenture, (i) make an offer to all Holders of Notes to
purchase and (ii) prepay, purchase or redeem (or make an offer to do so) any
other Pari Passu Indebtedness of the Company in accordance with provisions
requiring the Company to prepay, purchase or redeem such Indebtedness with the
proceeds from any asset sales (or offer to do so), the maximum principal amount
of Notes and of such Indebtedness that may be purchased out of the Excess
Proceeds, pro rata in proportion to the respective principal amounts (or
accreted value, as applicable) of the Notes and such other Indebtedness required
to be prepaid, purchased or redeemed or tendered for pursuant to such offer (an
"Asset Sale Offer"), at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any to the date of purchase, in accordance with the procedures set
forth in Section 3.09 of the Indenture.
(c) Holders of the Notes that are the subject of an offer to purchase will
receive a Change of Control Offer or Asset Sale Offer from the Company prior to
any related purchase date and may elect to have such Notes purchased by
completing the form titled "Option of Holder to Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date,
A-6
<PAGE>
interest and Liquidated Damages, if any, cease to accrue on the Notes or
portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in initial denominations of $1,000 and integral multiples of
$1,000. The transfer of the Notes may be registered and the Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. SUBORDINATION. Each Holder by accepting a Note agrees that the payment of
principal of, premium and Liquidated Damages, if any, and interest on each Note
is subordinated in right of payment, to the extent and in the manner provided in
Article 10 of the Indenture, to the prior payment in full of all Senior Debt
(whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed), and the subordination is for the benefit of
the holders of Senior Debt.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as
its owner for all purposes.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the following paragraphs,
the Indenture, the Notes and the Subsidiary Guarantees may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for Notes), and any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, interest or Liquidated Damages, if any, on the
Notes, except a payment default resulting from an acceleration that has been
rescinded) or compliance with any provision of the Indenture, the Notes or the
Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Notwithstanding the foregoing, the provisions with respect to Asset Sales may
be amended or supplemented with the consent of the Holders of at least two-
thirds in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes). In
addition, any amendment to the provisions of Article 10 and Article 12 of the
Indenture (which relate to subordination) will require the consent of the
Holders of at least 75% in aggregate amount of Notes then outstanding (including
consents obtained in connection with a tender offer or exchange
A-7
<PAGE>
offer for the Notes) if such amendment would adversely affect the rights of
Holders of Notes. Without obtaining any necessary consents under the Credit
Facility, the Company may not amend or supplement the subordination provisions
with respect to the Notes.
Without the consent of each Holder affected, however, an amendment or waiver
may not (with respect to any Note held by a non-consenting Holder): (i) reduce
the principal amount of Notes; (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes or any Change of Control Offer; (iii) reduce the rate of or change the
time for payment of interest or Liquidated Damages, if any, on any Notes; (iv)
waive a Default or Event of Default in the payment of principal of or premium,
if any, or interest or Liquidated Damages, if any, on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration); (v) make any Note payable in money other than
that stated in the Notes; (vi) waive a redemption or repurchase payment with
respect to any Note; or (vii) make any change in the foregoing amendment and
waiver provisions.
Without the consent of any Holder of Notes, the Company, the Guaranteeing
Subsidiaries and the Trustee may amend or supplement the Indenture, the
Subsidiary Guarantees or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or a
Guaranteeing Subsidiary's obligations to Holders of the Notes in case of a
merger, transfer of assets or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with the requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the TIA or to allow any
Guaranteeing Subsidiary to guarantee the Notes.
13. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days
in the payment when due of interest or Liquidated Damages, if any, with respect
to the Notes (whether or not prohibited by Article 10 or Article 12 of the
Indenture); (ii) default in payment when due of principal or premium, if any, on
the Notes at maturity, upon redemption or otherwise (whether or not prohibited
by Article 10 or Article 12 of the Indenture); (iii) failure by the Company or
any Guaranteeing Subsidiary for 30 days after receipt of notice from the Trustee
or Holders of at least 25% in principal amount of the Notes then outstanding to
comply with the provisions described in Sections 4.07, 4.09, 4.13, 4.14, or 5.01
of the Indenture; (iv) failure by the Company or any Guaranteeing Subsidiary for
60 days after notice from the Trustee or the Holders of at least 25% in
principal amount of the Notes then outstanding to comply with its other
agreements in the Indenture or the Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries) whether such Indebtedness or
Guarantee now exists, or is created
A-8
<PAGE>
after the date of the Indenture, which default (A)(i) is caused by a failure to
pay when due at final stated maturity (giving effect to any grace period related
thereto) principal of such Indebtedness (a "Payment Default") or (ii) results in
the acceleration of such Indebtedness prior to its express maturity and (B) in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been accelerated as a result of any
matter contemplated in clause (v)(A)(i) or (v)(A)(ii), aggregates $7.5 million
or more; (vi) failure by the Company or any of its respective Restricted
Subsidiaries to pay final judgments (to the extent not covered by insurance and
as to which the insurer has not acknowledged coverage in writing) aggregating in
excess of $7.5 million, which judgments are not paid, fully bonded, discharged
or staved within 60 days after their entry; (vii) certain events of bankruptcy
or insolvency with respect to the Company or any Restricted Subsidiary of the
Company that is a Significant Subsidiary or group of Restricted Subsidiaries of
the Company that, together, would constitute a Significant Subsidiary; and
(viii) the termination of the Subsidiary Guarantee(s) of either a Guaranteeing
Subsidiary that is a Significant Subsidiary or group of Guaranteeing
Subsidiaries that together constitute a Significant Subsidiary for any reason
not permitted by the Indenture, or the denial of any Person acting on behalf of
any such Guaranteeing Subsidiary or group of Guaranteeing Subsidiaries of its
Obligations under any such Subsidiary Guarantee(s).
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice") and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Credit Agreement, shall become immediately due and payable upon the first to
occur of an acceleration under the Credit Agreement or five Business Days after
receipt by the Company and the Representative under the Credit Facility of such
Acceleration Notice but only if such Event of Default is then continuing.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the then outstanding Notes may direct the Trustee in its exercise of any trust
or Power. The Holders of a majority in aggregate principal amount of the Notes
then outstanding, by notice to the Trustee, may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest or premium, if any, on, or principal of, the Notes. The
Trustee may withhold from Holders of the Notes notice of any continuing Default
or Event of Default (except a Default or Event of Default relating to the
payment of principal or interest) if it determines that withholding notice is in
such Holders' interest. The Company is required to deliver to the Trustee
annually a statement
A-9
<PAGE>
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
14. SUBSIDIARY GUARANTEES. The Notes will be guaranteed (the "Subsidiary
Guarantees"), jointly and severally, on a senior subordinated basis by the
Guaranteeing Subsidiaries. The Subsidiary Guarantees will be subordinated in
right of payment to all existing and future Senior Debt of the Guaranteeing
Subsidiaries.
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
16. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator
or stockholder, of the Company or any Guaranteeing Subsidiary, as such, shall
have any liability for any obligations of the Company under the Notes, any
Subsidiary Guarantee or the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes and any Subsidiary
Guarantee. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
17. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
18. ERISA MATTERS. Each Holder of Securities, by its acceptance thereof, will
be deemed to certify that (i) no part of the funds used by such Holder to
purchase the Securities constitutes assets of an employee benefit plan or (ii)
the acquisition and continued holding of the Securities will be covered by a
U.S. Department of Labor class exemption (with respect to prohibited
transactions set forth under Section 406(a) of ERISA).
19. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder 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).
20. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of the Notes under the Indenture,
Holders of Transferred Restricted Securities shall have all the rights
set forth in the Registration Rights Agreement dated as of the date hereof,
among the
A-10
<PAGE>
Company, the Guaranteeing Subsidiary and the parties named on the signature
pages thereof (the "Registration Rights Agreement").
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 and the Trustee may use CUSIP numbers in
notices of redemption as a convenience to the Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
PEDIATRIC SERVICES OF AMERICA, INC.
310 Technology Parkway
Norcross, Georgia 30092
Attention: General Counsel
A-11
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- ----------------------------------------------------------------
(Insert assignee's Soc. Sec. or Tax I.D. no.)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint to transfer
----------------------------------------
this Note on the books of the Company. The agent may substitute another to act
for him.
Date:
--------------
Your Signature:
--------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee:
----------------------------
A-12
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.10 or 4.14 of the Indenture, check the appropriate box:
[ ] Section 4.10 [ ] Section 4.14
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.10 or 4.14 of the Indenture, state the amount you elect to
have purchased:
$ .
--------
Date:
----------
Your Signature:
-----------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee:
--------------------
A-13
<PAGE>
[FORM OF SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES*]
The following exchanges of a part of this Global Note for Definitive Notes
have been made.
<TABLE>
<CAPTION>
Amount of Amount of Principal Amount
decrease in increase in of this Global Signature of
Principal Amount Principal Amount Note following authorized
Date of of this Global of this Global such decrease (or officer of
Exchange Note Note increase) Trustee
-------- ---------------- ----------------- ------------------ ------------
<S> <C> <C> <C> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
</TABLE>
- --------------------
* This schedule should be included only if the Note is issued in global form.
A-14
<PAGE>
EXHIBIT B
---------
[LEGEND FOR GLOBAL SECURITY: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN
PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY
OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE
OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS SECURITY IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW
YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
<PAGE>
10% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
Cusip No. $75,000,000
PEDIATRIC SERVICES OF AMERICA, INC.
promises to pay to
or registered assigns,
the principal sum of $
Dollars [OR SUCH GREATER OR LESSER AMOUNT AS INDICATED ON THE SCHEDULE OF
EXCHANGES OF DEFINITIVE NOTES ON THE REVERSE HEREOF]* on , 2008
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Authentication: Dated: , 199_
This is one of the Notes referred
to in the within-mentioned Indenture.
as Trustee PEDIATRIC SERVICES OF AMERICA, INC.
By: By:
------------------------ -----------------------------------
Authorized Officer
By:
--------------------------------
(SEAL)
- --------------------
* This phrase should be included only if the Note is issued in global form.
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<PAGE>
10% SENIOR SUBORDINATED NOTES DUE 2008
1. INTEREST. PEDIATRIC SERVICES OF AMERICA, INC., a Delaware
corporation, or its successor (the "Company"), promises to pay interest on the
principal amount of this Note (which has been exchanged for one of the Company's
10% Senior Subordinated Notes due 2008 (the "Rule 144A Notes")) at the rate of
10% per annum and shall pay the Liquidated Damages, if any, payable pursuant to
Section 5 of the Registration Rights Agreement referred to below. The Company
will pay interest and Liquidated Damages in United States dollars (except as
otherwise provided herein) semi-annually in arrears on April 15 and October 15,
commencing on October 15 or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the
Notes shall accrue from the most recent date to which interest was paid on the
Rule 144A Notes or, if no interest was paid on the Rule 144A Notes, from the
date of original issuance of the Rule 144A Notes; provided that if there is no
existing Default or Event of Default in the payment of interest, and if this
Note is authenticated between a record date referred to on the face hereof and
the next succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date, except in the case of the original issuance of
Notes, in which case interest shall accrue from the date of authentication. The
Company shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal and premium, if any, from time to
time on demand at a rate that is 1.0% per annum in excess of the rate then in
effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages, if any (without regard to any applicable grace periods),
from time to time on demand at the same rate to the extent lawful. Interest
shall be computed on the basis of a 360-day year comprised of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages, if any, to the Persons who
are registered Holders of Notes at the close of business on the April 1 or
October 1 next preceding the Interest Payment Date, even if such Notes are
cancelled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.11 of the Indenture with respect to defaulted
interest. The Notes shall be payable as to principal, premium, if any, interest
and Liquidated Damages, if any, at the office or agency of the Company
maintained for such purpose within the City and State of New York, or, at the
option of the Company, payment of interest may be made by check mailed to the
Holders at their addresses set forth in the register of Holders; provided that
payment by wire transfer of immediately available funds shall be required with
respect to principal of, and interest, premium and Liquidated Damages, if any,
on, all Global Notes and all other Notes the Holders of which shall have
provided written wire transfer instructions to the Company or the Paying Agent.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. PAYING AGENT AND REGISTRAR. Initially, SunTrust Bank, Atlanta,
the Trustee under the Indenture, shall act as Paying Agent and Registrar. The
Company may
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<PAGE>
change any Paying Agent or Registrar without notice to any Holder. The Company
or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated
as of April 16, 1998 ("Indenture") between the Company, the Guaranteeing
Subsidiaries and the Trustee. The terms of the Notes include those stated in
the Indenture and those made a part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the
"TIA"). The Notes are subject to all such terms, and Holders are referred to
the Indenture and such Act for a statement of such terms. The Notes are general
unsecured Obligations of the Company limited to $75,000,000 in aggregate
principal amount, plus amounts, if any, sufficient to pay premium, if any,
interest or Liquidated Damages, if any, on outstanding Notes as set forth in
Paragraph 2 hereof. The Notes will rank pari passu with the Rule 144A Notes.
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at the Company's option prior to April 15, 2003. Thereafter, the
Notes shall be subject to redemption at the option of the Company, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below together
with accrued and unpaid Interest and any Liquidated Damages, if any, thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on April 15 of the years indicated below:
Year Percentage
---- ----------
2003.......................... 105.000%
2004.......................... 103.333%
2005.......................... 101.667%
2006 and thereafter........... 100.000%
Notwithstanding the foregoing, at any time prior to April 15, 2001, the
Company on one or more occasions may redeem up to 25% of the aggregate principal
amount of Notes originally issued with any of the net proceeds of one or more
public offerings of common stock of the Company at a redemption price of
110.000% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable date of redemption;
provided that at least 75% of the aggregate principal amount of the Notes remain
outstanding immediately after the occurrence of each such redemption.
Any redemption pursuant to Section 3.07 of the Indenture shall be made
pursuant to the provisions of Section 3.01 through 3.06 thereof.
B-4
<PAGE>
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be required to
make mandatory redemption or sinking fund payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase.
Within 30 days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control setting forth the procedures governing the Change of Control
Offer required by the Indenture.
(b) When the aggregate amount of Excess Proceeds held by the Company in
connection with an Asset Sale exceeds $10.0 million, the Company shall, pursuant
to Section 3.09 of the Indenture, (i) make an offer to all Holders of Notes to
purchase and (ii) prepay, purchase or redeem (or make an offer to do so) any
other Pari Passu Indebtedness of the Company in accordance with provisions
requiring the Company to prepay, purchase or redeem such Indebtedness with the
proceeds from any asset sales (or offer to do so), the maximum principal amount
of Notes and of such Indebtedness that may be purchased out of the Excess
Proceeds, pro rata in proportion to the respective principal amounts (or
accreted value, as applicable) of the Notes and such other Indebtedness required
to be prepaid, purchased or redeemed or tendered for pursuant to such offer (an
"Asset Sale Offer"), at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any to the date of purchase, in accordance with the procedures set
forth in Section 3.09 of the Indenture.
(c) Holders of the Notes that are the subject of an offer to purchase will
receive a Change of Control Offer or Asset Sale Offer from the Company prior to
any related purchase date and may elect to have such Notes purchased by
completing the form titled "Option of Holder to Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date, interest and Liquidated Damages, if any, cease to
accrue on the Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in initial denominations of $1,000 and integral multiples of
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<PAGE>
$1,000. The transfer of the Notes may be registered and the Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. SUBORDINATION. Each Holder by accepting a Note agrees that the payment of
principal of, premium and Liquidated Damages, if any, and interest on each Note
is subordinated in right of payment, to the extent and in the manner provided in
Article 10 of the Indenture, to the prior payment in full of all Senior Debt
(whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed), and the subordination is for the benefit of
the holders of Senior Debt.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as
its owner for all purposes.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the following paragraphs,
the Indenture, the Notes and the Subsidiary Guarantees may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for Notes), and any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, interest or Liquidated Damages, if any, on the
Notes, except a payment default resulting from an acceleration that has been
rescinded) or compliance with any provision of the Indenture, the Notes or the
Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Notwithstanding the foregoing, the provisions with respect to Asset Sales may
be amended or supplemented with the consent of the Holders of at least two-
thirds in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes). In
addition, any amendment to the provisions of Article 10 and Article 12 of the
Indenture (which relate to subordination) will require the consent of the
Holders of at least 75% in aggregate amount of Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for the
Notes) if such amendment would adversely affect the rights of Holders of Notes.
Without obtaining any necessary consents under the Credit Facility, the Company
may not amend or supplement the subordination provisions with respect to the
Notes.
Without the consent of each Holder affected, however, an amendment or waiver
may not (with respect to any Note held by a non-consenting Holder): (i) reduce
the principal
B-6
<PAGE>
amount of Notes; (ii) reduce the principal of or change the fixed maturity of
any Note or alter the provisions with respect to the redemption of the Notes or
any Change of Control Offer; (iii) reduce the rate of or change the time for
payment of interest or Liquidated Damages, if any, on any Notes; (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest or Liquidated Damages, if any, on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration); (v) make any Note payable in money other than that
stated in the Notes; (vi) waive a redemption or repurchase payment with respect
to any Note; or (vii) make any change in the foregoing amendment and waiver
provisions.
Without the consent of any Holder of Notes, the Company, the Guaranteeing
Subsidiaries and the Trustee may amend or supplement the Indenture, the
Subsidiary Guarantees or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or a
Guaranteeing Subsidiary's obligations to Holders of the Notes in case of a
merger, transfer of assets or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with the requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the TIA or to allow any
Guaranteeing Subsidiary to guarantee the Notes.
13. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days
in the payment when due of interest or Liquidated Damages, if any, with respect
to the Notes (whether or not prohibited by Article 10 or Article 12 of the
Indenture); (ii) default in payment when due of principal or premium, if any, on
the Notes at maturity, upon redemption or otherwise (whether or not prohibited
by Article 10 or Article 12 of the Indenture); (iii) failure by the Company or
any Guaranteeing Subsidiary for 30 days after receipt of notice from the Trustee
or Holders of at least 25% in principal amount of the Notes then outstanding to
comply with the provisions described in Sections 4.07, 4.09, 4.13, 4.14, or 5.01
of the Indenture; (iv) failure by the Company or any Guaranteeing Subsidiary for
60 days after notice from the Trustee or the Holders of at least 25% in
principal amount of the Notes then outstanding to comply with its other
agreements in the Indenture or the Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries) whether such Indebtedness or
Guarantee now exists, or is created after the date of the Indenture, which
default (A)(i) is caused by a failure to pay when due at final stated maturity
(giving effect to any grace period related thereto) principal of such
Indebtedness (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and (B) in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been accelerated as a result of any matter contemplated in clause
(v)(A)(i) or (v)(A)(ii), aggregates $7.5 million or more; (vi) failure by the
Company or any of its respective Restricted Subsidiaries to pay final judgments
(to the extent not covered by insurance and as to which the insurer has not
acknowledged coverage in writing) aggregating in excess of $7.5 million, which
judgments are
B-7
<PAGE>
not paid, fully bonded, discharged or staved within 60 days after their entry;
(vii) certain events of bankruptcy or insolvency with respect to the Company or
any Restricted Subsidiary of the company that is a Significant Subsidiary or
group of Restricted Subsidiaries of the Company that, together, would constitute
a Significant Subsidiary; and (viii) the termination of the Subsidiary
Guarantee(s) of either a Guaranteeing Subsidiary that is a Significant
Subsidiary or group of Guaranteeing Subsidiaries that together constitute a
Significant Subsidiary for any reason not permitted by the Indenture, or the
denial of any Person acting on behalf of any such Guaranteeing Subsidiary or
group of Guaranteeing Subsidiaries of its Obligations under any such Subsidiary
Guarantee(s).
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice") and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Credit Agreement, shall become immediately due and payable upon the first to
occur of an acceleration under the Credit Agreement or five Business Days after
receipt by the Company and the Representative under the Credit Agreement of such
Acceleration Notice but only if such Event of Default is then continuing.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the then outstanding Notes may direct the Trustee in its exercise of any trust
or Power. The Holders of a majority in aggregate principal amount of the Notes
then outstanding, by notice to the Trustee, may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest or premium, if any, on, or principal of, the Notes. The
Trustee may withhold from Holders of the Notes notice of any continuing Default
or Event of Default (except a Default or Event of Default relating to the
payment of principal or interest) if it determines that withholding notice is in
such Holders' interest. The Company is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Company is
required upon becoming aware of any Default or Event of Default to deliver to
the Trustee a statement specifying such Default or Event of Default.
14. SUBSIDIARY GUARANTEES. The Notes will be guaranteed (the "Subsidiary
Guarantee"), jointly and severally, on a senior subordinated basis by the
Guaranteeing Subsidiaries. The Subsidiary Guarantees will be subordinated in
right of payment to all existing and future Senior Debt of the Guaranteeing
Subsidiaries.
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
B-8
<PAGE>
16. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator
or stockholder, of the Company or any Guaranteeing Subsidiary, as such, shall
have any liability for any obligations of the Company under the Notes, any
Subsidiary Guarantee or the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes and any Subsidiary
Guarantee. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
17. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
18. ERISA MATTERS. Each Holder of Securities, by its acceptance thereof, will
be deemed to certify that (i) no part of the funds used by such Holder to
purchase the Securities constitutes assets of an employee benefit plan or (ii)
the acquisition and continued holding of the Securities will be covered by a
U.S. Department of Labor class exemption (with respect to prohibited
transactions set forth under Section 406(a) of ERISA).
19. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder 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).
20. Additional Rights of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of the Notes under the Indenture,
Holders of Transferred Restricted Securities shall have all the rights set forth
in the Registration Rights Agreement dated as of the date hereof, among the
Company, the Guaranteeing Subsidiary and the parties named on the signature
pages thereof (the "Registration Rights Agreement").
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 and the Trustee may use CUSIP numbers in
notices of redemption as a convenience to the Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
PEDIATRIC SERVICES OF AMERICA, INC.
310 Technology Parkway
Norcross, GA 30092
Attention: General Counsel
B-9
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- ----------------------------------------------------------------
(Insert assignee's Soc. Sec. or Tax I.D. no.)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint to transfer
----------------------------------------
this Note on the books of the Company. The agent may substitute another to act
for him.
Date:
-------------
Your Signature:
------------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee:
----------------------------
B-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.10 or 4.14 of the Indenture, check the appropriate box:
[ ] Section 4.10 [ ] Section 4.14
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.10 or 4.14 of the Indenture, state the amount you elect to
have purchased:
$ .
--------
Date:
----------
Your Signature:
----------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee:
--------------------
B-11
<PAGE>
[FORM OF SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES*]
The following exchanges of a part of this Global Note for Definitive Notes
have been made.
<TABLE>
<CAPTION>
Amount of Amount of Principal Amount
decrease in increase in of this Global Signature of
Principal Amount Principal Amount Note following authorized
Date of of this Global of this Global such decrease (or officer of
Exchange Note Note increase) Trustee
-------- ---------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
</TABLE>
- -------------------
* This schedule should be included only if the Note is issued in global
form.
B-12
<PAGE>
EXHIBIT C
---------
[FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER
OF RULE 144A NOTES]
CERTIFICATE FOR EXCHANGE OR TRANSFER
Re: 10% Senior Subordinated Notes due 2008 ("Rule 144A Notes")
This Certificate relates to $______________ Principal amount of Notes held in
*__________ book-entry or *__________ definitive form by _________________ (the
"Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Note held by the Depositary a Note or
Notes in definitive, registered form of authorized denominations and an
aggregate principal amount equal to its beneficial interest in such Global Note
(or the portion thereof indicated above); or
[ ] has requested the Trustee by written order to exchange or register
the transfer of a Note or Notes.
In connection with such request and in respect of each such Note,
the Transferor does hereby certify that Transferor is familiar with the
Indenture relating to the above-captioned Notes and as provided in Section 2.05
of such Indenture, the transfer of this Note does not require registration under
the Securities Act (as defined below) because:
[ ] Such Note is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.05(a)(ii)(A) or Section
2.05(d)(i)(A) of the Indenture).
[ ] Such Note is being transferred to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act") in reliance on Rule 144A (in satisfaction of Section
2.05(a)(ii)(B), section 2.05(b)(i) or Section 2.05(d)(i)(B) of the Indenture).
[ ] Such Note is being transferred in accordance with Rule 144 under the
Securities Act, or pursuant to an effective registration statement under the
Securities Act. An opinion of counsel to the effect that such transfer does not
require registration under the Securities Act accompanies this Certificate.
[ ] Such Note is being transferred in reliance and in compliance with an
exemption from the registration requirements of the Securities Act, other than
Rule 144A or Rule 144 under the Securities Act. An opinion of counsel to the
effect that such transfer does not require registration under the Securities Act
accompanies this Certificate.
______________________________________________________
[INSERT NAME OF TRANSFEROR]
By:___________________________________________________
Date:________________________
<PAGE>
EXHIBIT D
---------
SUBSIDIARY GUARANTEE
Subject to Section 11.06 of the Indenture, each Guaranteeing Subsidiary
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of the
Indenture, the Notes and the Obligations of the Company under the Notes or under
the Indenture, that: (a) the principal of, premium, if any, interest and
Liquidated Damages, if any, on the Notes will be promptly paid in full when due,
subject to any applicable grace period, whether at maturity, by acceleration,
redemption or otherwise, and interest on overdue principal, premium, if any, (to
the extent permitted by law) interest on any interest, if any, and Liquidated
Damages, if any, on the Notes and all other payment Obligations of the Company
to the Holders or the Trustee under the Indenture or under the Notes will be
promptly paid in full and performed, all in accordance with the terms thereof;
and (b) in case of any extension of time of payment or renewal of any Notes or
any of such other payment 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, redemption or otherwise. Failing payment when so due of any
amount so guaranteed or any performance so guaranteed for whatever reason, the
Guaranteeing Subsidiaries will be jointly and severally obligated to pay the
same immediately.
The obligations of the Guaranteeing Subsidiaries to the Holders and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article 11 and Article 12 of the Indenture, and reference is hereby
made to such Indenture for the precise terms of this Subsidiary Guarantee. The
terms of Articles 11 and 12 of the Indenture are incorporated herein by
reference. This Subsidiary Guarantee is subject to release as and to the extent
provided in Section 11.04 of the Indenture. The obligations of the Guaranteeing
Subsidiaries to the Holders and to the Trustee pursuant to the Subsidiary
Guarantee and the Indenture are expressly subordinated to the extent set forth
in Article 12 of the Indenture and reference is hereby made to such Indenture
for the precise terms of such subordination.
This is a continuing Guarantee and shall remain in full force and effect and
shall be binding upon each Guaranteeing Subsidiary and its respective successors
and assigns to the extent set forth in the Indenture until full and final
payment of all of the Company's Obligations under the Notes and the Indenture
and shall inure to the benefit of the successors and assigns of the Trustee and
the Holders and, in the event of any transfer or assignment of rights by any
Holder or the Trustee, the rights and privileges herein conferred upon that
party shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof. This is a Subsidiary
Guarantee of payment and not a guarantee of collection.
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note upon which this Subsidiary
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
For purposes hereof, each Guaranteeing Subsidiary's liability shall be limited
to the lesser of (i) the aggregate amount of the Obligations of the Company
under the Notes and the Indenture
<PAGE>
and (ii) the amount, if any, which would not have (A) rendered such Guaranteeing
Subsidiary "insolvent" (as such term is defined in the United States Bankruptcy
Code and in the Debtor and Creditor Law of the State of New York) or (B) left
such Guaranteeing Subsidiary with unreasonably small capital at the time its
Subsidiary Guarantee of the Notes was entered into; provided that, it will be a
presumption in any lawsuit or other proceeding in which a Guaranteeing
Subsidiary is a party that the amount guaranteed pursuant to the Subsidiary
Guarantee is the amount set forth in clause (i) above unless any creditor, or
representative of creditors of such Guaranteeing Subsidiary, or debtor in
possession or trustee in bankruptcy of such Guaranteeing Subsidiary, otherwise
proves in such a lawsuit that the aggregate liability of the Guaranteeing
Subsidiary is limited to the amount set forth in clause (ii) above. The
Indenture provides that, in making any determination as to the solvency or
sufficiency of capital of a Guaranteeing Subsidiary in accordance with the
previous sentence, the right of such Guaranteeing Subsidiary to contribution
from other Guaranteeing Subsidiaries and any other rights such Guaranteeing
Subsidiary may have, contractual or otherwise, shall be taken into account.
Capitalized terms used herein have the same meanings given in the Indenture
unless otherwise indicated.
[GUARANTEEING SUBSIDIARY]
By:
---------------------------
Name:
Title:
D-2
<PAGE>
EXHIBIT E
---------
FORM OF SUPPLEMENTAL INDENTURE
Supplemental Indenture (this "Supplemental Indenture"), dated as of _________,
1998 between _________ (the "New Guaranteeing Subsidiary"), a subsidiary of
PEDIATRIC SERVICES OF AMERICA, INC. (the "Company"), and
, as trustee under the indenture referred to below (the "Trustee"). Capitalized
terms used herein and not defined herein shall have the meaning ascribed to them
in the Indenture (as defined below).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee an
indenture (the "Indenture"), dated as of April 16, 1998, providing for the
issuance of an aggregate principal amount of up to $100,000,000 of 10% Senior
Subordinated Notes due 2008 (the "Notes")
WHEREAS, Section 11.05 of the Indenture provides that under certain
circumstances the Company may cause, and Section 11.03 of the Indenture provides
that under certain circumstances, the Company must cause, certain of its
subsidiaries to execute and deliver to the Trustee a supplemental indenture
pursuant to which such subsidiaries shall unconditionally guarantee all of the
Company's Obligations under the Notes pursuant to a Subsidiary Guarantee on the
terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized
to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall
have the meanings assigned to them in the Indenture.
2. AGREEMENT TO SUBSIDIARY GUARANTEE. The New Guaranteeing Subsidiary hereby
agrees, jointly and severally with all other Guaranteeing Subsidiaries, to
guarantee the Company's Obligations under the Notes and the Indenture on the
terms and subject to the conditions set forth in Article 11 and Article 12 of
the Indenture and to be bound by all other applicable provisions of the
Indenture.
3. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer,
employee, incorporator, shareholder or agent of any Guaranteeing
<PAGE>
Subsidiary as such, shall have any liability for any obligations of the Company
or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantees, the
Indenture or the Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
4. NEW YORK LAW TO GOVERN. The internal law of the State of New York shall
govern and be used to construe this Supplemental Indenture.
5. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. EFFECT OF HEADINGS. The Section headings herein are for convenience only
and shall not affect the construction hereof.
7. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Guaranteeing
Subsidiary.
E-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed and attested, all as of the date first above written.
Dated [GUARANTEEING SUBSIDIARY]
By:____________________________
Name:
Title:
Dated
as Trustee
By:______________________________
Name:
Title:
E-3
<PAGE>
GUARANTEE
---------
Subject to Section 11.06 of the Indenture, each Guaranteeing Subsidiary
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of the
Indenture, the Notes and the Obligations of the Company under the Notes or under
the Indenture, that: (a) the principal of, premium, if any, interest and
Liquidated Damages, if any, on the Notes will be promptly paid in full when due,
subject to any applicable grace period, whether at maturity, by acceleration,
redemption or otherwise, and interest on overdue principal, premium, if any, (to
the extent permitted by law) interest on any interest, if any, and Liquidated
Damages, if any, on the Notes and all other payment Obligations of the Company
to the Holders or the Trustee under the Indenture or under the Notes will be
promptly paid in full and performed, all in accordance with the terms thereof;
and (b) in case of any extension of time of payment or renewal of any Notes or
any of such other payment 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, redemption or otherwise. Failing payment when so due of any
amount so guaranteed or any performance so guaranteed for whatever reason, the
Guaranteeing Subsidiaries will be jointly and severally obligated to pay the
same immediately.
The obligations of the Guaranteeing Subsidiaries to the Holders and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article 11 and Article 12 of the Indenture, and reference is hereby
made to such Indenture for the precise terms of this Subsidiary Guarantee. The
terms of Articles 11 and 12 of the Indenture are incorporated herein by
reference. This Subsidiary Guarantee is subject to release as and to the extent
provided in Section 11.04 of the Indenture. The obligations of the Guaranteeing
Subsidiaries to the Holders and to the Trustee pursuant to the Subsidiary
Guarantee and the Indenture are expressly subordinated to the extent set forth
in Article 12 of the Indenture and reference is hereby made to such Indenture
for the precise terms of such subordination.
This is a continuing Guarantee and shall remain in full force and effect
and shall be binding upon each Guaranteeing Subsidiary and its respective
successors and assigns to the extent set forth in the Indenture until full and
final payment of all of the Company's Obligations under the Notes and the
Indenture and shall inure to the benefit of the successors and assigns of the
Trustee and the Holders and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. This is a
Subsidiary Guarantee of payment and not a guarantee of collection.
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note upon which this Subsidiary
Guarantee is
<PAGE>
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
For purposes hereof, each Guaranteeing Subsidiary's liability shall be
limited to the lesser of (i) the aggregate amount of the Obligations of the
Company under the Notes and the Indenture and (ii) the amount, if any, which
would not have (A) rendered such Guaranteeing Subsidiary "insolvent" (as such
term is defined in the United States Bankruptcy Code and in the Debtor and
Creditor Law of the State of New York) or (B) left such Guaranteeing Subsidiary
with unreasonably small capital at the time its Subsidiary Guarantee of the
Notes was entered into; provided that, it will be a presumption in any lawsuit
or other proceeding in which a Guaranteeing Subsidiary is a party that the
amount guaranteed pursuant to the Subsidiary Guarantee is the amount set forth
in clause (i) above unless any creditor, or representative of creditors of such
Guaranteeing Subsidiary, or debtor in possession or trustee in bankruptcy of
such Guaranteeing Subsidiary, otherwise proves in such a lawsuit that the
aggregate liability of the Guaranteeing Subsidiary is limited to the amount set
forth in clause (ii) above. The Indenture provides that, in making any
determination as to the solvency or sufficiency of capital of a Guaranteeing
Subsidiary in accordance with the previous sentence, the right of such
Guaranteeing Subsidiary to contribution from other Guaranteeing Subsidiaries and
any other rights such Guaranteeing Subsidiary may have, contractual or
otherwise, shall be taken into account.
Capitalized terms used herein have the same meanings given in the Indenture
unless otherwise indicated.
2
<PAGE>
PSA Properties Corporation
By:
--------------------------
Name: Susan E. Dignan
Title: President
3
<PAGE>
PSA Licensing Corporation
By:
--------------------------
Name: Susan E. Dignan
Title: President
4
<PAGE>
Pediatric Services of America, Inc.
By:
------------------------------
Name: Joseph D. Sansone
Title: President
5
<PAGE>
Pediatric Services of America, Inc.
By:
------------------------------
Name: Joseph D. Sansone
Title: President
6
<PAGE>
Premier Medical Services, Inc.
By:
------------------------------
Name: Joseph D. Sansone
Title: President
7
<PAGE>
Pediatric Home Nursing Services, Inc.
By:
------------------------------
Name: Joseph D. Sansone
Title: President
8
<PAGE>
Pediatric Partners, Inc.
By:
------------------------------
Name: Joseph D. Sansone
Title: President
9
<PAGE>
ARO Health Services, Inc.
By:
------------------------------
Name: Joseph D. Sansone
Title: President
10
<PAGE>
Premier Nurse Staffing, Inc.
By:
------------------------------
Name: Joseph D. Sansone
Title: President
11
<PAGE>
Premier Certified Home Health Services, Inc.
By:
------------------------------
Name: Joseph D. Sansone
Title: President
12
<PAGE>
Paramedical Services of America, Inc.
By:
----------------------------------
Name: Joseph D. Sansone
Title: President
13
<PAGE>
Exhibit 4.4
$75,000,000
PEDIATRIC SERVICES OF AMERICA, INC.
10% Senior Subordinated Notes due 2008
REGISTRATION RIGHTS AGREEMENT
-----------------------------
April 16, 1998
SALOMON BROTHERS INC
Seven World Trade Center
New York, NY 10048
Dear Sirs:
Pediatric Services of America, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Salomon Brothers Inc, NationsBanc
Montgomery Securities LLC and First Union Capital Markets, a division of Wheat
First Securities, Inc. (the "Initial Purchasers"), upon the terms set forth in a
purchase agreement dated April 13, 1998 (the "Purchase Agreement"), an aggregate
of $75,000,000 principal amount of its 10% Senior Subordinated Notes due 2008
(the "Notes"). The Notes will be issued pursuant to an indenture (the
"Indenture") dated as of April 16, 1998, between the Company, the Guaranteeing
Subsidiaries and SunTrust Bank, Atlanta, a Georgia banking corporation, as
trustee (the "Trustee"). As an inducement to the Initial Purchasers to enter
into the Purchase Agreement and in satisfaction of a condition to the
obligations of the Initial Purchasers thereunder, the Company agrees with the
Initial Purchasers, for the benefit of the holders of the Notes (including,
without limitation, the Initial Purchasers), as follows:
Section 1. Definitions.
-----------
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Broker-Dealer Transfer Restricted Securities: New Notes that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Notes that
such Broker-Dealer acquired for its own account as a result of market-making
activities or other trading activities (other than Notes acquired directly from
the Company or any of its affiliates).
<PAGE>
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the New Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of New Notes in the same aggregate principal
amount as the aggregate principal amount of Notes tendered by Holders thereof
pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Transfer Restricted
Securities, each Interest Payment Date.
Definitive Note: Any Notes other than a Global Note.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Act of the
New Notes pursuant to the Exchange Offer Registration Statement under which the
Company shall offer the Holders of all outstanding Notes the opportunity to
exchange all such outstanding Notes for New Notes in an aggregate principal
amount equal to the aggregate principal amount of the Notes tendered in such
exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Global Note: As defined in the Indenture.
Guaranteeing Subsidiaries: As defined in the Indenture.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8 hereof.
Indenture: The Indenture, dated the Closing Date, among the Company,
the Guaranteeing Subsidiaries and SunTrust Bank, Atlanta, a Georgia banking
corporation, as trustee (the "Trustee"), pursuant to which the Notes are to be
issued, as such Indenture is amended or supplemented from time to time in
accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
New Notes: The Company's 10% Senior Subordinated Notes due 2008 to be
issued pursuant to the Indenture (i) in the Exchange Offer or (ii) upon the
request of
2
<PAGE>
any Holder of Notes covered by a Shelf Registration Statement, in exchange for
such Notes.
Non-Company Indemnitee: As defined in Section 8 hereof.
Person: An individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Notes on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company and
the Guaranteeing Subsidiaries relating to (a) an offering of New Notes pursuant
to an Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) which
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Restricted Broker-Dealer: As defined in Section 3(c) hereof.
Shelf Registration: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been disposed of in accordance with a Shelf Registration Statement, (c) the
date on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan
of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.
"Transfer Restricted Securities" shall be deemed to include the guarantees of
the Company's obligations under the Indenture and the Notes by the Guaranteeing
Subsidiaries.
3
<PAGE>
Section 2. Securities Subject To This Agreement.
-------------------------------------
(a) The securities entitled to the benefits of this Agreement are the
Transfer Restricted Securities.
(b) A Person is deemed to be a holder of Transfer Restricted
Securities (each, a "Holder") whenever such Person owns Transfer Restricted
Securities.
Section 3. Exchange Offer.
--------------
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law or Commission policy, the Company and the Guaranteeing Subsidiaries
shall (i) cause to be filed with the Commission as soon as practicable after the
Closing Date, but in no event later than 60 days after the Closing Date, the
Exchange Offer Registration Statement, (ii) use its best efforts to cause such
Exchange Offer Registration Statement to become effective at the earliest
possible time, but in no event later than 135 days after the Closing Date, (iii)
in connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause such
Exchange Offer Registration Statement to become effective, (B) file, if
applicable, a post-effective amendment to such Exchange Offer Registration
Statement pursuant to Rule 430A under the Act and (C) cause all necessary
filings, if any, in connection with the registration and qualification of the
New Notes to be made under the Blue Sky laws of such jurisdictions as are
necessary to permit Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting registration of the New Notes to be offered in exchange for the
Notes that are Transfer Restricted Securities and to permit sales of Broker-
Dealer Transfer Restricted Securities by Restricted Broker-Dealers as
contemplated by Section 3(c) below.
(b) The Company and the Guaranteeing Subsidiaries shall use their
respective reasonable best efforts to cause the Exchange Offer Registration
Statement to be effective continuously, and shall keep the Exchange Offer open
for a period of not less than the minimum period required under applicable
federal and state securities laws to Consummate the Exchange Offer; provided,
however, that in no event shall such period be less than 20 days. The Company
and the Guaranteeing Subsidiaries shall cause the Exchange Offer to comply with
all applicable federal and state securities laws. No securities other than the
Notes shall be included in the Exchange Offer Registration Statement. The
Company and the Guaranteeing Subsidiaries shall use their respective best
efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 45 days thereafter.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Notes that are Transfer Restricted
Securities and that were acquired for the account of such Broker-Dealer as a
result of market-making activities or other trading activities (a "Restricted
Broker-Dealer"), may exchange such
4
<PAGE>
Notes (other than Transfer Restricted Securities acquired directly
from the Company or any Affiliate of the Company) pursuant to the Exchange
Offer; however, such Broker-Dealer may be deemed to be an "underwriter" within
the meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of each New Note
received by such Broker-Dealer in the Exchange Offer, which prospectus delivery
requirement may be satisfied by the delivery by such Broker-Dealer of the
Prospectus contained in the Exchange Offer Registration Statement. Such "Plan
of Distribution" section shall also contain all other information with respect
to such sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers that the Commission may require in order to permit such sales
pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Notes held by any such Broker-Dealer,
except to the extent required by the Commission as a result of a change in
policy after the date of this Agreement.
The Company and the Guaranteeing Subsidiaries shall use their
respective best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Section 6 below to the extent necessary to ensure that it is available for
sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-
Dealers, and to ensure that such Registration Statement conforms with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period of 180 days from
the date on which the Exchange Offer is Consummated.
The Company and the Guaranteeing Subsidiaries shall promptly provide
sufficient copies of the latest version of such Prospectus to such Restricted
Broker-Dealers promptly upon request, and in no event later than one day after
such request, at any time during such 180-day period in order to facilitate such
sales.
Section 4. Shelf Registration.
------------------
(a) If (i) the Company is not required to file an Exchange Offer
Registration Statement with respect to the New Notes because the Exchange Offer
is not permitted by applicable law or Commission policy or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 days following
the Consummation of the Exchange Offer that (A) such Holder was prohibited by
law or Commission policy from participating in the Exchange Offer or (B) such
Holder may not resell the New Notes acquired by it in the 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 (C) such Holder is a Broker-Dealer and holds Notes
acquired directly from the Company or one of its affiliates, then the Company
and the Guaranteeing Subsidiaries shall (x) cause to be filed on or prior to 60
days after the date on which the Company determines that it is not required to
file the Exchange Offer Registration Statement pursuant to clause (i) above or
60 days after the date on which the Company receives the notice specified in
clause (ii) above a shelf registration statement pursuant to Rule 415 under the
Act (the "Shelf Registration") (which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration Statement")),
relating to all Transfer Restricted Securities
5
<PAGE>
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and shall (y) use their respective reasonable best efforts
to cause such Shelf Registration Statement to become effective on or prior to
135 days after the date on which the Company becomes obligated to file such
Shelf Registration Statement. If, after the Company has filed an Exchange Offer
Registration Statement which satisfies the requirements of Section 3(a) above,
the Company is required to file and make effective a Shelf Registration
Statement solely because the Exchange Offer shall not be permitted under
applicable federal law or Commission policy, then the filing of the Exchange
Offer Registration Statement shall be deemed to satisfy the requirements of
clause (x) above. Such an event shall have no effect on the requirements of
clause (y) above. The Company and the Guaranteeing Subsidiaries shall use their
respective reasonable best efforts to keep the Shelf Registration Statement
discussed in this Section 4(a) continuously effective, supplemented and amended
as required by and subject to the provisions of Section 6 hereof to the extent
necessary to ensure that it is available for sales of Transfer Restricted
Securities by the Holders thereof entitled to the benefit of this Section 4(a),
and to ensure that it conforms with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period of at least two years following the date on which such
Shelf Registration Statement first becomes effective under the Act or such
shorter period ending when all of the Transfer Restricted Securities available
for sale thereunder have been sold.
(b) No Holder of Transfer Restricted Securities may include any of its
Transfer Restricted Securities in any Shelf Registration Statement pursuant to
this Agreement unless and until such Holder furnishes to the Company in writing,
within 20 days after receipt of a request therefor, such information specified
in Item 507 of Regulation S-K under the Act for use in connection with any Shelf
Registration Statement or Prospectus or preliminary Prospectus included therein.
No Holder of Transfer Restricted Securities shall be entitled to Liquidated
Damages pursuant to Section 5 hereof unless and until such Holder shall have
provided all such information. Each Holder as to which any Shelf Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
Section 5. Liquidated Damages.
------------------
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 45 days after the Exchange Offer Registration Statement is
first declared effective by the Commission or (iv) any Registration Statement
required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "Registration Default"), then the Company and the Guaranteeing Subsidiaries
hereby jointly and severally agree to pay liquidated damages to each Holder
6
<PAGE>
of Transfer Restricted Securities with respect to the first 90-day period
immediately following the occurrence of such Registration Default, in an amount
equal to $.05 per week per $1,000 principal amount of Transfer Restricted
Securities held by such Holder for each week or portion thereof that the
Registration Default continues. The amount of the liquidated damages shall
increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
liquidated damages of $.50 per week per $1,000 principal amount of Transfer
Restricted Securities. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall no longer accrue.
All accrued liquidated damages shall be paid to the Holders by wire
transfer of immediately available funds or by federal funds check and to Holders
of Definitive Securities by mailing checks to their registered addresses on each
Damages Payment Date. All obligations of the Company and the Guaranteeing
Subsidiaries set forth in the preceding paragraph that are outstanding with
respect to any Transfer Restricted Security at the time such security ceases to
be a Transfer Restricted Security shall survive until such time as all such
obligations with respect to such security shall have been satisfied in full.
Section 6. Registration Procedures. In connection with any Shelf
-----------------------
Registration contemplated by Section 4 hereof and, to the extent applicable, the
Registered Exchange Offer contemplated by Section 3 hereof, the following
provisions shall apply:
(a) The Company shall furnish to the Initial Purchasers, 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 shall obtain the consent (which shall not be unreasonably withheld
or delayed) of the Initial Purchasers to any such filing.
(b) The Company shall advise the Initial Purchasers in writing:
(i) when the registration statement and 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
7
<PAGE>
supplements to the registration statement or the prospectus included
therein or for additional information;
(c) The Company shall advise the Initial Purchasers and the holders of
the Notes and the New Notes (to the extent applicable) in writing:
(i) 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;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Notes and New Notes
for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(iii) of the happening of any event that requires the Company to
make changes in the registration statement or the prospectus in order to
make the statements therein not misleading (which advice shall be
accompanied by an instruction that such notice constitutes material
nonpublic information, and to suspend the use of the identified prospectus
("Non-Conforming Prospectus") until the requisite changes have been made,
and which instruction shall require that such holders shall not communicate
such material nonpublic information to any third party and shall not sell
or purchase, or offer to sell or purchase, any securities of the Company
after receipt of such advice and prior to the effectiveness of any action
required to be taken by the Company pursuant to Section 6(i) hereof).
(d) The Company shall use all reasonable efforts to prevent the
issuance or obtain the withdrawal of any order suspending the effectiveness of
the registration statement at the earliest possible time.
(e) The Company shall furnish to each holder of Notes included within
the coverage of the Shelf Registration, without charge, at least one copy of the
registration statement and any post-effective amendment thereto, including
financial statements and schedules, if any, included therein and, if the holder
so requests in writing, all exhibits (including those incorporated by
reference).
(f) The Company shall deliver to each holder of Notes included within
the coverage of the Shelf Registration, if any, without charge, as many copies
of the prospectus (including each preliminary prospectus) included in the
registration statement with respect to the Shelf Registration and any amendment
or supplement thereto as such Persons may reasonably request. The Company
consents, subject to the provisions of the Agreement, to the use of the
prospectus or any amendment or supplement thereto by each of the selling holders
of Notes in connection with the offering and sale of the Notes covered by the
prospectus, or any amendment or supplement thereto, included in such
registration statement.
(g) Prior to any public offering of Notes pursuant to the Shelf
Registration,
8
<PAGE>
the Company shall register or qualify or cooperate with the holders of
securities included therein and their respective counsel in connection with the
registration or qualification of such Notes for offer and sale under the
securities or blue sky laws of such jurisdictions in the United States as any
holder of Notes reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in such jurisdictions
of the securities covered by the Shelf Registration; provided that the Company
shall not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified, (ii) take any action that would
subject it to the service of process in suits, other than as to matters and
transactions relating to the Shelf Registration, in any jurisdiction where it is
not now subject or (iii) take any action which would subject it to general
service of process or to taxation in any jurisdiction where it is not then so
subject.
(h) The Company shall cooperate with the holders of the Notes to
facilitate the timely preparation and delivery of certificates representing
Notes to be sold in the Shelf Registration free of any restrictive legends and
in such denominations and registered in such names as the holders may request a
reasonable period of time prior to sales of Notes pursuant to the Shelf
Registration.
(i) Upon the occurrence of any event contemplated by Section 6(c)(iii)
above, the Company shall, as promptly as reasonably practicable, prepare a post-
effective amendment to the registration statement or a supplement to the related
prospectus or file any other required document so that, as thereafter delivered
to purchasers of the Notes, the prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading.
(j) Not later than the effective date of the applicable registration
statement, the Company will provide a CUSIP number for the New Notes and provide
the applicable trustee with printed certificates for the Notes or New Notes, as
the case may be, in a form eligible for deposit with The Depository Trust
Company.
(k) The Company will use all reasonable efforts to comply with all
rules and regulations of the Commission to the extent and so long as they are
applicable to the Exchange Offer or the Shelf Registration and will make
generally available to its 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 Company's first fiscal quarter commencing
after the effective date of the Shelf Registration, which statement shall cover
such 12-month period.
(l) The Company shall cause the Indenture (or an indenture
substantially identical to the Indenture in the case of an Exchange Offer) to be
qualified under the Trust Indenture Act of 1939, as amended.
(m) The Company may require each Holder of Notes to be sold pursuant
to the Shelf Registration to furnish to the Company such information regarding
the Holder and the distribution of such Notes as the Company may from time to
time reasonably require for inclusion in the registration statement. The
Company may also require each
9
<PAGE>
holder of Notes participating in the Exchange Offer to represent to the Company
that at the time of the consummation of the Exchange Offer (i) such holder is
not an affiliate of the Company, (ii) any New Notes received by such holder will
be acquired in the ordinary course of its business and (iii) such holder will
have no arrangement or understanding with any Person to participate in the
distribution of the Notes or the New Notes within the meaning of the Act. Each
holder agrees by acquisition of Notes that, upon receipt of any notice from the
Company of the existence of any fact of the kind described in Section 6(c)(iii)
hereof, such holder will forthwith discontinue disposition of Notes until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 6(i) hereof, or until it is advised in writing by the
Company that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings with respect to the prospectus. If so
directed by the Company, each holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
holder's possession, of the prospectus covering such Notes current at the time
of receipt of such notice.
Section 7. Registration Expenses. The Company shall bear all expenses
---------------------
incurred in connection with the performance of its obligations under Sections 3
through 6 hereof and, in the event of a Shelf Registration, shall bear or
reimburse the holders of the Notes for the reasonable fees and disbursements of
one firm of counsel designated by the holders of a majority in principal amount
of the Notes to act as counsel for the holders of the Notes in connection
therewith.
Section 8. Indemnification.
---------------
(a) The Company and the Guaranteeing Subsidiaries, jointly and
severally, agree to indemnify and hold harmless (i) the Initial Purchasers, (ii)
each holder of Notes and/or New Notes (including Broker-Dealers receiving New
Notes in the Exchange Offer) (each an "Indemnity Holder"), (iii) each Person, if
any, who controls (within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act) the Initial Purchasers or any Indemnity Holder (any of the
Persons referred to in this clause (iii) being hereinafter referred to as a
"controlling person") and (iv) the respective officers, directors, partners,
employees, representatives and agents of the Initial Purchasers or any Indemnity
Holder or any controlling person (any Person referred to in clause (i), (ii),
(iii) or (iv) may hereinafter be referred to as a "Non-Company Indemnitee"), to
the fullest extent lawful, from and against any and all losses, claims, damages,
liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus (or any amendments or supplements thereto) prepared in accordance
with this Agreement, including any document incorporated by reference therein,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except, with respect to any Non-Company Indemnitee, insofar as such
losses, claims, damages, liabilities or judgments (1) are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information furnished in writing to the Company or the Guaranteeing Subsidiaries
by such Non-Company Indemnitee expressly for use therein; (2) with respect to
any preliminary prospectus, result from the fact that such Non-Company
Indemnitee sold Notes or New Notes to a Person to whom there was
10
<PAGE>
not sent or given, at or prior to the written confirmation of such sale, a copy
of the final prospectus, as amended or supplemented, if required under the Act
and if the Company or the Guaranteeing Subsidiaries shall have previously
furnished copies thereof to such Non-Company Indemnitee in accordance with this
Agreement and the final prospectus, as amended or supplemented, would have
corrected such untrue statement or omission; (3) arising from the use of any
final prospectus after receipt of notification from the Company of the issuance
of any stop order or of any proceeding contemplating a stop order of the type
described in Section 6(c)(i) hereof or a suspension of, or initiated or
threatened proceeding contemplating a suspension of, the type described in
Section 6(c)(ii) hereof, until such time as notice shall have been received from
the Company that any such stop order or suspension has been lifted or such
proceeding has been terminated; or (4) arising from the use of any Non-
Conforming Prospectus after receipt of notice from the Company pursuant to
Section 6(c)(iii).
(b) In case any action shall be brought against any Non-Company
Indemnitee based upon any registration statement or prospectus, or any amendment
or supplement thereto, and with respect to which indemnity may be sought against
the Company and/or the Guaranteeing Subsidiaries, such Non-Company Indemnitee
shall promptly notify the Company and the Guaranteeing Subsidiaries in writing
and the Company and the Guaranteeing Subsidiaries shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Non-Company Indemnitee and payment of all fees and expenses. Such Non-Company
Indemnitee shall have the right to employ separate counsel in any such action
and participate in the defense thereof, but the fees and expenses of counsel
shall be paid by such Non-Company Indemnitee, unless (i) the employment of such
counsel shall have been specifically authorized in writing by the Company and
the Guaranteeing Subsidiaries, (ii) the Company or the Guaranteeing Subsidiaries
shall have failed to assume the defense and employ counsel or (iii) the named
parties to any such action (including any impleaded parties) include both such
Non-Company Indemnitee and the Company and/or the Guaranteeing Subsidiaries and
such Non-Company Indemnitee shall have been advised by counsel that it would be
inappropriate for the same counsel to represent such Non-Company Indemnitee and
the Company and/or the Guaranteeing Subsidiaries (in which case the Company
and/or the Guaranteeing Subsidiaries shall not have the right to assume the
defense of such action on behalf of such Non-Company Indemnitee, it being
understood, however, that neither the Company nor any Guaranteeing Subsidiary
shall, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
the Non-Company Indemnitees, which firm shall be designated in writing by the
Non-Company Indemnitees and whose fees and expenses reasonably incurred shall be
reimbursed as they are incurred). The Company and the Guaranteeing Subsidiaries
shall not be liable for any settlement of any such action effected without the
written consent of the Company and the Guaranteeing Subsidiary, but if settled
with the written consent of the Company and the Guaranteeing Subsidiary, the
Company and the Guaranteeing Subsidiaries agree to indemnify and hold harmless
any Non-Company Indemnitee from and against any amounts payable pursuant to such
written consent in connection with such settlement.
11
<PAGE>
Notwithstanding the immediately preceding sentence, if in any case where the
fees and expenses of counsel are at the expense of the Company and/or the
Guaranteeing Subsidiaries and a Non-Company Indemnitee shall have requested the
Company and/or the Guaranteeing Subsidiaries to reimburse such Non-Company
Indemnitee for such fees and expenses of counsel as incurred, the Company and
the Guaranteeing Subsidiaries agree that they shall be liable for any settlement
of any action effected without their written consent if (i) such settlement is
entered into more than 30 business days after the receipt by the Company and the
Guaranteeing Subsidiaries of the aforesaid request and (ii) the Company and/or
the Guaranteeing Subsidiaries shall have failed to reimburse such Non-Company
Indemnitee in accordance with such request for reimbursement prior to the date
of such settlement. The Company and the Guaranteeing Subsidiaries shall not,
without the prior written consent of such Non-Company Indemnitee, effect any
settlement of any pending or threatened proceeding in respect of which such Non-
Company Indemnitee is or could have been a party and indemnity could have been
sought hereunder by such Non-Company Indemnitee, unless such settlement includes
an unconditional release of such Non-Company Indemnitee from all liability on
claims that are the subject matter of such proceeding.
(c) Each Indemnity Holder agrees to indemnify and hold harmless (i)
the Company and the Guaranteeing Subsidiaries, (ii) the Initial Purchasers,
(iii) each other Indemnity Holder, (iv) any Person controlling (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company,
the Initial Purchasers and each other Indemnity Holder and (v) the respective
officers, directors, partners, employees, representatives and agents of each of
the parties referred to in clauses (i), (ii), (iii) and (iv), to the same extent
as the foregoing indemnity from the Company and the Guaranteeing Subsidiaries to
each of the Non-Company Indemnitees, but only with respect to information
relating to such Indemnity Holder that was furnished in writing by such
Indemnity Holder expressly for use in any registration statement (or any
amendment or supplement thereto) prepared in accordance with this Agreement. In
no event shall the liability of any Indemnity Holder hereunder be greater in
amount by which the dollar amount of the proceeds received by such Indemnity
Holder upon the sales of the Notes or New Notes giving rise to such
indemnification obligation exceeds the amount of any damages which such
Indemnity Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to herein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments in such proportion as is appropriate to
reflect the relative fault of the indemnifying party, on the one hand, and the
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party, on the one hand, and the indemnified party, on
the other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to
12
<PAGE>
information supplied by the indemnifying party, on the one hand, or the
indemnified party, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Guaranteeing Subsidiaries, the Initial Purchasers
and each Indemnity Holder agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The losses, claims, damages, liabilities or judgments of an indemnified party
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim prior to the indemnifying party's
assumption of the defense thereof or subsequent thereto to the extent permitted
by the second sentence of Section 8(b) hereof. Notwithstanding the provisions
of this Section 8, none of the Indemnity Holders shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total amount received by such Indemnity Holder with respect to the sale of Notes
or New Notes exceeds the amount of any damages which such Indemnity Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. The obligations of Indemnity Holders to
contribute pursuant to this Section 8(d) are several in proportion to the
respective principal amount of Notes and/or New Notes held by each of the
Indemnity Holders hereunder and not joint.
Section 9. Miscellaneous.
--------------
(a) Amendments and Waivers. 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, unless the Company has obtained the
written consent of holders of a majority in aggregate principal amount of the
Notes.
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier or air courier which guarantees overnight delivery:
(1) If to a holder of Notes or New Notes, at the most current
address given by such holder to the Company in accordance with the
provisions of this Section 9(b), which address initially is, with
respect to each holder, the address of such holder to which
confirmation of the sale of Notes or New Notes to such holder was
first sent, with a copy in like manner to the Initial Purchasers
c/o Salomon Brothers Inc at Seven World Trade Center, New York,
New York 10048.
(2) If to the Company, at the following address:
13
<PAGE>
Pediatric Services of America, Inc.
310 Technology Parkway
Norcross, Georgia 30092
Attention: General Counsel
with a copy to:
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Attention: David M. Calhoun, 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
answered back, if telexed; when receipt acknowledged by recipient's telecopy
operator, if telecopied; and on the day delivered, if sent by overnight air
courier guaranteeing next day delivery.
(c) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including, without limitation, and without the need for an express assignment,
subsequent holders of the Notes and the New Notes.
(d) 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.
(e) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York, without regard to its
conflicts of laws rules.
(g) 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, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
14
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Initial Purchasers.
Very truly yours,
PEDIATRIC SERVICES OF AMERICA, INC.
By: /s/ Joseph D. Sansone
-----------------------------------------
Name: Joseph D. Sansone
Title: President
Accepted in New York, New York
April 16, 1998
SALOMON BROTHERS INC
NATIONSBANC MONTGOMERY
SECURITIES LLC
FIRST UNION CAPITAL MARKETS
A DIVISION OF WHEAT FIRST
SECURITIES, INC.
By: SALOMON BROTHERS INC
By: /s/ Benjamin D. Lorello
----------------------------------
Name: Benjamin D. Lorello
Title: Managing Director
15
<PAGE>
Exhibit 5
LONG ALDRIDGE & NORMAN LLP
SUITE 5300
303 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30308
May 5, 1998
Pediatric Services of America, Inc.
310 Technology Parkway
Norcross, Georgia 30092
Re: Pediatric Services of America, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Pediatric Services of America, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-4 (the "Registration Statement") and the filing
thereof with the Securities and Exchange Commission (the "Commission") for the
purpose of registering under the Securities Act of 1933, as amended, (i)
$75,000,000 aggregate principal amount of the Company's 10% Senior Subordinated
Notes due 2008, Series A (the "Exchange Notes") and (ii) the guarantees thereof
(the "Guarantees"). The Exchange Notes are to be issued in exchange (the
"Exchange Offer") for a like principal amount of the Company's outstanding 10%
Senior Subordinated Notes due 2008 (the "Original Notes").
In rendering our Opinions (as defined below), we have examined such
agreements, documents, instruments and records as we deemed necessary or
appropriate under the circumstances for us to express our Opinions hereinafter
set forth, including: (i) the Certificate or Articles of Incorporation and
Bylaws of the Company and the Guaranteeing Subsidiaries, in each case as amended
through the date hereof; (ii) the Registration Statement; (iii) the Indenture,
dated as of April 16, 1998, by and between the Company, the Guaranteeing
Subsidiaries named therein and SunTrust Bank, Atlanta, as Trustee (the
"Indenture"); (iv) the Registration Rights Agreement, dated as of April 16, 1998
(the "Registration Rights Agreement"), among the Company, the Guaranteeing
Subsidiaries and Smith Barney Inc., BT Alex. Brown Incorporated, and The
Robinson-Humphrey Company, LLC, as representatives of the several Initial
Purchasers; and (v) the form of Subsidiary Guarantees (the "Guarantees")
executed by the Guaranteeing Subsidiaries. In making all of our examinations,
we assumed the legal capacity of all natural persons, the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to the original documents of all documents submitted to us as copies
and the authenticity of the originals of such latter documents, and the due
execution and delivery of all documents by any persons or entities where due
<PAGE>
Pediatric Services of America, Inc.
May 5, 1998
Page 2
execution and delivery by such persons or entities is a prerequisite to the
effectiveness of such documents.
As to various factual matters that are material to our Opinions, we have
relied upon the factual statements set forth in a certificate of officers of the
Company and certificates of various public officials. We have not independently
verified or investigated, nor do we assume any responsibility for, the factual
accuracy or completeness of such factual statements.
Members of this firm are admitted to the Bar of the State of Georgia and
are duly qualified to practice law in that state. We do not herein express any
opinion concerning any matter respecting or affected by any laws other than the
laws of the State of Georgia and the Delaware General Corporation Laws that are
now in effect and that, in the exercise of reasonable professional judgment, are
normally considered in transactions such as those contemplated by the issuance
of the Exchange Notes. As to matters of New York law relating to our Opinions
in numbered paragraphs (1) and (2) below, we have relied solely upon the
opinions of Dewey Ballantine LLP set forth in the opinion letter dated the date
hereof delivered by such firm to us. The Opinions hereinafter set forth are
based upon pertinent laws and facts in existence as of the date hereof, and we
expressly disclaim any obligation to advise you of changes to such pertinent
laws or facts that hereafter may come to our attention.
The only opinions rendered by this firm are in numbered paragraphs (1), (2)
and (3) below (our "Opinions"), and no other opinion is implied or to be
inferred. Additionally, our Opinions are based upon and subject to the
qualifications, limitations and exceptions set forth in this letter.
Based upon and subject to the foregoing, we are of the Opinion that:
(1) The Exchange Notes, when authenticated, issued and delivered in
exchange for a like principal amount of the Original Notes as set
forth in the Registration Statement and in accordance with the
provisions of the Indenture, will be legally issued, fully paid and
nonassessable and will constitute binding obligations of the Company,
enforceable against the Company in accordance with the terms of the
Indenture, subject to the qualification that (a) the enforceability of
the Company's and the Guaranteeing Subsidiaries, respective
obligations thereunder may be limited by bankruptcy, fraudulent
conveyance or transfer, insolvency, reorganization, moratorium, and
other laws relating to or affecting rights and remedies of creditors
and by general equitable principles (whether considered in a
proceeding at law or in equity) and matters of public policy, and (b)
an implied covenant of good faith and fair dealing.
<PAGE>
Pediatric Services of America, Inc.
May 5, 1998
Page 3
(2) The Guarantees, when executed and delivered by each of the
Guaranteeing Subsidiaries and when the Exchange Notes have been
authenticated, issued and delivered in accordance with the Indenture,
will be duly authorized by the Guaranteeing Subsidiaries, and will
constitute binding obligations of the Guaranteeing Subsidiaries,
enforceable against the Guaranteeing Subsidiaries in accordance with
the terms of the Indenture, subject to the qualification that (a) the
enforceability of the Guaranteeing Subsidiaries obligations
thereunder may be limited by bankruptcy, fraudulent conveyance or
transfer, insolvency, reorganization, moratorium, and other laws
relating to or affecting rights and remedies of creditors and by
general equitable principles (whether considered in a proceeding at
law or in equity) and matters of public policy, and (b) an implied
covenant of good faith and fair dealing.
(3) The statements under the caption "Certain Federal Income Tax
Considerations Relating to the Exchange Offer" in the Prospectus
forming a part of the Registration Statement, to the extent they
constitute a summary of the United States federal income tax
consequences of the Exchange Offer, are correct in all material
respects.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to our firm under the heading
"Certain Federal Income Tax Considerations Relating to the Exchange Offer" and
"Legal Matters" set forth in the Prospectus forming a part of the Registration
Statement.
Very truly yours,
/s/ LONG ALDRIDGE & NORMAN LLP
<PAGE>
EXHIBIT 12
PEDIATRIC SERVICES OF AMERICA, INC.
EARNINGS TO FIXED CHARGE COVERAGE CALCULATION
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
As Adjusted As Adjusted As Adjusted
FYE FYE FYE FYE FYE FYE Qtrly Qtrly Qtrly LTM
1993 1994 1995 1996 1997 1997 12/31/96 12/31/97 12/31/97 12/31/97
---------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges:
Fixed Charges:
Interest Expense 872 1,074 1,643 1,778 3,534 7,800 575 1,466 1,991 7,841
Amortization of Debt Issuance 92 0 27 49 116 116 19 45 45 142
Est Int Component of Rent Exp 98 160 216 278 295 295 74 56 56 277
------ ------ ------ ------ ------ ------ ----- ------ ------ ------
Total fixed charges 1,062 1,234 1,886 2,105 3,945 8,211 668 1,567 2,092 8,260
====== ====== ====== ====== ====== ====== ===== ====== ====== ======
Earnings:
Operating Income 2,845 5,209 8,658 10,166 15,467 15,467 3,309 5,019 5,019 17,177
Less Interest Expense (872) (1,074) (1,643) (1,778) (3,534) (7,800) (575) (1,466) (1,991) (7,841)
Plus Fixed Charges 1,062 1,234 1,886 2,105 3,945 8,211 668 1,567 2,092 8,260
------ ------ ------ ------ ------ ------ ----- ------ ------ ------
Total earnings 3,035 5,369 8,901 10,493 15,878 15,878 3,402 5,120 5,120 17,596
====== ====== ====== ====== ====== ====== ===== ====== ====== ======
FIXED CHARGE COVERAGE RATIO 2.86 4.35 4.72 4.98 4.03 1.93 5.09 3.27 2.45 2.13
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated November 18, 1997, except for Note 15 as to which the
date is April 10, 1998, with respect to the consolidated financial statements of
Pediatric Services of America, Inc. included in the Registration Statement (Form
S-4 No. 33-________) and related Prospectus of Pediatric Services of America,
Inc. for the registration of $75,000,000 of its 10% Senior Subordinated Notes
due 2008.
We also consent to the incorporation by reference therein of our report dated
November 18, 1997, with respect to the financial statement schedule of Pediatric
Services of America, Inc. included in its Annual Report (Form 10-K) for the
year ended September 30, 1997 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
May 4, 1998
Atlanta, Georgia
<PAGE>
EXHIBIT 23.2
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the use in this Registration Statement of Pediatric Services of
America, Inc. on Form S-4 of our report dated November 21, 1995 (February 29,
1996 as to Note 10) relating to the consolidated financial statements of Premier
Medical Services, Inc. for the year ended September 30, 1995 (not included
separately therein or herein) included in the Annual Report on Form 10-K of
Pediatric Services of America, Inc. for the year ended September 30, 1997, and
to the use of our report dated November 21, 1995 (February 29, 1996 as to Note
10), appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
San Jose, California
May 4, 1998
<PAGE>
EXHIBIT 23.3
Report of Independent Auditors
The Board of Directors of
Premier Medical Services, Inc.:
We have audited the consolidated statements of operations, stockholders' equity
and cash flows of Premier Medical Services, Inc. (the Company) and its
subsidiaries for the year ended September 30, 1995 (not presented separately
herein). 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of the operations and cash flows of the Company
and its subsidiaries for the year ended September 30, 1995 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------------
DELOITTE & TOUCHE LLP
San Jose, California
November 21, 1995
(February 29, 1996 as to Note 10)
<PAGE>
EXHIBIT 25
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
___________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) __
___________________
SUNTRUST BANK, ATLANTA
(Exact name of trustee as specified in its charter)
58-0466330
(I.R.S. employer identification no.)
25 PARK PLACE, N.E.
ATLANTA, GEORGIA 30303
(Address of principal executive offices) (Zip Code)
___________________
DAVID M. KAYE
SUNTRUST BANK, ATLANTA
58 EDGEWOOD AVENUE, N.E.
ROOM 400A
ATLANTA, GEORGIA 30303
(404) 588-8060
(Name, address and telephone number of agent for service)
PEDIATRIC SERVICES OF AMERICA, INC.
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-1873345
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
310 TECHNOLOGY PARKWAY
NORCROSS, GEORGIA 30092
(Address of principal executive offices) (Zip Code)
_________________
10% SENIOR SUBORDINATED NOTES DUE 2008
(TITLE OF THE INDENTURE SECURITIES)
- --------------------------------------------------------------------------------
<PAGE>
1. General information.
(a) Name and address of each examining or supervising authority to which
it is subject.
DEPARTMENT OF BANKING AND FINANCE
STATE OF GEORGIA
ATLANTA, GEORGIA
FEDERAL RESERVE BANK OF ATLANTA
104 MARIETTA STREET, N.W.
ATLANTA, GEORGIA
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
YES.
2. Affiliations with obligor.
NONE.
3. Voting Securities of the Trustee.
NOT APPLICABLE.
4. Trusteeships under Other Indentures.
NOT APPLICABLE.
5. Interlocking Directorates and Similar Relationships with the Obligor or
Underwriters.
NOT APPLICABLE.
6. Voting Securities of the Trustee Owned by the Obligor or its Officials.
NOT APPLICABLE.
7. Voting Securities of the Trustee Owned by Underwriters or their Officials.
NOT APPLICABLE.
<PAGE>
8. Securities of the Obligor Owned or Held by the Trustee.
NOT APPLICABLE.
9. Securities of Underwriters Owned or Held by the Trustee.
NOT APPLICABLE.
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
NOT APPLICABLE.
11. Ownership or Holdings by the Trustee of any Securities or a Person Owning
50 Percent or More of the Voting Securities of the Obligor.
NOT APPLICABLE.
12. Indebtedness of the Obligor to the Trustee.
NOT APPLICABLE.
13. Defaults by the Obligor.
(a) Whether there is or has been a default with respect to the securities
under this indenture.
THERE IS NOT AND HAS NOT BEEN ANY SUCH DEFAULT.
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any
other securities, of the obligor are outstanding, or is trustee for
more than one outstanding series of securities under the indenture,
state whether there has been a default under any such indenture or
series.
THERE HAS NOT BEEN ANY SUCH DEFAULT.
14. Affiliations with the Underwriters.
NOT APPLICABLE.
-2-
<PAGE>
15. Foreign Trustee.
NOT APPLICABLE.
16. List of Exhibits.
The additional exhibits listed below are filed herewith; exhibits, if any,
identified in parentheses are on file with the Commission and are incorporated
herein by reference as exhibits hereto pursuant to Rule 7a-29 under the Trust
Indenture Act of 1939, as amended, and Rule 24 of the Commission's Rules of
Practice.
Exhibit
Number
- ------
1 A copy of the Articles of Amendment and Restated Articles of Incorporation as
now in effect. (Exhibit 1 to Form T-1, Registration No. 333-25463.)
2 A copy of the certificate of authority of the Trustee to commence business.
(Included in Exhibit 1.)
3 A copy of the authorization of the Trustee to exercise trust powers.
(Included in Exhibit 1.)
4 By-laws of the Trustee. (Included in Exhibit 4 to Form T-1, Registration No.
333-25463.)
5 Not applicable.
6 Consent of the trustee required by Section 321(b) of the Trust Indenture Act
of 1939, as amended.
7 Latest report of condition of the Trustee published pursuant to law or the
requirements of its supervising or examining authority as of the close of
business on March 31, 1998.
8 Not applicable.
9 Not applicable.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, SunTrust Bank, Atlanta, a banking corporation organized and existing
under the laws of the State of Georgia, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Atlanta and the State of Georgia,
on the 5th day of May, 1998.
SUNTRUST BANK, ATLANTA
By: /s/ David M. Kaye
------------------------------------
GROUP VICE PRESIDENT
-4-
<PAGE>
EXHIBIT 6 TO FORM T-1
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939 in connection with the proposed issuance of Pediatric Services of
America, Inc. 10% Senior Subordinated Notes due 2008 to be issued under the
Indenture, SunTrust Bank, Atlanta hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
SUNTRUST BANK, ATLANTA
By: /s/ David M. Kaye
------------------------------------
GROUP VICE PRESIDENT
<PAGE>
EXHIBIT 7 FORM T-1
LATEST REPORT OF CONDITION
OF
SUNTRUST BANK, ATLANTA
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SUNTRUST BANK ATLANTA Call Date: 3/31/98 State #: 130330 FFIEC 031
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 00867 RC-1
ATLANTA, GA 30302 Transit #: 6100010-4
----------
| 11 |
----------
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
ALL SCHEDULES ARE TO BE REPORTED IN THOUSANDS OF DOLLARS. UNLESS OTHERWISE INDICATED,
REPORT THE AMOUNT OUTSTANDING AS OF THE LAST BUSINESS DAY OF THE QUARTER.
</TABLE>
SCHEDULE RC -- BALANCE SHEET
- ---------------------------
<TABLE>
<CAPTION>
ASSETS DOLLAR AMOUNTS IN THOUSANDS
1. Cash and balances due from depositary institutions (from Schedule RC-A): RCFD
----
<S> <C> <C> <C>
a. Noninterest-bearing balances and currency and coins(1) ................................ 0081 867,073 1.a
b. Interest-bearing balances(2) .......................................................... 0071 4,574 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) ............................ 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B column D) ........................... 1773 3,322,133 2.b
3. Federal funds sold and securities purchased under agreements to resell .................... 1350 796,683 3.
4. Loans and lease financing receivables: RCFD
----
a. Loans and losses, net of unearned income (from Schedule RC-C) .... 2122 11,210,585 4.a
b. LESS: Allowances for loan and lease losses ....................... 3123 134,515 4.b
c. LESS: Allocated transfer risk reserve ............................ 3128 0 4.c
RCFD
----
d. Loans and leases, net of unearned income,
allowance, and reserve (Item 4.a minus 4.b and 4.c) ................................... 2125 11,076,070 4.d
5. Trading assets (from Schedule RC-D) ....................................................... 3545 16,724 5.
6. Premises and fixed assets (including capitalized leases) .................................. 2145 101,431 6.
7. Other real estate owned (from Schedule RC-M) .............................................. 2150 1,387 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) .. 2130 12,664 8.
9. Customers' liability to this bank on acceptance outstanding ............................... 2155 350,591 9.
10. Intangible assets (from Schedule RC-M) .................................................... 2143 16,265 10.
11. Other assets (from Schedule RC-F) ......................................................... 2180 149,944 11.
12. Total assets (sum of items 1 through 11) .................................................. 2170 16,715,539 12.
- -----------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SUNTRUST BANK ATLANTA CALL DATE: 03/31/98 STATE #: 130330 FFIEC 031
P.O. BOX 4418 CENTER 632 VENDOR ID: D CERT #: 00867 RC-1
ATLANTA, GA 30302 TRANSIT #: 6100010-4
-----------------
| 12 |
-----------------
Schedule RC -- Balance Sheet
LIABILITIES Dollar Amounts in Thousands
RCFD
13. Deposits: ----
a. In domestic offices (sum of totals of columns A and C from Schedule RCON 2200 7,190,048 13.a
RC-E, part I)...................................................... ----
(1) Noninterest-bearing(1)......................................... 6631 2,439,599 13.a.1
(2) Interest-bearing............................................... 6636 4,750,449 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from RCON
Schedule RC-E, part II)............................................ RCFN 2200 855,056 13.b
----
(1) Noninterest-bearing............................................ 6631 0 13.b.1
(2) Interest-bearing............................................... 6636 855,056 RCFD 13.b.2
----
14. Federal funds purchased and securities sold under agreements to repurchase................ 2800 3,858,832 14
RCON
----
15. a. Demand notes issued to the U.S. Treasury.............................................. 2840 0 15.a
RCFD
----
b. Trading liabilities (from Schedule RC-D).............................................. 3548 3 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations under capitalized
leases):
a. With a remaining maturity of one year or less......................................... 2332 564,410 16.a
b. With a remaining maturity of more than one year through three years................... A547 2,530 16.b
c. With a remaining maturity of more than three years.................................... A546 0 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding.................................. 2920 350,591 18
19. Subordinated notes and debentures(2)...................................................... 3200 250,000 19
20. Other liabilities (from Schedule RC-G).................................................... 2930 1,232,470 20
21. Total liabilities (sum of items 13 through 20)............................................ 2948 14,303,940 21
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus............................................. 3638 0 23
24. Common stock.............................................................................. 3230 21,601 24
25. Surplus (exclude all surplus related to preferred stock).................................. 3839 573,406 25
26. a. Undivided profits and capital reserves................................................. 3632 611,847 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities................. 8434 1,204,745 26.b
27. Cumulative foreign currency translation adjustments....................................... 3284 0 27
28. Total equity capital (sum of items 23 through 27)......................................... 3210 2,411,599 28
29. Total liabilities and equity capital (sum of items 21 and 28)............................. 3300 16,715,539 29
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best describes the RCFD Number
most comprehensive level of auditing work performed for the bank by independent external ---- ------
auditors as of any date during 1997....................................................... 6724 2 M.1
1= Independent audit of the bank conducted in accordance 3= Directors' examination of the bank conducted in accordance
with generally accepted auditing standards by a certified with generally accepted auditing standards by a certified
public accounting firm which submits a report on the bank public accounting firm (may be required by state chartering
2= Independent audit of the bank's parent holding company authority)
conducted in accordance with generally accepted auditing 4= Directors' examination of the bank performed by other
standards by a certified public accounting firm which external auditors (may be required by state chartering
submits a report on the consolidated holding company (but authority)
not on the bank separately) 5= Review of the bank's financial statements by external
auditors
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6= Compilation of the bank's financial statements by external 7= Other audit procedures (excluding preparation work)
auditors 8= No external audit work
- ----------------
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
(2) Includes limited-life preferred stock and related surplus.
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR TENDER OF
10% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
10% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
of
PEDIATRIC SERVICES OF AMERICA, INC.
PURSUANT TO THE PROSPECTUS DATED MAY__, 1998
+------------------------------------------------------------------------------+
| THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK |
| CITY TIME, ON _______________, 1998 OR SUCH LATER DATE AND TIME TO WHICH THE |
| EXCHANGE OFFER MAY BE EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE |
| WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. |
+------------------------------------------------------------------------------+
The Exchange Agent For The Exchange Offer Is:
SUNTRUST BANK, ATLANTA
<TABLE>
<S> <C> <C>
By Mail: By Facsimile: By Hand or Overnight
(Registered or Certified (Eligible Institutions Only) Delivery:
Mail recommended)
SunTrust Bank, Atlanta SunTrust Bank, Atlanta SunTrust Bank, Atlanta
58 Edgewood Avenue, Suite 400 Facsimile Number: (404) 332-3966 58 Edgewood Avenue, Suite 400
Atlanta, Georgia 30303 Attention: David M. Kaye Atlanta, Georgia 30303
Attention: David M. Kaye Corporate Trust Department Attention: David M. Kaye
Corporate Trust Department Corporate Trust Department
To Confirm by Telephone
or for Information Call:
(404) 588-8060
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
<PAGE>
The undersigned hereby acknowledges receipt and review of the Prospectus dated
May ______, 1998 (as the same may be amended or supplemented from time to time,
the "Prospectus") of Pediatric Services of America Inc. (the "Company") and this
Letter of Transmittal (the "Letter of Transmittal"), which together describe the
Company's offer (the "Exchange Offer") to exchange its 10% Senior Subordinated
Notes due 2008, Series A (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which the Prospectus is a part, for a like principal
amount of its issued and outstanding 10% Senior Subordinated Notes due 2008 (the
"Old Notes"). Capitalized terms used but not defined herein have the respective
meanings given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date in which the Exchange Offer is extended. The
Company shall notify the holders of the Old Notes of any extension by oral or
written notice prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a Holder of Old Notes either if
original Old Notes are to be forwarded herewith or if delivery of Old Notes, if
available, is to be made by book-entry transfer to the account maintained by the
Exchange Agent at the Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in the Prospectus under the
caption "The Exchange Offer -- Book-Entry Transfer." Holders of Old Notes whose
Old Notes are not immediately available, or who are unable to deliver their Old
Notes and all other documents required by this Letter of Transmittal to the
Exchange Agent on or prior to the Expiration Date, or who are unable to complete
the procedure for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." See Instructions 1 and 2. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered Holder. 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 Old Notes must complete this Letter of
Transmittal in its entirety.
The undersigned has checked the appropriate boxes below and signed this Letter
of Transmittal to indicate the action the undersigned desires to take with
respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
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 Old Notes to which this Letter of Transmittal relates. If the
space below is inadequate, list the registered numbers and principal amounts on
a separate signed schedule and affix the list to this Letter of Transmittal.
2
<PAGE>
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IF BLANK, PLEASE PRINT REGISTERED AGGREGATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT TENDERED
NAME AND ADDRESS OF NUMBER(S)** REPRESENTED BY NOTE(S) (IF LESS THAN ALL)***
REGISTERED HOLDER (AS
IT APPEARS ON OLD
NOTES, IF APPLICABLE).*
- --------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL AMOUNT TENDERED
- --------------------------------------------------------------------------------------------------
</TABLE>
* Please list each Old Note separately. Attach additional list if necessary.
** Need not be completed by book-entry holders.
*** Unless otherwise indicated, any tendering Holder of Old Notes will be deemed
to have tendered the entire aggregate principal amount represented by such
Old Notes. All tenders must be integral multiples of $1,000. See
Instruction 4.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
[ ] The Depository Trust Company
Name of Tendering Institution:________________________________________________
Book-Entry Transfer Facility Account Number:__________________________________
Transaction Code Number:______________________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) of Old Notes:____________________________________
Window Ticket Number (if any):________________________________________________
Date of Execution of Notice of Guaranteed Delivery:___________________________
Name of Eligible Institution which Guaranteed Delivery:_______________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution:________________________________________________
Book-Entry Transfer Facility Account Number:__________________________________
3
<PAGE>
Transaction Code Number:______________________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT
NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING 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
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes, it acknowledges that the Old Notes
were acquired as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such New 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.
4
<PAGE>
Ladies and Gentleman:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Old Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned hereby exchanges, assigns and transfers to the
Company all right, title and interest in and to the Old Notes tendered for
exchange hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent, the agent and attorney-in-fact of the undersigned (with full
knowledge that the Exchange Agent also acts as the agent of the Company in
connection with the Exchange Offer) with respect to the tendered Old Notes with
full power of substitution to (i) deliver such Old Notes, or transfer ownership
of such Old Notes on the account books maintained by the Book-Entry Transfer
Facility, to the Company and deliver all accompanying evidences of transfer and
authenticity, and (ii) present such Old Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of beneficial
ownership of such Old Notes, all in accordance with the terms of the Exchange
Offer. The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, ASSIGN AND TRANSFER THE OLD NOTES
TENDERED HEREBY AND TO ACQUIRE THE NEW NOTES ISSUABLE UPON THE EXCHANGE OF SUCH
TENDERED OLD NOTES, AND THAT THE COMPANY WILL ACQUIRE GOOD AND UNENCUMBERED
TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND
ENCUMBRANCES AND NOT SUBJECT TO ANY ADVERSE CLAIM, WHEN THE SAME ARE ACCEPTED
FOR EXCHANGE BY THE COMPANY.
The undersigned acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the Staff of the Securities and Exchange Commission (the
"Commission") that the New Notes issued in exchange for the Old Notes pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company 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 such New Notes are acquired in the ordinary
course of such Holders' business and such Holders are not engaging in and do not
intend to engage in a distribution of the New Notes and have no arrangement or
understanding with any person to participate in a distribution of such New
Notes. The undersigned hereby further represent(s) to the Company that (i) any
New Notes acquired in exchange for Old Notes tendered hereby are being acquired
in the ordinary course of business of the person receiving such New Notes,
whether or not the undersigned, (ii) neither the undersigned nor any such other
person is engaging in or intends to engage in a distribution of the New Notes,
(iii) neither the undersigned nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes, and (iv) neither the Holder nor any such other person is an "affiliate,"
as defined in Rule 405 under the Securities Act, of the Company or, if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
If the undersigned or the person receiving the New Notes is a broker-dealer
that is receiving New Notes for its own account in exchange for Old 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 in connection with any resale of such New Notes; however,
by so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that the undersigned or such other person is an "underwriter"
within the meaning of the Securities Act. The undersigned acknowledges that if
the undersigned is participating in the Exchange Offer for the purpose of
distributing the New Notes (i) the undersigned cannot rely on the position of
the Staff of the Commission in certain 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 a secondary
resale transaction of the New Notes, in which case, such registration statement
must contain the selling security holder information required by Item 507 of
Regulation S-K of the Commission, and (ii) failure to comply with such
requirements in such instance could result in the undersigned incurring
liability under the Securities Act for which the undersigned is not indemnified
by the Company.
5
<PAGE>
If the undersigned or the person receiving the New Notes is an "affiliate" (as
defined in Rule 405 under the Securities Act), the undersigned represents to the
Company that the undersigned understands and acknowledges that the New 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 will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered hereby, including the transfer of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange properly tendered Old Notes when, as and if the Company
gives oral or written notice thereof to the Exchange Agent. Any tendered Old
Notes that are not accepted for exchange pursuant to the Exchange Offer for any
reason will be returned, without expense, to the undersigned at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the expiration or
termination of the Exchange Offer.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Old Notes pursuant to the procedures described under the caption "The
Exchange Offer -- Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions," please issue
the New Notes issued in exchange for the Old Notes accepted for exchange and
return any Old Notes not tendered or not exchanged, in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail or deliver the New Notes issued in exchange for the
Old Notes accepted for exchange and any Old Notes not tendered or not exchanged
(and accompanying documents, as appropriate) to the undersigned at the address
shown below the undersigned's signatures). In the event that both "Special
Issuance Instructions" and "Special Delivery Instructions" are completed, please
issue the New Notes issued in exchange for the Old Notes accepted for exchange
in the name(s) of, and return any Old Notes not tendered or not exchanged to,
the person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Old Notes from the name of the registered
holder(s) thereof if the Company does not accept for exchange any of the Old
Notes so tendered for exchange.
6
<PAGE>
HOLDER(S) PLEASE SIGN HERE
(SEE INSTRUCTION 5)
(PLEASE COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON PAGE 13)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 5)
This Letter of Transmittal must be signed by the registered Holder(s) of
Old Notes as name(s) appear(s) on the Old Notes or on a security position
listing, or by person(s) authorized to become registered Holder(s) by a properly
completed bond power from the registered Holder(s), a copy of which must be
transmitted with this Letter of Transmittal. If Old Notes to which this Letter
of Transmittal relate are held of record by two or more joint Holders, then all
such Holders must sign this Letter of Transmittal. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, then such person
must (i) set forth his or her full title below and (ii) unless waived by the
Company, submit evidence satisfactory to the Company of such person's authority
so to act. See Instruction 5 regarding the completion of this Letter of
Transmittal, printed below.
X_______________________________________________________________________________
X_______________________________________________________________________________
Signature(s) of Holders(s)
Date: _________________________
Name(s):________________________________________________________________________
______________________________________________________________________________
(Please Type or Print)
Capacity (full title):__________________________________________________________
Address:________________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number:_________________________________________________
________________________________________________________________________________
(Tax Identification or Social Security Number(s))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTION 5)
Signature(s) Guaranteed by an
Eligible Institution:__________________________________________________________
(Authorized Signature)
Date: __________________
Name of Firm:__________________________________________________________________
Capacity (full title):_________________________________________________________
(Please Type or Print)
Address:_______________________________________________________________________
______________________________________________________________________________
7
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if New Notes, or Old Notes not tendered, are to be
issued in the name of someone other than the undersigned, or (ii) if Old Notes
maintained by book-entry transfer which are not exchanged are to be returned by
credit to an account maintained at the Book-Entry Transfer Facility.
Issue
[ ] Old Notes not tendered to:
[ ] New Notes to:
Name(s):__________________________________
__________________________________
(Please Type or Print)
Address:__________________________________
__________________________________________
(Include Zip Code)
Area Code and
Telephone Number:_________________________
__________________________________________
(Tax Identification or Social
Security Number(s))
[ ] Credit unexchanged Old Notes delivered by
book-entry transfer to the Book-Entry
Transfer Facility set forth below:
_______________________________________
(Book-Entry Transfer Facility Account
Number, if applicable)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if New Notes, or Old Notes not tendered, are to be mailed
or delivered to someone other than the undersigned, or to the undersigned at an
address other than that shown above.
Mail
[ ] Old Notes not tendered to:
[ ] New Notes to:
Name(s): __________________________________
__________________________________________
(Please Type or Print)
Address: __________________________________
___________________________________________
(Include Zip Code)
Area Code and
Telephone Number: _________________________
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES OR BOOK-ENTRY
CONFIRMATIONS.
All physically delivered Old Notes or any confirmation of a book-entry
transfer to the Exchange Agent's account at the Book-Entry Transfer Facility of
Old Notes tendered by book-entry transfer (a "Book-Entry Confirmation"), as well
as a properly completed and duly executed copy of this Letter of Transmittal or
facsimile hereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date.
THE METHOD OF DELIVERY OF THE TENDERED OLD NOTES, THIS LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT 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 OR CONFIRMED BY THE
EXCHANGE AGENT. 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 DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Old Notes and (a) whose Old Notes are not
immediately available, or (b) who cannot deliver their Old Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent prior
to the Expiration Date must tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedures:
(i) such tender must be made by or through a firm which is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or a trust company having an
office or correspondent in the United States (an "Eligible institution"); (ii)
prior to the Expiration Date, the Exchange Agent must have received from the
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 of the Old Notes, the registration number(s) of
such Old Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three (3) New York
Stock Exchange, Inc. ("NYSE") trading days after the Expiration Date, this
Letter of Transmittal (or facsimile hereof) together with the Old Notes (or a
Book-Entry Confirmation) in proper form for transfer, will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) the certificates for all
physically tendered shares of Old Notes, in proper form for transfer, or Book-
Entry Confirmation, as the case may be, and all other documents required by this
Letter are received by the Exchange Agent within three (3) NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
Any Holder of Old Notes who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice
of Guaranteed Delivery will be sent to Holders who wish to tender their Old
Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus.
3. TENDER BY HOLDER.
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
Any beneficial Holder of Old Notes who is not the registered Holder and who
wishes to tender should arrange with the registered Holder to execute and
deliver this Letter of Transmittal on his behalf or must, prior to completing
and executing this Letter of Transmittal and delivering his Old Notes, either
make appropriate arrangements to register ownership of the Old Notes in such
Holder's name or obtain a properly completed bond power from the registered
Holder.
9
<PAGE>
4. PARTIAL TENDERS.
Tenders of Old Notes will be accepted only in integral multiples of $1,000.
If less than the entire principal amount of any Old Notes in tendered, the
tendering Holder should fill in the principal amount tendered in the column
entitled "Principal Amount Tendered" contained in the box entitled "Description
of Old Notes Tendered" above. The entire principal amount of Old Notes delivered
to the Exchange Agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Old Notes in not tendered, then
Old Notes for the principal amount of Old Notes not tendered and New Notes
issued in exchange for any Old Notes accepted will be sent to the Holder at his
or her registered address, unless a different address is provided in the box on
this Letter of Transmittal entitled "Special Delivery Instructions", promptly
after the Old Notes are accepted for exchange.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
If this Letter of Transmittal (or facsimile hereof) in signed by the record
Holder(s) of the Old Notes tendered hereby, the signature must correspond with
the names as written on the face of the Old Notes without alteration,
enlargement or any change whatsoever. If this Letter of Transmittal is signed by
a participant in the Book-Entry Transfer Facility, the signature must correspond
with the name as it appears on the security position listing as the Holder of
the Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Old Notes listed and tendered hereby and the New
Notes issued in exchange therefor is to be issued (or any untendered principal
amount of Old Notes is to be reissued) to the registered Holder, the said Holder
need not and should not endorse any tendered Old Notes, nor provide a separate
bond power. In any other case, such Holder must either properly endorse the Old
Notes tendered or transmit a properly completed separate bond power with this
Letter of Transmittal, with the signatures on the endorsement or bond power
guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by properly completed bond powers, in each
case signed as the name of the registered Holder or Holders appears on the Old
Notes with the signature thereon guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
ENDORSEMENTS ON OLD NOTES OR SIGNATURES ON BOND POWERS REQUIRED BY THIS
INSTRUCTION 5 MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Old Notes tendered herewith (or by a
participant in the Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of the tendered Old Notes) and the issuance of New
Notes (and any Old Notes not tendered or not accepted) are to be issued directly
to such registered Holder(s) (or, if signed by a participant in the Book-Entry
Transfer Facility, any New Notes or Old Notes not tendered or not accepted are
to be deposited to such participant's account at such Book-Entry Transfer
Facility) and neither the box entitled "Special Delivery Instructions" nor the
box entitled "Special Issuance Instructions" has been completed, or (ii) such
Old Notes are tendered for the account of an Eligible Institution. In all other
cases, all signatures on this Letter of Transmittal must be guaranteed by an
Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box or boxes, the name
and address (or account at the Book-Entry Transfer Facility) to which New Notes
10
<PAGE>
or substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
7. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, New Notes or Old Notes
for principal amounts not tendered or accepted for exchange are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered Holder of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person other than the person signing this Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
persons) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom in not submitted with this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. TAX IDENTIFICATION NUMBER.
Federal income tax law requires that a Holder of any Old Notes which are
accepted for exchange must provide the Company (as payor) with its correct
taxpayer identification number ("TIN"), which, in the case of a Holder who is an
individual, is his or her social security number. If the Company is not provided
with the correct TIN, the Holder may be subject to a $50 penalty imposed by the
Internal Revenue Service. (If withholding results in an over-payment of taxes, a
refund may be obtained.) Certain Holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements.
To prevent backup withholding, each tendering Holder must provide such
Holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN), and that (i) the Holder has not been notified by the Internal Revenue
Service that such Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the Holder that such Holder is no longer subject to backup withholding.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS.
All questions as to the validity, form, eligibility (including time of
receipt), and acceptance of tendered Old Notes will be determined by the
Company, in its sole discretion, which determination will be final and binding.
The Company reserves the right to reject any and all Old Notes not validly
tendered or any Old Notes, the Company's acceptance of which would, in the
opinion of the Company or its counsel, be unlawful. The Company also reserves
the right to waive any conditions of the Exchange Offer or defects or
irregularities in tenders of Old Notes as to any ineligibility of any Holder who
seeks to tender Old Notes in the Exchange Offer. The interpretation of the terms
and conditions of the Exchange Offer (includes this Letter of Transmittal and
the instructions hereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine. The
Company will use reasonable efforts to give notification of defects or
irregularities with respect to tenders of Old Notes, but shall not incur any
liability for failure to give such notification.
11
<PAGE>
10. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive, in whole or part, any of
the conditions to the Exchange Offer set forth in the Prospectus.
11. NO CONDITIONAL TENDER.
No alternative, conditional, irregular or contingent tender of Old Notes on
transmittal of this Letter of Transmittal will be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any Holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Requests for assistance or for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address or
telephone number set forth on the cover page of this Letter of Transmittal.
Holders may also contact their broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED OLD NOTES AND ISSUANCE OF NEW NOTES; RETURN OF OLD
NOTES.
Subject to the terms and conditions of the Exchange Offer, the Company will
accept for exchange all validly tendered Old Notes as soon as practicable after
the Exchange Date and will issue New Notes therefor as soon as practicable
thereafter. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted tendered Old Notes when, as and if the Company has given written
and oral notice thereof to the Exchange Agent. If any tendered Old Notes are not
exchanged pursuant to the Exchange Offer for any reason, such unexchanged Old
Notes will be returned, without expense, to the undersigned at the address shown
above (or credited to the undersigned's account at the Book-Entry Transfer
Facility designated above) or at a different address as may be indicated under
the box entitled "Special Delivery Instructions."
15. WITHDRAWAL.
Tenders may be withdrawn only pursuant to the limited withdrawal rights set
forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal of
Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE OLD NOTES WHICH MUST BE DELIVERED BY BOOK-ENTRY TRANSFER OR
IN ORIGINAL FORM) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
12
<PAGE>
TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS
(SEE INSTRUCTION 8)
PAYOR'S NAME: PEDIATRIC SERVICES OF AMERICA, INC.
<TABLE>
<CAPTION>
<S> <C>
SUBSTITUTE PART I -- Please provide your
TIN in the box at right and _______________________
certify by signing and dating Social Security Number
below
OR
FORM W-9
DEPARTMENT OF THE TREASURY ________________________
INTERNAL REVENUE SERVICE Employer Identification Number
------------------------------------------------------------------
PAYOR'S REQUEST FOR TAXPAYER PART II -- TIN Applied For G
IDENTIFICATION NUMBER ("TIN")
AND CERTIFICATION ------------------------------------------------------------------
CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to be
issued to me),
(2) I am not subject to backup withholding either
because (i) I am exempt from backup withholding, (ii) I
have not been notified by the Internal Revenue Service
("IRS") that I am subject to backup withholding as a result
of a failure to report all interest or dividends, or
(iii) the IRS has notified me that I am no longer subject to
backup withholding, and
(3) the other information provided on this form is true
and correct.
------------------------------------------------------------------
SIGNATURE________________________ DATE_______________________
- -------------------------------------------------------------------------------------------------
You must cross out all of item (2) above if you have been notified by the IRS that you are
subject to backup withholding because of under reporting interest or dividends on your tax
return and you have not been notified by the IRS that you are no longer subject to backup
withholding.
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID 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.
13
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TIN
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 within
sixty (60) days, 31% of all payments of the Offer Price made to me thereafter
will be withheld until I provide a number.
========================================================
Signature: __________________________________ Date: _______________________
14
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
TENDER OF 10% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
10% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Pediatric Services of America, Inc. is offering, upon and subject to the terms
and conditions set forth in a Prospectus dated May ___, 1998 (the "Prospectus"),
and the enclosed letter of transmittal (the "Letter of Transmittal"), to
exchange (the "Exchange Offer") up to $75,000,000 aggregate principal amount of
its 10% Senior Subordinated Notes due 2008, Series A (the "New Notes") for up to
$75,000,000 aggregate principal amount of its outstanding 10% Senior
Subordinated Notes due 2008 (the "Old Notes"). The New Notes are being offered
in order to satisfy certain obligations of the Company and the Guaranteeing
Subsidiaries contained in the Registration Rights Agreement dated April 16,
1998, by and among the Company, the Guaranteeing Subsidiaries and Salomon
Brothers Inc., NationsBanc Montgomery Securities LLC and First Union Capital
Markets, a division of Wheat First Securities, Inc., as the initial purchasers
with respect to the offering of the Old Notes.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated May____, 1998;
2. The Letter of Transmittal for your use and for the information (or the
use, where relevant) of your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer if
certificates for Old Notes are not immediately available or time will not permit
all required documents to reach the Exchange Agent prior to the Expiration Date
(as defined below) or if the procedure for book-entry transfer cannot be
completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer; and
5. Return envelopes addressed to SunTrust Bank, Atlanta, the Exchange Agent
for Old Notes.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON _______________, 1998, OR SUCH LATER DATE AND TIME TO
WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE "EXPIRATION DATE"). THE OLD NOTES
TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE THE
EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof or an Agent's Message (as defined in
the Letter of Transmittal) in lieu thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Old Notes should be delivered to the
Exchange Agent, all in accordance with the instructions set forth in the Letter
of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer 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."
<PAGE>
The Company will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Old Notes held by them as nominee or in a fiduciary capacity. The
Company will pay or cause to be paid all stock transfer taxes applicable to the
exchange of Old Notes pursuant to the Exchange Offer, except as set forth in
Instruction 7 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests for
additional copies of the enclosed materials, should be directed to SunTrust
Bank, Atlanta, the Exchange Agent for the Old Notes, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
Pediatric Services of America, Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CREATE AN AGENCY RELATIONSHIP
BETWEEN YOU OR ANY OTHER PERSON AND PEDIATRIC SERVICES OF AMERICA, INC., OR THE
EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE
ANY STATEMENTS ON BEHALF OF PEDIATRIC SERVICES OF AMERICA, INC. OR THE EXCHANGE
AGENT WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE
IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
2
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
TENDER OF 10% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
10% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
To Our Clients:
We are enclosing herewith a Prospectus, dated May ______, 1998, of Pediatric
Services of America, Inc. (the "Company"), a Delaware corporation, and a related
Letter of Transmittal (which together constitute the "Exchange Offer") relating
to the offer by the Company, to exchange its 10% Senior Subordinated Notes Due
2008, Series A (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for a like principal
amount of its issued and outstanding 10% Senior Subordinated Notes Due 2008 (the
"Old Notes"), upon the terms and subject to the conditions set forth in the
Exchange Offer.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
We are the holder of record of Old Notes held by us for your own account. A
tender of such Old Notes can be made only by us as the record holder and
pursuant to your instructions. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR
YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER OLD NOTES HELD BY US
FOR YOUR ACCOUNT.
We request instructions as to whether you wish to tender any or all of the Old
Notes held by us for your account pursuant to the terms and conditions of the
Exchange Offer. We also request that you confirm that we may on your behalf make
the representations contained in the Letter of Transmittal.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ___________
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). NOTES TENDERED IN THE EXCHANGE
OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
Pursuant to the Letter of Transmittal, each holder of Old Notes will represent
to the Company that (i) the New Notes acquired pursuant to the Exchange Offer
are being acquired in the ordinary course of business of the undersigned, (ii)
neither the undersigned nor any such other person has an arrangement or
understanding with any person to participate in the distribution within the
meaning of the Securities Act of such New Notes, (iii) if the undersigned is not
a broker-dealer, or is a broker-dealer but will not receive New Notes for its
own account in exchange for Old Notes, neither the undersigned nor any such
other person is engaged in or intends to participate in the distribution of such
New Notes and (iv) neither the undersigned nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or, if the undersigned is an "affiliate," that the undersigned will comply,
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable. If the undersigned is a broker-dealer (whether or not
it is also an "affiliate") that will receive New Notes for its own account in
exchange for Old Notes, it represents that such Old Notes were acquired as a
result of market-making activities or other trading activities, and it
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. By acknowledging
that it will deliver and by delivering a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes, the
undersigned is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Very truly yours,
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Pediatric
Services of America, Inc. (the "Company") with respect to the Company's Old
Notes.
This will instruct you to tender the Old Notes held by you for the account of
the undersigned, upon and subject to the terms and conditions set forth in the
Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
[ ] AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF OLD NOTES TENDERED
$__________________________________________________________________
[ ] Please do not tender any Old Notes held by you for my account.
Date:___________________________________________________________________________
Signature(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print name(s) here:______________________________________________________
______________________________________________________
Address(es):____________________________________________________________________
____________________________________________________________________
Area Code and Telephone Number(s):______________________________________________
______________________________________________
Tax Identification or Social Security Number(s):________________________________
________________________________
None of the Old Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
2
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
10% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
10% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
OF
PEDIATRIC SERVICES OF AMERICA, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for Pediatric Services of America, Inc.=s 10% Senior Subordinated
Notes due 2008 (the "Old Notes") are not immediately available, (ii) Old Notes,
the Letter of Transmittal and all other required documents cannot be delivered
to SunTrust Bank, Atlanta (the "Exchange Agent") on or prior to the Expiration
Date (as defined in the Prospectus referred to below) or (iii) the procedures
for delivery by book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand, overnight courier or
mail, or transmitted by facsimile transmission, to the Exchange Agent. See "The
Exchange Offer--Procedures for Tendering" in the Prospectus. In addition, in
order to utilize the guaranteed delivery procedure to tender Old Notes pursuant
to the Exchange Offer, a completed, signed and dated Letter of Transmittal
relating to the Old Notes (or facsimile thereof) must also be received by the
Exchange Agent on or prior to the Expiration Date. Capitalized terms not defined
herein have the meanings assigned to them in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
SUNTRUST BANK, ATLANTA
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile: By Hand or Overnight
(Registered or Certified (Eligible Institutions Only) Delivery:
Mail recommended) SunTrust Bank, Atlanta
Facsimile Number (404) 332-3966
Suntrust Bank, Atlanta Attention: David M. Kaye
58 Edgewood Avenue, Suite 400 Corporate Trust Department SunTrust Bank, Atlanta
Atlanta, Georgia 30303 58 Edgewood Avenue, Suite 400
Attention: David M. Kaye To Confirm by Telephone Attention: David M. Kaye
Corporate Trust Department Atlanta, Georgia 30303 Corporate Trust Department
or for Information Call:
(404) 588-8060
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE
TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If
a signature on a Letter of Transmittal is required to be guaranteed by an
"Eligible Institution" under the instructions thereto, such signature guarantee
must appear in the applicable space provided in the signature box on the Letter
of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Pediatric Services of America, Inc., a
Delaware corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Prospectus dated May __, 1998 (as the same may be
amended or supplemented from time to time, the "Prospectus"), and the related
Letter of Transmittal (which together constitute the "Exchange Offer"), receipt
of which is hereby acknowledged, the aggregate principal amount of Old Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering."
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.
(PLEASE PRINT OR TYPE)
Name(s) of Registered Holder(s):_______________________________________________
________________________________________________________________________________
Aggregate Principal Amount Tendered:$_________________________________________*
* Must be in denominations of a principal amount of $1,000 and any integral
multiple thereof.
Certificate No.(s) (if available):_____________________________________________
________________________________________________________________________________
Total Principal Amount Represented by Old Notes Certificate(s):$_______________
If Old Notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number:_____________________________________________________________
PLEASE SIGN HERE
DATE:
_________________________________
X_________________________________________________ ___________________________
X_________________________________________________ ___________________________
Signature(s) of Owner(s) or Authorized Signatory Title(s)
Area Code and Telephone Number:_________________________________________________
This Notice of Guaranteed Delivery must be signed by the holder(s) of the Old
Notes as their name(s) appear(s) on certificates for Old Notes or on a security
position listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian, attorney-in-
fact, officer or other person acting in a fiduciary or representative capacity,
such person must set forth his or her full title below.
<PAGE>
Please print name(s) and address(es)
Name(s):________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Capacity:_______________________________________________________________________
Address(es):___________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker or government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association
or clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Old Notes to the Exchange Agent's account at the Depository
Trust Company, pursuant to the procedures for book-entry transfer set forth in
the Prospectus, in either case together with one or more properly completed and
duly executed Letter(s) of Transmittal (or facsimile thereof) and any other
required documents within three New York Stock Exchange, Inc. trading days after
the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
(PLEASE TYPE OR PRINT)
Name of Firm: ___________________________________
_________________________________________________
Authorized Signature
Name: ___________________________________________
Title: __________________________________________
Date: ___________________________________________
Address: ________________________________________
_________________________________________________
_________________________________________________
Area Code and Telephone No.
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
Exhibit 99.3
Exchange Agent Agreement
SunTrust Bank, Atlanta
58 Edgewood Avenue
Suite 400
Atlanta, Georgia 30303
Ladies and Gentlemen:
Pediatric Services of America, Inc., a Delaware corporation (the
"Company"), proposes to make an offer (the "Exchange Offer") to exchange up to
$75,000,000 aggregate principal amount of its 10% Senior Subordinated Notes due
2008, Series A (the "New Notes") for up to $75,000,000 of its outstanding 10%
Senior Subordinated Notes due 2008 (the "Old Notes"). The terms and conditions
of the Exchange Offer as currently contemplated are set forth in a prospectus,
dated on or about May ___, 1998 (the "Prospectus"), to be distributed to all
record holders of the Old Notes. The Old Notes and the New Notes are
collectively referred to herein as the "Notes."
The Company hereby appoints SunTrust Bank, Atlanta to act as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to SunTrust Bank, Atlanta.
The Exchange Offer is expected to be commenced by the Company on or about
May ___, 1998. The Letter of Transmittal accompanying the Prospectus is to be
used by the holders of the Old Notes to accept the Exchange Offer and contains
instructions with respect to (i) the delivery of certificates for Old Notes
tendered in connection therewith and (ii) the book-entry transfer of the
tendered Old Notes to the Exchange Agent's account.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on
__________ ___, 1998 or on such later date or time to which the Company may
extend the Exchange Offer (the "Expiration Date"). Subject to the terms and
conditions set forth in the Prospectus, the Company expressly reserves the right
in its sole and absolute discretion to extend the Exchange Offer from time to
time by giving oral (to be confirmed in writing) or written notice to you before
9:00 a.m., New York City time, on the business day following the previously
scheduled Expiration Date.
<PAGE>
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i) to
delay the acceptance of the Old Notes for exchange, (ii) to terminate the
Exchange Offer (whether or not any Old Notes have theretofore been accepted for
exchange) if the Company determines, in its sole and absolute discretion, that
any of the events or conditions referred to under the caption "The Exchange
Offer--Certain Conditions to the Exchange Offer" in the Prospectus have occurred
or exist or have not been satisfied, and (iii) to waive any condition or
otherwise amend the terms of the Exchange Offer in any respect. The Company
will give oral (confirmed in writing) or written notice of any amendment,
termination, or waiver under the Exchange Offer and of nonacceptance of Old
Notes to you promptly after any amendment, termination, waiver or nonacceptance.
In carrying out your duties as Exchange Agent, you are to act in accordance
with the following instructions:
1. You will perform such duties and only such duties as are specifically
set forth in the section of the Prospectus captioned "The Exchange Offer" or as
specifically set forth herein; provided, however, that in no way will your
general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Old Notes at the
Depository Trust Company ("DTC") for purposes of the Exchange Offer within two
business days after the date of the Prospectus, and any financial institution
that is a participant in DTC's system may make book-entry delivery of the Old
Notes by causing DTC to transfer such Old Notes into your account in accordance
with DTC's procedure for such transfer.
3. You are to examine each of the Letters of Transmittal and certificates
for Old Notes (or confirmation of book-entry transfer into your account at DTC),
any Notice of Guaranteed Delivery and any other documents delivered or mailed to
you by or for holders of the Old Notes to ascertain whether: (i) the Letters of
Transmittal and any such other documents are duly executed and properly
completed in accordance with instructions set forth therein and (ii) the Old
Notes have otherwise been properly tendered. In each case where the Letter of
Transmittal or any other document has been improperly completed or executed or
any of the certificates for Old Notes are not in proper form for transfer or
some other irregularity in connection with the acceptance of the Exchange Offer
exists, you will endeavor to inform the presenters of the need for fulfillment
of all requirements and to take any other action as may be necessary or
advisable to cause such irregularity to be corrected.
4. With the approval of any President, Senior Vice President, Chief
Financial Officer or General Counsel of the Company or any person designated in
writing by the Company (a "Designated Officer") (such approval, if given orally,
to be confirmed in writing) or any other party designated by any such Designated
Officer in writing, you are authorized to waive any irregularities in connection
with any tender of Old Notes pursuant to the Exchange Offer.
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5. Tenders of Old Notes may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The Exchange Offer,"
and Old Notes shall be considered properly tendered to you only when tendered in
accordance with the procedures set forth therein.
Notwithstanding the provisions of this paragraph 5, Old Notes which any
Designated Officer shall approve as having been properly tendered shall be
considered to be properly tendered (such approval, if given orally, shall be
confirmed in writing).
6. You shall advise the Company with respect to any Old Notes received
subsequent to the Expiration Date and accept their instructions with respect to
disposition of such Old Notes.
7. You shall accept tenders:
(a) in cases where the Old Notes are registered in two or more names
only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of such person's authority so to act is submitted; and
(c) from persons other than the registered holder of Old Notes
provided that customary transfer requirements, including any applicable transfer
taxes, are fulfilled.
You shall accept partial tenders of Old Notes where so indicated and as
permitted in the Letter of Transmittal and deliver certificates for Old Notes to
the transfer agent for split-up and return any untendered Old Notes to the
holder (or such other person as may be designated in the Letter of Transmittal)
as promptly as practicable after expiration or termination of the Exchange
Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you (such notice, if given orally, to be
confirmed in writing) of its acceptance, promptly after the Expiration Date, of
all Old Notes properly tendered and you, on behalf of the Company will exchange
such Old Notes for New Notes and cause such Old Notes to be canceled. Delivery
of New Notes will be made on behalf of the Company by you at the rate of $1,000
in principal amount of New Notes for each $1,000 in Old Notes the corresponding
series of Old Notes tendered promptly after notice (such notice, if given
orally, to be confirmed in writing) of acceptance of said Old Notes by the
Company; provided, however, that, unless waived in writing by the Company, in
all cases, Old Notes tendered pursuant to the Exchange Offer will be exchanged
only after timely receipt by you of certificates for such Old Notes (or
confirmation of book-entry transfer into your account at DTC), a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) with
any required signature guarantees and any other required documents. You shall
issue New Notes only in a principal amount of $1,000 or any integral multiple of
$1,000 in excess thereof. New notes may be tendered in whole or in part in a
principal amount of $1,000,
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provided that if any holder tenders Old Notes for exchange in part, the
principal amount of the untendered Old Notes must not be less than $__________.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and the
Letter of Transmittal, Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time on or prior to the Expiration Date.
10. The Company shall not be required to exchange any Old Notes tendered
if any of the conditions set forth in the Exchange Offer are not met. Notice of
any decision by the Company not to exchange any Old Notes tendered shall be
given orally (and confirmed in writing) or in writing by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender, the
occurrence of certain other events set forth in the Prospectus under the caption
"The Exchange Offer--Certain Conditions to the Exchange Offer" or otherwise, you
shall promptly after the expiration or termination of the Exchange Offer return
those certificates for unaccepted Old Notes (or effect appropriate book-entry
transfer), together with any related required documents and the Letters of
Transmittal relating thereto that are in your possession, to the persons or
entities who deposited them.
12. All certificates for reissued Old Notes, unaccepted Old Notes or for
New Notes shall be forwarded by (a) first-class certified mail, return receipt
requested, under a blanket surety bond protecting you and the Company from loss
or liability arising out of the non-receipt or non-delivery of such
certificates, (b) by registered mail insured separately for the replacement
value of each of such certificates, or (c) by appropriate book-entry transfer.
13. You are not authorized, and shall have no obligation, to pay or offer
to pay any concessions, commissions or solicitation fees to any broker, dealer,
bank or other persons or to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those specifically
set forth in the section of the Prospectus captioned "The Exchange Offer," the
Letter of Transmittal or herein or as may be subsequently agreed to in writing
by you and the Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any of
the certificates or the Old Notes represented thereby deposited with you
pursuant to the Exchange Offer, and will not be required to and will make no
representation as to the validity, value or genuineness of the Exchange Offer;
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(c) shall not be obligated to take, suffer or omit any action
hereunder which might in your reasonable judgment involve any expense or
liability, unless you shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in taking, suffering
or omitting any action in reliance upon any certificate, instrument, opinion,
notice, letter, telegram or other document or security delivered to you and
reasonably believed by you to be genuine and to have been signed by the proper
party or parties;
(e) may reasonably act upon any tender, statement, request, agreement
or other instrument whatsoever not only as to its due execution and validity and
effectiveness of its provisions, but also as to the truth and accuracy of any
information contained therein, which you shall in good faith believe to be
genuine or to have been signed or represented by a proper person or persons;
(f) may rely on and shall be protected in acting upon written or oral
instructions from any Designated Officer of the Company;
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the advice or opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by you hereunder in good faith
and in accordance with the advice or opinion of such counsel; and
(h) shall not be called upon at any time to advise any person
tendering Old Notes pursuant to the Exchange Offer as to the wisdom of making
such tender or as to the market value or decline or appreciation in market value
of any Old Notes;
(i) shall not be liable or responsible for any recital or statement
contained in the Prospectus, the Letter of Transmittal or the Notice of
Guaranteed Delivery (as defined in the Prospectus) or any of the documents
relating thereto, or for any failure of the Company to comply with any of its
obligations relating to the Exchange Offer, including without limitation,
obligations under any applicable securities laws; and
(j) shall not be liable or responsible for any delay, failure,
malfunction, interruption or error in the transmission or receipt of
communications or messages through electronic means to or from any holder of New
Notes or Old Notes or any depository or for the actions of any other parties in
connection therewith.
15. You shall take such action as may from time to time be requested by
the Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery (as defined in the Prospectus) or such other forms
as may be approved from time to time by the Company, to all persons requesting
such documents and to accept and comply with telephone requests for
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information relating to the Exchange Offer, provided that such information shall
relate only to the procedures for accepting (or withdrawing from) the Exchange
Offer. The Company will furnish you with copies of such documents at your
request. All other requests for information relating to the Exchange Offer shall
be directed to the Company, Attention: Susan E. Dignan.
16. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to Susan E. Dignan, General Counsel of the
Company, and such other person or persons as the Company may request, daily (and
more frequently during the week immediately preceding the Expiration Date and if
otherwise requested) up to and including the Expiration Date, as to the number
of Old Notes which have been tendered pursuant to the Exchange Offer and the
items received by you pursuant to this Agreement, separately reporting and
giving cumulative totals as to items properly received and items improperly
received. In addition, you will also inform, and cooperate in making available
to, the Company or any such other person or persons designated by the Company
upon oral request made from time to time on or prior to the Expiration Date of
such other information as it or such person reasonably requests. Such
cooperation shall include, without limitation, the granting by you to the
Company and such person as the Company may request of access to those persons on
your staff who are responsible for receiving tenders, in order to ensure that
immediately prior to the Expiration Date the Company shall have received
information in sufficient detail to enable it to decide whether to extend the
Exchange Offer. You shall prepare a final list of all persons whose tenders
were accepted, the aggregate principal amount of Old Notes tendered and the
aggregate principal amount of Old Notes accepted and deliver said list to the
Trust promptly after the Expiration Date.
17. Any Letters of Transmittal and Notices of Guaranteed Delivery which
are received by the Exchange Agent shall be stamped by you as to the date and
the time of receipt thereof and shall be preserved by you for a period of time
at least equal to the period of time you preserve other records pertaining to
the transfer of securities. You shall dispose of unused Letters of Transmittal
and other surplus materials by returning them to the Company at the address set
forth below for notices.
18. You hereby expressly waive any lien, encumbrance or right of set-off
whatsoever that you may have with respect to funds deposited with you for the
payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached hereto and for
the reimbursement of reasonable counsel fees (not to exceed $1,500), customary
disbursements and reasonable out-of-pocket expenses actually incurred in the
performance of your duties under this Agreement.
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be
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amended from time to time with your approval), on the other hand, shall be
resolved in favor of the latter two documents, except with respect to the
duties, liabilities and indemnification of you as Exchange Agent, which shall be
controlled by this Agreement.
21. (a) The Company covenants and agrees to indemnify and hold you and
your officers, directors, employees and agents (herein collectively, the
"Indemnified Parties" or individually, an "Indemnified Party") harmless in your
capacity as Exchange Agent hereunder against any loss, damage, liability, cost
or expense, including without limitation reasonable attorneys' fees and
expenses, arising out of or in connection with any act, omission, delay or
refusal made by you in reliance upon any signature, endorsement, assignment,
certificate, order, request, notice, instruction or other instrument or document
reasonably believed by you to be valid, genuine and sufficient and in accepting
any tender or effecting any transfer of Old Notes reasonably believed by you in
good faith to be authorized, and in delaying or refusing in good faith to accept
any tenders or effect any transfer of Old Notes; provided, however, that the
Company shall not be liable for indemnification or otherwise for any loss,
liability, cost or expense to the extent arising out of your negligence or
willful misconduct. In no case shall the Company be liable under this indemnity
with respect to any claim unless the Company shall be notified by an Indemnified
Party, by letter or cable or by facsimile confirmed by letter, of the written
assertion of a claim or of any other action which may be covered by this
indemnification, promptly after receipt by such Indemnified Party of any such
written assertion or notice of commencement of action. The Company shall be
entitled to participate at its own expense in the defense of any such claim or
other action, and, if the Company so elects, the Company may assume the defense
of any suit brought to enforce any such claim. In the event that the Company
shall assume the defense of any such suit or threatened action in respect of
which indemnification may be sought hereunder, the Company shall not be liable
for the fees and expenses of any additional counsel thereafter retained by an
Indemnified Party so long as you consent to the Company's retention of counsel,
which consent may not be unreasonably withheld; provided that the Company shall
not be entitled to assume or continue the defense of any such action if the
named parties to such action include both the Company and you and representation
of both parties by the same legal counsel would, in the written opinion of
counsel to such Indemnified Party, be inappropriate due to actual or potential
conflicting interests between such Indemnified Party and the Company (a
"Conflicting Interest"). It is understood that the Company shall not be liable
under this paragraph for the fees and expenses of more than one legal counsel
for the Indemnified Parties. Except as set forth in this subparagraph (a), in
the event that the Company shall assume the defense of any such suit, the
Company shall not thereafter be liable for the fees and expenses of any counsel
retained by you or any other Indemnified Party unless a Conflicting Interest
arises.
(b) Without the prior written consent of the Company (which consent
shall not be unreasonably withheld), no Indemnified Party will settle,
compromise or consent to the entry of any pending or threatened claim, action or
proceeding in respect of which indemnification could be sought in accordance
with the indemnification provisions of this Agreement (whether or not you or the
Company or any of its officers, directors, employees, or controlling persons is
an actual or potential party to such claim, action or proceeding). Without
limiting the generality of the foregoing, it is understood and agreed that the
Company may withhold such consent if such settlement,
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compromise or consent does not include an unconditional release of the Company
and its officers, directors, employees and controlling persons from all
liability arising out of such claim, action or proceeding.
22. This Agreement and your appointment as Exchange Agent hereunder shall
be construed and enforced in accordance with the laws of the State of Georgia
applicable to agreements made and to be performed entirely within such state,
and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
23. On or before January 31, 1999, you will prepare and mail to each
holder of the Notes, other than those who demonstrate their status as
nonresident aliens in accordance with United States Treasury Regulations
("Foreign Holders"), a Form 1099-B reporting the distributions paid on the Notes
as of the year in which such monies become available for payment, in accordance
with Treasury Regulations. You will also prepare and file copies of such Forms
1099-B by magnetic tape with the Internal Revenue Service on or before February
28, 1999, in accordance with Treasury Regulations. If you have not received
notice from a holder of the Notes that the holder's Taxpayer Identification
Number ("TIN"), or if such TIN has not been certified as correct and relates to
a post-1983 account, or if you have been notified by the Internal Revenue
Service that the taxpayer identification number provided by the holder is
incorrect, you shall deduct and withhold 31% backup withholding tax from any
payment made to such holder (other than a Foreign Shareholder) pursuant to
Internal Revenue Code Section 3406.
24. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
25. In case any provision of this Agreement 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.
26. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
27. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
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If to the Company:
Pediatric Services of America, Inc.
310 Technology Parkway
Norcross, Georgia 30092
Telephone: (770) 441-1580
Facsimile: (770) 248-8192
Attention: Susan E. Dignan
If to the Exchange Agent:
SunTrust Bank, Atlanta
58 Edgewood Avenue, Suite 400
Atlanta, Georgia 30303
Telephone: (404) 588-8060
Facsimile: (404) 332-3966
Attention: David Kaye
29. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the foregoing,
Paragraphs 19, 21 and 23 shall survive the termination of this Agreement. Upon
any termination of this Agreement, you shall promptly deliver to the Company any
certificates for Notes, funds or property then held by you as Exchange Agent
under this Agreement.
30. This Agreement shall be binding and effective as of the date hereof.
Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
PEDIATRIC SERVICES OF AMERICA, INC.
By: _________________________
Name:
Title:
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Accepted as the date
first above written:
SUNTRUST BANK, ATLANTA as Exchange Agent
By:__________________________
Name:
Title:
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SCHEDULE I
FEES
For Services Rendered as Exchange Agent $_________
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