<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997
REGISTRATION NO. 333-39679
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PHYSICIAN SALES & SERVICE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 5047 59-2280364
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
DIAGNOSTIC IMAGING, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 5047 59-1608817
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
PSS DELAWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 5047 51-0370961
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
PSS HOLDING, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 5047 59-3475761
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
PSS PHYSICIAN SERVICES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 5047 59-2280364
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
PSS RHODE ISLAND, INC.
(Exact name of registrant as specified in its charter)
RHODE ISLAND 5047 05-0475209
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
PSS SERVICE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 5047 59-3448733
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
<PAGE>
PSS TEXAS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 5047 59-3085754
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
PHYSICIAN SALES & SERVICE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
FLORIDA 5047 59-3475763
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
STANDARD/CRESCENT CITY SURGICAL SUPPLIES, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 5047 72-0869631
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
S&W X-RAY, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 5047 16-1010210
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
4345 SOUTHPOINT BOULEVARD
JACKSONVILLE, FLORIDA 32216
(904) 332-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
PATRICK C. KELLY
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
PHYSICIAN SALES & SERVICE, INC.
4345 SOUTHPOINT BOULEVARD
JACKSONVILLE, FLORIDA 32216
(904) 332-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
J. VAUGHAN CURTIS, ESQ. FRED ELEFANT, ESQ.
KIMBERLY A. KNIGHT, ESQ. GENERAL COUNSEL
ALSTON & BIRD LLP PHYSICIAN SALES & SERVICE, INC.
ONE ATLANTIC CENTER 1650 PRUDENTIAL DRIVE
1201 WEST PEACHTREE STREET SUITE 105
ATLANTA, GEORGIA 30309-3424 JACKSONVILLE, FLORIDA 32207
(404) 881-7000 (904) 398-2277
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
<PAGE>
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
OFFER FOR ANY AND ALL OUTSTANDING
8 1/2% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR 8 1/2% SENIOR SUBORDINATED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
PHYSICIAN SALES & SERVICE, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JANUARY 30, 1998, UNLESS EXTENDED.
Physician Sales & Service, Inc., a Florida corporation (the "Company"), is
hereby offering, upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal," which together with this Prospectus constitutes the "Exchange
Offer"), to issue $125,000,000 aggregate principal amount of its 8 1/2% Senior
Subordinated Notes due 2007 (the "Exchange Notes"), in exchange for a like
principal amount of the issued and outstanding 8 1/2% Senior Subordinated
Notes due 2007 of the Company (the "Private Notes," and together with the
Exchange Notes, the "Notes").
The Private Notes were sold by the Company on October 7, 1997 to BT Alex.
Brown Incorporated, Salomon Brothers Inc. and NationsBanc Montgomery
Securities, Inc. (the "Initial Purchasers") in a transaction not registered
under the Securities Act of 1933, as amended (the "Securities Act"), in
reliance upon an exemption under the Securities Act (the "Initial Offering").
The Initial Purchasers subsequently placed the Private Notes (i) with
Qualified Institutional Buyers, within the United States, in reliance upon
Rule 144A under the Securities Act and (ii) to a limited number of
institutional "accredited investors," within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act, that agreed in writing to comply
with certain transfer restrictions and other conditions. Accordingly, the
Private Notes may not be reoffered or otherwise transferred in the United
States or to U.S. Persons (as defined in Regulation S under the Securities
Act) unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is
available. The Private Notes are designated for trading in the Private
Offering, Resales and Trading through Automated Linkages ("PORTAL") Market of
the National Association of Securities Dealers, Inc. and are eligible for
resale pursuant to Rule 144A under the Securities Act. After the Exchange
Offer, the Private Notes that remain outstanding will continue to be subject
to the restrictions on transfer contained in the legend thereon and may not be
offered or sold except pursuant to an exemption from, or in a transaction not
subject to the registration requirements of, the Securities Act.
There is no established trading market for the Exchange Notes. The Initial
Purchasers have advised the Company that they presently intend to make a
market in the Exchange Notes as permitted by applicable laws and regulations.
The Initial Purchasers are not obligated, however, to make a market in the
Exchange Notes and any market-making may be discontinued at any time in the
sole discretion of the Initial Purchasers. The Company does not presently
intend to list the Exchange Notes on any securities exchange or to seek
approval for quotation through any automated quotation system. Accordingly, no
assurance can be given as to the liquidity of, or trading markets for, the
Exchange Notes or that a market for the Exchange Notes will develop. See "Risk
Factors-- Absence of Established Trading Market." To the extent that a market
for the Exchange Notes does develop, the market value of the Exchange Notes
will depend on market conditions (such as yields on alternative investments,
general economic conditions, the Company's financial condition and other
conditions). Such conditions might cause the Exchange Notes, to the extent
that they are actively traded, to trade at a significant discount from face
value.
The terms of the Exchange Notes are identical in all material respects to
the Private Notes, except that (i) the Exchange Notes will bear a different
CUSIP Number from the Private Notes, (ii) the issuance of the Exchange Notes
will have been registered under the Securities Act and, therefore, the
Exchange Notes will not bear legends restricting the transfer thereof, and
(iii) holders of the Exchange Notes will not be entitled to certain rights of
holders of Private Notes under the Registration Rights Agreement. The Exchange
Notes will evidence the same debt as the Private Notes (which they replace)
and will be issued under and be entitled to the benefits
<PAGE>
of the Indenture (the "Indenture"), dated as of October 7, 1997, by and among
the Company, the Subsidiary Guarantors named therein and SunTrust Bank,
Central Florida, National Association, as Trustee (the "Trustee" or the
"Exchange Agent"). See "The Exchange Offer" and "Description of Exchange
Notes."
Interest on the Exchange Notes will accrue from the date of original
issuance, i.e. October 7, 1997 (the "Issue Date") thereof, payable semi-
annually on each of April 1 and October 1 of each year, commencing April 1,
1998 at the rate of 8 1/2% per annum. Holders whose Private Notes are accepted
for exchange will be deemed to have waived the right to receive any interest
accrued on the Private Notes.
The Exchange Notes will be redeemable, in whole or in part, at the option of
the Company, on or after October 1, 2002, at the redemption prices set forth
herein plus accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time, or from time to time, on or prior to October 1, 2000,
the Company, at its option, may redeem, up to 40% of the aggregate principal
amount of the Notes originally issued, with the net cash proceeds received
from one or more Public Equity Offerings (as defined) by the Company at a
redemption price equal to 108.500% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of redemption; provided that
at least 60% of the original aggregate principal amount of the Notes
originally issued remains outstanding after any such redemption. Upon a Change
of Control (as defined), each holder of the Exchange Notes will have the right
to require the Company to repurchase such holder's Exchange Notes at a price
equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase. In addition, the Company will be
obligated to offer to repurchase the Exchange Notes at 100% of the principal
amount thereof plus accrued and unpaid interest to the date of repurchase in
the event of certain Asset Sales (as defined). See "Description of Exchange
Notes."
The Exchange Notes will be, and the Private Notes are, (i) general unsecured
obligations of the Company, (ii) subordinated in right of payment to all
existing and future Senior Indebtedness (as defined) and (iii) structurally
subordinated to all existing and future indebtedness of the Company's
subsidiaries that are not Subsidiary Guarantors (as defined). The Exchange
Notes will, and the Private Notes do, rank pari passu in right of payment with
any future senior subordinated indebtedness of the Company and rank senior in
right of payment to all other subordinated obligations of the Company. The
Exchange Notes will, and the Private Notes are, unconditionally guaranteed
(the "Guarantees") on a senior subordinated basis by the Company's domestic
subsidiaries ( the "Subsidiary Guarantors"). The Guarantees are and will be
general unsecured obligations of the Subsidiary Guarantors and are and will be
subordinated in right of payment to all existing and future Guarantor Senior
Indebtedness (as defined). The Guarantees will and do rank pari passu in right
of payment with all future senior subordinated indebtedness of the Subsidiary
Guarantors and will and do rank senior in right of payment to all other
subordinated obligations of the Subsidiary Guarantors. As of September 30,
1997, the Company and its subsidiaries has an aggregate of $1.8 million of
Senior Indebtedness (including guarantees of $1.1 million of indebtedness of
Foreign Subsidiaries (as defined), but excluding unused commitments of $60.0
million available under the Credit Facility (as defined)) which would rank
senior to the Notes.
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR PRIVATE NOTES.
----------------
The current offer and sale of the Exchange Notes are being registered under
the Registration Statement of which this Prospectus forms a part in order to
satisfy certain obligations of the Company contained in the Registration
Rights Agreement (the "Registration Rights Agreement"), dated as of October 7,
1997, between the Company and the Initial Purchasers, on behalf of the
original purchasers and subsequent transferees of the Private Notes. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in certain "no-action" letters issued to third parties
and unrelated to the Company and the Exchange Offer, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Private
Notes may be offered for resale, resold or otherwise transferred by 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 such Exchange Notes are acquired in the ordinary course of
such holders' business and such holders have
ii
<PAGE>
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes in violation of the provisions of the
Securities Act. See "The Exchange Offer--Resale of the Exchange Notes."
Holders of Private Notes wishing to accept the Exchange Offer must represent
to the Company, as required by the Registration Rights Agreement, that such
conditions have been met. A broker-dealer holding Private Notes may
participate in the Exchange Offer provided that it acquired the Private Notes
for its own account as a result of market-making or other trading activities.
Each broker-dealer (a "Participating Broker-Dealer") that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales
of Exchange Notes received in exchange for Private Notes where such Private
Notes were acquired by such Participating Broker-Dealer as a result of market-
making or other trading activities. The Company and the Subsidiary Guarantors
have agreed to make available, during the period required by the Securities
Act, a prospectus meeting the requirements of the Securities Act for use by
any Participating Broker-Dealer and other persons, if any, with similar
prospectus delivery requirements for use in connection with any such resale of
the Exchange Notes. See "The Exchange Offer--Purpose and Effect of the
Exchange Offer" and "Plan of Distribution."
The Company will accept for exchange Private Notes validly tendered prior to
5:00 p.m., New York City time, on January 30, 1998, unless extended by the
Company in its sole discretion (the "Expiration Date"). Tenders of Private
Notes may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is subject to certain customary conditions, but is not conditioned upon
any minimum aggregate principal amount of Private Notes being tendered for
exchange. See "The Exchange Offer--Certain Conditions to Exchange Offer."
The Company will not receive any proceeds from the Exchange Offer. Pursuant
to the Registration Rights Agreement, the Company will pay all the expenses
incident to the Exchange Offer (other than any underwriting discounts or
commissions). In the event the Company terminates the Exchange Offer and does
not accept for exchange any Private Notes, the Company will promptly return
the Private Notes to the holders thereof. The "Exchange Offer."
----------------
THE 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 EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SUBSIDIARY GUARANTORS. NEITHER THE DELIVERY
OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS TO ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
UNTIL APRIL 2, 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A
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<PAGE>
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE CONTENTS
OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD
CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. NEITHER THE
COMPANY NOR ANY OF THE SUBSIDIARY GUARANTORS IS MAKING ANY REPRESENTATION TO
ANY PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN
INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR
SIMILAR LAWS.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE UNIFORM
SECURITIES ACT WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY
OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON
THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY
PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE,
TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
The date of this Prospectus is December 29, 1997
iv
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The reports, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and should be available at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York,
New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60621 and at the offices of the Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
Each purchaser of Notes from the Initial Purchasers will be furnished with a
copy of this Prospectus and any related amendments or supplements thereto.
Each person receiving this Prospectus acknowledges that (i) such person has
been afforded an opportunity to request from the Company, and to review and
has received, all additional information considered by it to be reasonably
necessary to verify the accuracy and completeness of the information herein
and which the Company possesses or can acquire without unreasonable effort or
expense, (ii) such person has not relied on the Initial Purchasers or any
person affiliated with the Initial Purchasers in connection with its
investigation of the accuracy of such information or its investment decision
and (iii) except as provided pursuant to clause (i) of this paragraph, no
person has been authorized to give any information or to make any
representation concerning the Notes offered hereby other than those contained
herein and, if given or made, such other information or representation should
not be relied upon as having been authorized by the Company or the Initial
Purchasers. While any Notes remain outstanding, the Company will make
available, upon request, to any holder and any prospective purchaser of Notes
the information required pursuant to Rule 144A(d)(4) under the Securities Act
during any period in which the Company is not subject to Section 13 or 15(d)
of the Exchange Act. Any such request should be directed to the Company at
4345 Southpoint Boulevard, Jacksonville, Florida, 32216 (904) 332-3000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus and made a part hereof:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
March 29, 1997 (including those portions of the Company's definitive proxy
statement for the Annual Meeting of Shareholders held on July 22, 1997
incorporated by reference therein, but specifically excluding Items 6, 7
and 8 thereof);
(ii) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended June 30, 1997 and September 30, 1997; and
(iii) the Company's Current Reports on Form 8-K filed with the Commission
on November 6, 1997, December 23, 1997 and December 23, 1997.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this Exchange Offer shall be deemed
to be incorporated by reference herein and to be a part hereof from the date
of filing of such reports and documents. Any statement contained herein or
incorporated or deemed to be incorporated herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus. Neither the Company nor the Initial Purchasers will update this
Prospectus for events occurring subsequent to the date of this Prospectus.
v
<PAGE>
Copies of the following documents incorporated by reference herein are
delivered with this Prospectus as Annex A, Annex B and Annex C, respectively:
(i) the Company's Current Report on Form 8-K filed with the Commission on
December 23, 1997 restating the Company's consolidated financial statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operation to reflect the Company's recent acquisition of S&W X-Ray, Inc.; (ii)
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997; and (iii) the Company's Current Report on Form 8-K filed
with the Commission on December 23, 1997 reporting the pro forma condensed
combined financial statements of the Company and consolidated financial
statements of Gulf South Medical Supply, Inc. Holders are urged to carefully
read this Prospectus in conjunction with the Annexes delivered herewith.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS THERETO)
ARE AVAILABLE UPON REQUEST FROM DAVID A. SMITH, EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER, PHYSICIAN SALES & SERVICE, INC., 4345 SOUTHPOINT
BOULEVARD, JACKSONVILLE, FLORIDA 32216, (904) 332-3000. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE JANUARY
23, 1998.
vi
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data including
the consolidated financial statements of the Company and its subsidiaries, and
the notes thereto, included or incorporated by reference elsewhere in this
Prospectus, including the Annexes delivered herewith. As used in this
Prospectus, unless the context otherwise requires, all references to "PSS" or
the "Company" include Physician Sales & Service, Inc. and its subsidiaries.
Certain statements in this Prospectus or incorporated herein by reference
constitute forward-looking statements. See "Cautionary Notice Regarding
Forward-Looking Statements."
THE COMPANY
Physician Sales & Service, Inc. ("PSS" or the "Company") is a specialty
marketer and distributor of medical products to physicians, other alternate-
site providers and hospitals. PSS is the leading distributor of medical
supplies, equipment and pharmaceuticals to office-based physicians in the
United States based on revenues, serving over 104,000 physician offices
(representing approximately 54% of all physician offices) in all 50 states (the
"Physician Supply Business"). The Company, which entered the imaging-supply
market in November 1996, has grown to be the largest distributor of imaging
supplies and equipment in the United States based on revenues, serving over
12,000 customer sites in 21 states (the "Imaging Business"). PSS also
distributes medical products to office-based physicians and hospitals in five
European countries (the "International Business"). PSS has grown rapidly in
recent years through acquisitions, same-center growth and new-center
development. Net sales and EBITDA (as defined) for the twelve months ended
September 30, 1997 were $880.1 million and $40.1 million, respectively, up from
$405.5 million and $13.8 million, respectively, in fiscal year 1994.
PSS employed over 800 highly trained sales representatives as of September
30, 1997, over 700 of which are focused on the physician-office market. This
large sales organization enables PSS to market medical products on a national
basis and has positioned the Company as a distributor of choice for
manufacturers whose products require consultative selling. PSS has established
exclusive or semi-exclusive distribution arrangements for certain products with
such leading manufacturers as Abbott Laboratories ("Abbott"), Siemens AG,
Hologic, Inc., C. R. Bard, Inc., HumaScan Inc. and F. Hoffman-La Roche Ltd. PSS
distributes over 39,000 medical products from 89 service centers, 64 of which
are focused on the physician-office market, located throughout the United
States and in Europe, enabling the Company to be highly responsive to local
market needs, including providing same-day delivery service to most customers
on a regular basis.
The Company believes that the United States medical-products distribution
market aggregates approximately $34 billion in annual revenues, of which
approximately $6.5 billion represents the physician-office market (of which
approximately $1 billion are imaging-related medical products) and the balance
represents the hospital, ambulatory surgery center, long term care and home
health care markets. The Company believes that the imaging-supply market is an
approximately $5.5 billion component of the overall medical-products
distribution industry, encompassing each of the hospital, physician and other
provider segments. Revenues of the medical-products distribution industry are
estimated to be growing as a result of a growing and aging population,
increasing health care awareness, and expanding third-party insurance coverage.
In addition, the physician market is benefiting from the shift of procedures
and diagnostic testing from hospitals to alternate sites, particularly
physician offices.
The Company believes that in the United States there are approximately 300
companies serving the non-imaging physician-supply market and an additional
approximately 400 companies serving the imaging-supply market. The physician-
supply market has experienced rapid consolidation in recent years. The Company
believes that the imaging-supply market is in the early stages of
consolidation. The Company believes the consolidation in the physician-supply
and imaging-supply markets is occurring due to local and regional distributors
experiencing: (i) a lack of purchasing and administrative economies of scale;
(ii) reduced access to medical
1
<PAGE>
equipment lines as manufacturers seek to reduce marketing costs by minimizing
the number of distributors they use; (iii) consolidation among providers, who
are increasingly seeking to reduce the number of suppliers from which they
purchase medical products; (iv) a lack of resources for continued development
and training of personnel for maintenance, expansion or replacement of existing
business; and (v) a lack of resources to develop new distribution system
technologies and services. PSS believes that, based on its broad scope of
operations, commitment to superior customer service, strong information systems
and expertise in integrating acquired businesses, the Company is well
positioned to lead the consolidation of the medical-products distribution
industry.
COMPETITIVE STRENGTHS
PSS has developed leading market positions in the physician-supply and
imaging-supply markets. The Company's competitive strengths are as follows:
Large, Highly Trained Sales Force. The Company's sales force represents the
largest medical-products distribution sales organization in the United States.
PSS focuses on attracting sales personnel with superior sales aptitude and on
extensive sales training. This large, highly trained sales force enables PSS to
call on a majority of its office-based physician customers in the United States
on a weekly basis and to sell technologically sophisticated, high-margin
products. Furthermore, this sales organization positions PSS to serve as a
preferred distribution channel for medical-products manufacturers that desire
to outsource the distribution function.
National Distribution Network. The Company has built a domestic network of 86
service centers, including 61 physician-supply service centers serving
physician offices in all 50 states and 25 imaging-supply service centers
serving customers in 21 states. The Company delivers to its customers directly
from these service centers using its own fleet of approximately 620 delivery
vans. This broad network allows the Company to provide its customers with high-
quality service, including same-day delivery to most customers on a regular
basis, and facilitates the Company's "no-hassle" return policy. In addition to
its United States distribution network, the Company operates three service
centers serving five European countries.
Broad Line of Medical Products. PSS offers over 39,000 medical products,
enabling the Company to address virtually all medical supply, equipment and
pharmaceutical needs of office-based physicians. The Company sells a wide
variety of products, ranging from cotton balls to hematology analyzers. This
broad product line enables the Company to be a one-stop shop for its office-
based physician customers. The Company's product line also includes private-
label products, known as the Penny Saver product line, which has enabled PSS to
reduce product-acquisition and inventory-carrying costs.
Exclusive Distribution Relationships. The Company believes that it is a
distributor of choice for medical-products manufacturers whose products require
consultative selling because the PSS sales force has the expertise to
understand and sell sophisticated medical products. For this reason, several
medical-products manufacturers have outsourced distribution of certain products
on an exclusive or semi-exclusive basis to PSS, including Abbott, Siemens AG,
Hologic, Inc., C. R. Bard, Inc., HumaScan Inc. and F. Hoffman-La Roche Ltd.
Sophisticated Information Systems. Through its ongoing commitment to
information technology, PSS has developed several systems designed to enhance
the Company's operating efficiency. The Company's Instant Customer Order
Network ("ICONSM") system enables sales representatives to access customer
information and place orders from any location using a wireless, pen-based,
hand-held computer system, resulting in increased selling and operating
efficiencies as well as an enhanced ability to provide same-day delivery. The
Company's Back-Order Eliminator and Allocator of Resources ("BEAR") system
allows PSS to optimize its inventory levels while maintaining high fill rates
on a consistent basis. During fiscal year 1997, PSS developed and test-marketed
the CustomerLink system, an Internet-based system that allows customers to
place orders, obtain product and pricing information, and generate working-
capital management reports. Additionally, the Company is currently implementing
a delivery automation system that will generate optimized delivery-routing
schedules.
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Acquisition Expertise. The Company has developed significant expertise in
effecting and integrating acquisitions. PSS has completed 42, 11, and four
acquisitions since fiscal year 1989 in its Physician Supply Business, Imaging
Business and International Business, respectively. Through these acquisitions,
the Company has developed efficient processes for integrating acquired
companies' information systems and personnel into its business and for
expanding acquired companies' service and product offerings. The Company
believes that its acquisition expertise will allow it to continue to be a
leading consolidator of the medical-products distribution market.
Proven Management Team. The Company's management team has demonstrated a
consistent ability to achieve rapid profitable growth. Management has
maintained an annualized same-store sales growth rate in excess of 13% in its
Physician Supply Business since 1993 and has expanded its EBITDA margin from
3.4% in fiscal year 1994 to 5.0% for the six months ended September 30, 1997.
The Company has achieved this expansion of EBITDA margins despite the ongoing
integration of acquired businesses that typically have lower margins than those
of the Company.
STRATEGY
The Company's objectives are to be the leading distributor and marketer of
medical products to office-based physicians and providers of imaging services
in the United States, to expand its European medical supplies and equipment
business, and to enhance its operating performance. The key components of the
Company's strategy to achieve these objectives are to continue to:
Pursue Strategic Acquisitions. The Company has made 42, 11, and four
acquisitions since fiscal year 1989 in its Physician Supply Business, Imaging
Business, and International Business, respectively. Recently, the Company
acquired General X-Ray (as defined) and S&W X-Ray, Inc. ("S&W"), which had
approximately $147.6 million in revenues, collectively, for the twelve months
ended March 31, 1997. In addition, on December 14, 1997, the Company entered
into a definitive Agreement and Plan of Merger (the "Merger Agreement") with
Gulf South Medical Supply, Inc. ("GSMS"), providing for the acquisition of GSMS
through the merger of a wholly owned subsidiary of the Company with and into
GSMS (the "Merger"). Pursuant to the Merger Agreement, each share of the $.01
par value common stock of GSMS ("GSMS Common Stock") will be exchanged for 1.75
shares of the $.01 par value common stock of PSS ("PSS Common Stock").
Consummation of the Merger is subject to approval by the shareholders of both
the Company and GSMS and various state and federal regulatory agencies and
other customary conditions. After consummating a merger or acquisition, the
Company begins an intensive process of converting the acquired company to PSS'
business model through information systems conversion, personnel development
and training, and service and product expansion. The Company intends to
continue to acquire local, regional, and other distributors in new and existing
markets where PSS can leverage its distribution infrastructure, expand its
geographic coverage and gain market share.
Enhance Selling Capabilities. The Company believes its sales force and
managers are its most valuable corporate assets. PSS focuses not only on the
recruitment of sales personnel with superior sales aptitude, but also on the
initial and continued development of its sales force through training at PSS
University, its in-house educational center. The Company believes that this
investment in personnel and training enables PSS to provide high-quality
service to its customers, offer a sophisticated product line, and attract
manufacturers that desire a means of rapidly bringing new products and
technology to market.
Offer a Broad Product Line Emphasizing Exclusive Products. PSS seeks to meet
all of the medical products needs of office-based physicians and providers of
imaging services. The Company currently stocks over 35,500 medical products in
its Physician Supply Business and over 3,500 medical products in its Imaging
Business. PSS also seeks to establish exclusive distribution and marketing
arrangements for selected products. In the United States, the Company currently
has exclusive or semi-exclusive marketing arrangements for certain products
with Abbott, Siemens AG, Hologic, Inc., C. R. Bard, Inc., HumaScan, Inc. and F.
Hoffman-La Roche Ltd. The Company believes that its sophisticated selling
efforts, highly trained sales force, and large customer base provide
manufacturers with a unique sales channel through which to distribute new and
existing products that require consultative selling.
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Provide Differentiated, High-Quality Service. The Company believes its
success to date has been based largely on its ability to provide superior
customer service, including same-day delivery and "no-hassle" returns. Unlike
its competitors, which generally ship products via common carrier, the Company
operates its own fleet of over 620 delivery vans, thus enabling the Company to
provide same-day delivery to virtually all of its customers. In addition, the
Company believes its consultative selling approach enables it to understand and
anticipate customer needs and that its information systems simplify and
expedite the ordering process.
Utilize Sophisticated Information Systems. In 1994, the Company implemented
ICONSM, an ordering and customer data system, with its Physician Supply
Business sales representatives. ICONSM has increased time available to sales
representatives for selling, decreased operating expenses, and increased PSS'
ability to provide same-day delivery. During fiscal year 1997, the Company
developed and test marketed CustomerLink, an Internet-based system for
inventory management and purchasing. PSS is also currently developing a
separate hardware and software system for the Imaging Business that will
incorporate CustomerLink and ICONSM. The Company intends to continue to develop
sophisticated information technology, which it believes is essential to its
continued success in integrating acquired businesses and increasing sales and
profitability.
Expand Operating Margins. The Company is pursuing several initiatives to
enhance its operating margins. With respect to sales, PSS is focusing its
efforts on higher-margin accounts and on sales of diagnostic equipment, often
on an exclusive or semi-exclusive basis, that involve ongoing sales of high-
margin reagents. With respect to its product line, PSS seeks to generate high
sales volumes of selected products and to obtain such products on a discounted
basis from manufacturers. Additionally, PSS has developed a private-label
product line, Penny Saver, which has enabled PSS to lower product-acquisition
and inventory-carrying costs. Finally, with respect to the Company's service
center expansion program, PSS intends in the future to emphasize acquisitions
over new-center development, avoiding the substantial start-up losses
associated with new-center development.
As a result of the successful implementation of this strategy, the Company
has grown rapidly and expanded operating margins over the past several years.
Net sales have increased at a compound annual rate of approximately 25%
annually since fiscal year 1994 to $880.1 million for the twelve months ended
September 30, 1997. During the twelve-month period ended September 30, 1997,
PSS had EBITDA of $40.1 million, up from $13.8 million in fiscal year 1994.
EBITDA margins have increased from 3.4% in fiscal year 1994 to 5.0% in the six
months ended September 30, 1997.
RECENT DEVELOPMENTS
On July 21, 1997, the Company completed the acquisition of General X-Ray,
Inc., General Med Ventures, Inc. and General Med Ventures International, Inc.
(collectively "General X-Ray"), a distributor of radiology and imaging
equipment, chemicals and supplies and a provider of technical service to
hospitals and alternate-site providers. General X-Ray operated seven sites in
seven states, primarily in the Midwest, and had approximately $75.6 million in
revenues for the twelve months ended March 31, 1997.
On September 23, 1997, the Company completed the acquisition of S&W of
Rochester, New York, a distributor of radiology and imaging equipment,
chemicals and supplies, and a provider of technical services to hospitals and
alternate-site providers. S&W operated five locations which served four
Northeastern states and had approximately $72.0 million in revenues for the
twelve months ended March 31, 1997.
In October 1997, the Company acquired certain assets of a Imaging Division
medical imaging distributor based in Tallahassee, Florida. The acquired company
reported revenues of approximately $5.0 million for the latest twelve months.
The transactions with General X-Ray and S&W will increase the Imaging
Business' market presence in the Midwest and Northeast, respectively, and
enable the Company to leverage its existing infrastructure and enhance its
buying power.
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In October 1997, the Company merged with two Physician Supply Division
medical supply and equipment distributors located in Phoenix, Arizona and Los
Angeles, California in stock-for-stock mergers to be accounted for as pooling-
of-interests. The acquired companies reported an aggregate of approximately
$6.0 million in revenues for the latest twelve months.
On December 14, 1997, the Company entered into a definitive Merger Agreement
providing for the acquisition of GSMS by merger. GSMS is the largest
distributor of medical supplies and related products to the long-term care
industry, operating 23 regional distribution centers which serve 50 states.
Pursuant to the Merger Agreement, each share of GSMS Common Stock issued and
outstanding at the effective time of the Merger (other than treasury shares)
will be exchanged for 1.75 shares of PSS Common Stock. Consummation of the
Merger is subject to approval of both the Company and GSMS and various state
and federal regulatory agencies and other customary conditions. The Company
believes that if the Merger with GSMS is consummated, the combined company will
be the leading distributor of medical products to the physician-office,
imaging-supply and long-term care markets in the United States.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains and incorporates by reference certain "forward-
looking statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act")
with respect to results of operations and businesses of the Company. All
statements other than statements of historical facts included in this
Prospectus, including those regarding market trends, the Company's financial
position, business strategy, projected costs, and plans and objectives of
management for future operations, are forward-looking statements. In general,
such statements are identified by the use of forward-looking words or phrases
including, but not limited to, "intended," "will," "should," "may," "expects,"
"expected," "anticipates," and "anticipated" or the negative thereof or
variations thereon or similar terminology. These forward-looking statements are
based on the Company's current expectations. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable,
there can be no assurance that such expectations will prove to be correct.
Because forward-looking statements involve risks and uncertainties, the
Company's actual results could differ materially. Important factors that could
cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed under "Risk Factors," and elsewhere in
this Prospectus including, without limitation, in conjunction with the forward-
looking statements included in this Prospectus. These forward-looking
statements represent the Company's judgment as of the date of this Prospectus.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the Cautionary Statements. The Company disclaims, however,
any intent or obligation to update its forward-looking statements.
THE INITIAL OFFERING
Private Notes............... The Private Notes were sold by the Company on
October 7, 1997 to BT Alex. Brown Incorporated,
Salomon Brothers Inc. and NationsBanc Montgomery
Securities, Inc. (the "Initial Purchasers")
pursuant to a Purchase Agreement dated October 2,
1997 (the "Purchase Agreement"). The Initial
Purchasers subsequently resold the Private Notes
(i) within the United States to qualified
institutional buyers, in reliance upon Rule 144A
under the Securities Act and (ii) to a limited
number of institutional "accredited investors"
that agreed in writing to comply with certain
transfer restrictions and other conditions.
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Registration Rights Pursuant to the Purchase Agreement, the Company,
Agreement.................. the Subsidiary Guarantors and the Initial
Purchasers entered into the Registration Rights
Agreement, which grants the holders of the
Private Notes certain exchange and registration
rights. The Exchange Offer is intended to satisfy
such exchange rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered.......... $125,000,000 aggregate principal amount of 8 1/2%
Senior Subordinated Notes due 2007.
The Exchange Offer.......... $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of
Private Notes. As of the date hereof,
$125,000,000 aggregate principal amount of
Private Notes are outstanding. The Company will
issue the Exchange Notes to holders on or
promptly after the Expiration Date.
Based on interpretations by the staff of the
Commission set forth in certain "no action"
letters issued to third parties and unrelated to
the Company and the Exchange Offer, the Company
believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for Private Notes
may be offered for resale, resold and otherwise
transferred by 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 such
Exchange Notes are acquired in the ordinary
course of such holders' business and such holders
have no arrangement or understanding with any
person, to participate in the distribution of
such Exchange Notes in violation of the
provisions of the Securities Act. Holders of
Private Notes wishing to accept the Exchange
Offer must represent to the Company, as required
by the Registration Rights Agreement, that such
conditions have been met.
A Participating Broker-Dealer holding Private
Notes may participate in the Exchange Offer
provided that it acquired the Private Notes for
its own account as a result of market-making or
other trading activities. Each Participating
Broker-Dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a Participating 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 Participating Broker-Dealer in
connection with the resales of Exchange Notes
received in exchange for Private
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<PAGE>
Notes where such Private Notes were acquired by
such Participating Broker-Dealer as a result of
market-making or other trading activities. The
Company and the Guarantors have agreed to make
available, during the period required by the
Securities Act, a prospectus meeting the
requirements of the Securities Act for use by any
Participating Broker-Dealer and other persons, if
any, with similar prospectus delivery
requirements for use in connection with any such
resale of Exchange Notes. See "Plan of
Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the
Exchange Notes could not rely on the position of
the staff of the Commission enunciated in "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 any
resale transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities
Act for which the holder is not indemnified by
the Company.
Expiration Date............. 5:00 p.m., New York City time, on January 30,
1998 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer
is extended.
Accrued Interest on the
Exchange Notes and the
Private Notes.............. Interest on each Exchange Note will accrue from
the Issue Date, i.e., October 7, 1997. Holders
whose Private Notes are accepted for exchange
will be deemed to have waived the right to
receive any interest accrued on the Private
Notes.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer...................... customary conditions, which may be waived by the
Company, but it is not conditioned upon any
minimum aggregate principal amount of Private
Notes being tendered for exchange. See "The
Exchange Offer--Conditions."
Procedures for Tendering
Private Notes.............. Each holder of Private Notes wishing to accept
the Exchange Offer must complete, sign and date
the accompanying 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 the
Private Notes and any other required documents,
to the Exchange Agent, prior to 5:00 p.m., New
York City time, on the Expiration Date at the
address set forth herein. By executing the Letter
of Transmittal, each holder will represent to the
Company, among other things, (i) that any
Exchange Notes to be received by it will be
acquired in the ordinary course of its business,
(ii) that at the time of the commencement of the
Exchange Offer it has no arrangement or
understanding with any person to participate in
the
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<PAGE>
distribution (within the meaning of Securities
Act) of the Exchange Notes in violation of the
Securities Act, (iii) that it is not an
"affiliate" (as defined in Rule 405 promulgated
under the Securities Act) of the Company, (iv) if
such holder is not a Participating Broker-Dealer,
that it is not engaged in, and does not intend to
engage in, the distribution of Exchange Notes and
(v) if such holder is a Participating Broker-
Dealer that will receive Exchange Notes for its
own account in exchange for Private Notes that
were acquired as a result of market-making or
other trading activities, that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such Exchange Notes. See "The Exchange Offer--
Purpose and Effect of the Exchange Offer" and
"Procedures for Tendering."
Untendered Private Notes.... Upon consummation of the Exchange Offer the
provisions of the Registration Rights Agreement
shall continue to apply (i) in the case of any
holders that, in certain circumstances, become
holders of unregistered Exchange Notes with
respect to Private Notes, (ii) in the case of any
holder that participates in the Exchange Offer
and does not receive Exchange Notes on the date
of the exchange that may be sold without
restriction under state and federal securities
laws (other than due solely to the status of such
holder as an "affiliate" of the Company within
the meaning of the Securities Act) and (iii) to
Exchange Notes held by Participating Broker-
Dealers.
Consequences of Failure to The Private Notes that are not exchanged pursuant
Exchange................... to the Exchange Offer will remain restricted
securities. Accordingly, such Private Notes may
be resold only (i) to the Company, (ii) pursuant
to Rule 144A or Rule 144 under the Securities Act
or pursuant to some other exemption under the
Securities Act, (iii) outside the United States
to a foreign person pursuant to the requirements
of Rule 904 under the Securities Act, or (iv)
pursuant to an effective registration statement
under the Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
Shelf Registration If, (i) because of any change in law or in
Statement.................. currently prevailing interpretations of the staff
of the Commission, the Company and the Subsidiary
Guarantors are not permitted to effect an
Exchange Offer, (ii) the Exchange Offer is not
consummated within 165 days of the Issue Date,
(iii) in certain circumstances, certain holders
of unregistered Exchange Notes so request, or
(iv) in the case of any Holder that participates
in the Exchange Offer, such Holder does not
receive Exchange Notes on the date of the
exchange that may be sold without restriction
under state and federal securities laws (other
than due solely to the status of such Holder as
an affiliate of the Company or any Subsidiary
Guarantor within the meaning of the Securities
Act), then in each case, the Company and the
Subsidiary Guarantors have agreed to (x) promptly
deliver to the holders and
8
<PAGE>
the Trustee written notice thereof and (y) at
their sole expense, (a) as promptly as
practicable, file a shelf registration statement
covering resales of the Notes (the "Shelf
Registration Statement"), (b) use their best
efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act
and (c) use their best efforts to keep effective
the Shelf Registration Statement until the
earlier of two years after the Issue Date or such
time as all of the applicable Notes have been
sold thereunder. The Company will, in the event
that a Shelf Registration Statement is filed,
provide to each holder copies of the prospectus
that is a part of the Shelf Registration
Statement, notify each such holder when the Shelf
Registration Statement for the Notes has become
effective and take certain other actions as are
required to permit unrestricted resales of the
Notes. A Holder that sells Notes pursuant to the
Shelf Registration Statement will be required to
be named as a selling security holder in the
related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the
civil liability provisions under the Securities
Act in connection with such sales and will be
bound by the provisions of the Registration
Rights Agreement that are applicable to such
holder (including certain indemnification rights
and obligations).
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender 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 its Private
Notes, either make appropriate arrangements to
register ownership of the Private 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.
The Company will keep the Exchange Offer open for
not less than thirty days after the date that
notice of the Exchange Offer is mailed in order
to provide for the transfer of registered
ownership.
Guaranteed Delivery Holders of Private Notes who wish to tender their
Procedures................. Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the procedures for book-entry transfer) prior to
the Expiration Date must tender their Private
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
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<PAGE>
Acceptance of Private Notes
and Delivery of Exchange
Notes...................... The Company will accept for exchange any and all
Private Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Certain Federal Income Tax
Considerations............. It is anticipated that the exchange of Private
Notes for Exchange Notes pursuant to the Exchange
Offer will not be a taxable event for United
States federal income tax purposes, because under
existing Treasury regulations, the Exchange Notes
will not differ materially in kind or extent from
the Private Notes. See "The Exchange Offer--
Certain Federal Income Tax Considerations."
Accounting Treatment........ The Exchange Notes will be recorded at the same
carrying value as the Private Notes, which is
face value, as reflected in the Company's
accounting records on the date of exchange.
Accordingly, no gain or loss for accounting
purposes will be recognized by the Company. The
expenses of the Exchange Offer will be amortized
over the term of the Exchange Notes.
Use of Proceeds............. There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange Offer.
Exchange Agent.............. SunTrust Bank, Central Florida, National
Association.
THE EXCHANGE NOTES
General..................... The form and terms of the Exchange Notes are the
same as the form and terms of the Private Notes
(which they replace) except that (i) the Exchange
Notes bear a different CUSIP Number from the
Private Notes, (ii) the Exchange Notes have been
registered under the Securities Act and,
therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of
Exchange Notes will not be entitled to certain
rights under the Registration Rights Agreement,
including the provisions providing for an
increase in the interest rate on the Private
Notes in certain circumstances relating to the
timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated.
See "The Exchange Offer--Purpose and Effect of
the Exchange Offer." The Exchange Notes will
evidence the same debt as the Private Notes and
will be entitled to the benefits of the
Indenture. See "Description of Exchange Notes."
Exchange Notes Offered...... $125,000,000 aggregate principal amount of 8 1/2%
Senior Subordinated Notes due 2007.
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Maturity Date............... October 1, 2007.
Interest Payment Dates...... Interest on the Exchange Notes will accrue from
the Issue Date, October 7, 1997, and will be
payable semi-annually on April 1 and October 1 of
each year, commencing April 1, 1998. Holders
whose Private Notes are accepted for exchange
will be deemed to have waived the right to
receive any interest accrued on the Private
Notes.
Optional Redemption......... The Exchange Notes will be redeemable, in whole
or in part, at the option of the Company on or
after October 1, 2002, at the redemption prices
set forth herein plus accrued and unpaid interest
to the date of redemption. In addition, at any
time on or before October 1, 2000, the Company at
its option, may redeem up to 40% of the aggregate
principal amount of the Notes originally issued
with the net proceeds of one or more Public
Equity Offerings (as defined) at a redemption
price equal to 108.500% of the principal amount
thereof, plus accrued and unpaid interest to the
date of redemption; provided that at least 60% of
the aggregate principal amount of the Notes
originally issued remains outstanding immediately
after any such redemption. See "Description of
Exchange Notes--Optional Redemption."
Change of Control........... Upon a Change of Control, each holder of Exchange
Notes will have the right to require the Company
to repurchase such holder's Exchange Notes at a
price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any,
to the date of repurchase. See "Description of
Exchange Notes--Change of Control."
Ranking..................... The Exchange Notes will be and the Private Notes
are (i) general unsecured obligations of the
Company, (ii) subordinated in right of payment to
all existing and future Senior Indebtedness (as
defined) and (iii) structurally subordinated to
all existing and future indebtedness of the
Company's subsidiaries that are not Subsidiary
Guarantors (as defined). The Exchange Notes will
rank and the Private Notes rank pari passu in
right of payment with all other senior
subordinated obligations of the Company and
senior in right of payment to all other
subordinated obligations of the Company. As of
September 30, 1997, the Company and its
subsidiaries had an aggregate of approximately
$1.8 million of Senior Indebtedness (including
guarantees of $1.1 million of indebtedness of
Foreign Subsidiaries, but excluding unused
commitments of $60.0 million available under the
Credit Facility (as defined)) which would rank
senior to the Notes. See "Description of Credit
Facility."
Guarantees.................. The Notes are unconditionally guaranteed on a
senior subordinated basis by all of the Company's
domestic subsidiaries (the "Subsidiary
Guarantors"). The Guarantees are general
unsecured obligations of the Subsidiary
Guarantors and are subordinated in right of
payment to all existing and future Guarantor
Senior
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<PAGE>
Indebtedness (as defined). The Guarantees rank
pari passu in right of payment with all future
senior subordinated indebtedness of the
Subsidiary Guarantors and rank senior in right of
payment to all other subordinated obligations of
the Subsidiary Guarantors. As of September 30,
1997, the Subsidiary Guarantors had an aggregate
of $0.4 million of Guarantor Senior Indebtedness
(excluding unused commitments under the Credit
Facility) which would rank senior to the
Guarantees.
Certain Covenants........... The Indenture contains certain covenants with
respect to the Company and its subsidiaries that
restrict, among other things: (i) the incurrence
of additional indebtedness; (ii) the payment of
dividends and other restricted payments; (iii)
the creation of certain liens; (iv) the use of
proceeds from sales of assets and subsidiary
stock; (v) sale and leaseback transactions; and
(vi) transactions with affiliates. The Indenture
also restricts the Company's ability to
consolidate or merge with or into, or to transfer
all or substantially all of its assets to,
another person. In addition, under certain
circumstances, the Company will be required to
offer to purchase the Notes, in whole or in part,
at a purchase price equal to 100% of the
principal amount thereof plus accrued interest to
the date of repurchase, with the proceeds of
certain Asset Sales. These restrictions and
requirements are subject to a number of important
qualifications and exceptions. See "Description
of Exchange Notes--Certain Covenants."
For additional information regarding the Notes, see "Description of Exchange
Notes"
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Private Notes in like
principal amount, the form and terms of which are the same as the forms and
terms of the Exchange Notes (which replace the Private Notes), except as
otherwise described herein. The Private Notes surrendered in exchange for the
Exchange Notes will be canceled and cannot be reissued.
The net proceeds of approximately $119.8 million from the Initial Offering
have been and will be used to finance future acquisitions of medical products
distributors and for working capital and general corporate purposes. Pending
such uses, the net proceeds of the Initial Offering have been invested in
short-term interest-bearing securities. See "Use of Proceeds."
RISK FACTORS
Holders of Private Notes should carefully consider the specific factors set
forth under "Risk Factors," as well as the other information and data included
in this Prospectus.
12
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
-------------------------------------------------------
APRIL 2, APRIL 1,
1993 1994 MARCH 30, MARCH 29, MARCH 28,
(UNAUDITED) (UNAUDITED) 1995 1996 1997
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............... $318,515 $405,535 $471,985 $589,120 $763,054
Gross profit(2)......... 93,884 116,863 132,315 162,590 208,990
Restructuring
charges(3)............. 303 308 4,389 -- --
Merger costs and ex-
penses(4).............. -- -- -- 15,732 12,128
Income from operations.. 5,594 8,309 5,687 4,848 3,875
Net income.............. $ 1,467 $ 2,009 $ 60 $ 2,129 $ 4,427
BALANCE SHEET DATA:
Working capital......... $ 42,553 $ 51,487 $ 59,542 $177,263 $171,599
Total assets............ 105,345 137,985 148,824 295,870 321,269
Long-term liabilities... 45,459 60,757 38,780 6,819 8,460
Total shareholders' eq-
uity................... 22,133 24,349 48,612 203,131 210,555
OTHER HISTORICAL FINAN-
CIAL DATA
(UNAUDITED):
Same-center sales
growth(5).............. 18.5% 27.7% 23.3% 26.8% 18.2%
EBITDA(6)............... $ 9,586 $ 13,780 $ 17,218 $ 28,507 $ 31,990
EBITDA margin(7)........ 3.0% 3.4% 3.6% 4.8% 4.2%
Capital expenditures.... $ 3,871 $ 4,131 $ 3,477 $ 5,401 $ 6,054
Ratio of earnings to
fixed charges(8)....... 1.5 1.6 1.5 1.7 2.9
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
SEPTEMBER 30, 1997
-------------------
<S> <C>
PRO FORMA FINANCIAL AND OTHER DATA (UNAUDITED)(9):
LTM EBITDA(10)............................................. $ 40,060
Pro forma total debt(11)................................... 135,744
Pro forma LTM interest expense(12)......................... 11,732
Ratio of LTM EBITDA to pro forma LTM interest expense...... 3.4x
Ratio of pro forma total debt to LTM EBITDA................ 3.4x
Ratio of pro forma net debt to LTM EBITDA(13).............. n/m
</TABLE>
- --------
(footnotes on next page)
13
<PAGE>
- --------
(1) The Company's fiscal year ends on the Friday closest to March 31. Fiscal
years 1993 through 1995 ended on the Thursday closest to March 31. All
periods presented were 52 weeks.
(2) Excludes fiscal year 1997 Physician Supply Business operating write-offs of
inventory of branches involved in mergers of approximately $4.1 million.
(3) Restructuring charges reflect charges taken by a company merged with the
Company pursuant to a pooling-of-interests transaction, prior to the date
of merger. The fiscal year 1995 restructuring charge of $4,389 reflects the
assessment of former management of such merged company of the under-
realization of future benefits related to certain intangible assets. The
fiscal year 1994 restructuring charge of $308 resulted from such merged
company's consolidation of an acquisition. The fiscal year 1993
restructuring charge of $303 resulted from the write-down by former
management of such merged company of capitalized software costs.
(4) Merger costs and expenses reflect direct merger expenses incurred in
connection with mergers accounted for as pooling-of-interests transactions.
(5) Same-center sales growth is determined by comparing the aggregate sales for
service centers which have been in operation for at least two consecutive
12-month periods. Fiscal years 1993 through 1995 exclude the results of
Taylor Medical, Inc. ("Taylor") which merged with the Company in August
1995 in a pooling-of-interests transaction. All same-center sales growth
data exclude the Imaging Business and are adjusted for merged centers.
(6) EBITDA represents income (loss) before income taxes, interest expense,
depreciation and amortization, gains and losses on asset sales and non-
recurring charges such as restructuring costs, merger costs and expenses
and other operating charges related to mergers. EBITDA is not a measure of
performance or financial condition under generally accepted accounting
principles. EBITDA is not intended to represent cash flow from operations
and should not be considered as an alternative to income from operations or
net income computed in accordance with generally accepted accounting
principles, as an indicator of the Company's operating performance, as an
alternative to cash flow from operating activities or as a measure of
liquidity. The Company believes that EBITDA is a standard measure of
liquidity commonly reported and widely used by analysts, investors and
other interested parties in the financial markets. However, not all
companies calculate EBITDA using the same method and the EBITDA numbers set
forth above may not be comparable to EBITDA reported by other companies.
(7) EBITDA margin represents the ratio of EBITDA to net sales.
(8) For purposes of computing this ratio, earnings consist of income (loss)
before income taxes and extraordinary items and fixed charges, adjusted to
exclude capitalized interest. Fixed charges consist of interest expense,
including amounts capitalized and the portion of operating lease rental
expense that is representative of the interest factor (estimated to be one-
third of operating lease rental expense).
(9) Except as set forth in note 11 below, pro forma financial data are
presented as if consummation of the Initial Offering occurred on July 1,
1996. Pro forma financial data do not assume any investment return on the
net proceeds of the Initial Offering and do not reflect any adjustments for
acquisitions since July 1, 1997. Pro forma financial data are provided for
comparative purposes only and are not necessarily indicative of the actual
results that would have been achieved had the Initial Offering occurred on
the date indicated or that may be achieved in the future.
(10) LTM EBITDA represents the actual EBITDA for the twelve months ended
September 30, 1997.
(11) Assumes consummation of the Initial Offering occurred on September 30,
1997.
(12) Pro forma LTM interest expense represents interest expense for the twelve
months ended September 30, 1997 assuming consummation of the Initial
Offering occurred on October 1, 1996.
(13) Ratio of pro forma net debt to LTM EBITDA represents pro forma total debt
less pro forma cash, cash equivalents and marketable securities divided by
LTM EBITDA. Because the sum of pro forma cash, cash equivalents and
marketable securities exceeds pro forma total debt, this ratio is not
meaningful.
14
<PAGE>
SUMMARY STATISTICAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 2, APRIL 1, MARCH 30, MARCH 29, MARCH 28,
1993 1994 1995 1996 1997
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
TOTAL COMPANY:
Revenue growth............. 23.1% 27.3% 16.4% 24.8% 29.5%
Adjusted revenue
growth(1)................. 29.4% 43.4% 39.2% 82.3% 52.5%
Revenue mix:
Physician Supply Business.. $227,046 $304,492 $366,285 $483,294 $601,310
Imaging Business(2)........ 91,469 101,043 105,700 105,826 146,037
International Business..... 15,707
Gross margin percent-
age(6).................... 29.5% 28.8% 28.0% 27.6% 27.4%
Sales representatives...... 339 386 481 722 817
Service centers(3)......... 47 52 61 72 84
States served.............. 37 44 48 50 50
Days sales outstanding(4).. 56 54 55 55 56
Average inventory turn-
over(5)................... 7.7 8.1 8.7 8.4 8.2
PHYSICIAN SUPPLY BUSINESS:
Revenue mix:
Medical supplies........... 70.7% 65.3% 64.2% 70.6% 67.3%
Equipment.................. 15.4 17.7 21.7 18.1 21.0
Pharmaceuticals............ 10.0 13.6 12.6 10.4 11.0
Service and other.......... 3.9 3.4 1.5 0.9 0.7
Gross margin percentage.... 34.0% 32.7% 30.8% 29.4% 27.9%
Sales representatives...... 315 362 455 692 720
Service centers(3)......... 40 45 54 64 61
States served.............. 33 44 48 50 50
IMAGING BUSINESS(2):
Gross margin percentage.... 18.3% 17.8% 18.3% 19.5% 21.2%
Sales representatives...... 24 24 26 30 73
Service specialists........ 90 98 104 112 223
Service centers............ 7 7 7 8 21
States served.............. 9 9 9 9 16
INTERNATIONAL BUSINESS:
Sales representatives...... 24
Service centers............ 2
Countries served........... 5
</TABLE>
- --------
(1) Adjusted revenue growth represents historical net sales growth excluding
the restatements for the mergers with Taylor, X-ray of Georgia ("X-ray
Georgia"), and S&W which were accounted for as poolings of interests.
(2) All Imaging Business data for periods prior to November 1996 reflect the
pre-merger financial data of companies acquired through pooling-of-
interests transactions. Revenue mix for the Imaging Business is not
available for the periods presented.
(3) Fiscal years 1993 through 1995 exclude Taylor service centers.
(4) Represents the average number of days that accounts receivable are
outstanding calculated by dividing the average annual accounts receivable
balance by the average daily sales.
(5) Represents the average number of inventory turns per year calculated by
dividing annual costs of sales by average annual inventory.
(6) Excludes fiscal year 1997 Physician Supply Business operating write-offs of
inventory of branches involved in mergers of approximately $4.1 million.
15
<PAGE>
RISK FACTORS
HIGH LEVEL OF INDEBTEDNESS
Upon consummation of the Initial Offering the Company became highly
leveraged. At September 30, 1997, the Company's consolidated indebtedness was
$10.7 million and the Company had commitments of $60.0 million available for
borrowing under the Credit Facility. See "Capitalization." The Company may
incur additional indebtedness in the future, including Senior Indebtedness,
subject to limitations imposed by the Indenture and the Credit Facility. The
level of the Company's indebtedness could have important consequences to the
holders of the Notes, including: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to debt service and will not be
available for other purposes; (ii) the Company's ability to obtain additional
debt financing in the future for working capital, capital expenditures or
acquisitions may be limited; and (iii) the Company's level of indebtedness
could limit its flexibility in reacting to changes in the industry and
economic conditions generally. Certain of the Company's competitors may
currently operate on a less leveraged basis and therefore could have
significantly greater operating and financing flexibility than the Company.
The Company's ability to make payments with respect to the Notes and to
satisfy its other debt obligations will depend on its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the
Company's control.
ABILITY TO SERVICE DEBT
As a result of the issuance of the Private Notes, the Company's interest
expense has increased compared to prior years. The Company believes, based on
current circumstances, that the Company's cash flow, together with available
borrowings under the Credit Facility, will be sufficient to permit the Company
to meet its operating expenses and to service its debt requirements as they
become due for the foreseeable future. This belief assumes, among other
things, that the Company will succeed in implementing its business strategy
and that there will be no material adverse developments in the business,
liquidity or capital requirements of the Company. However, if the Company is
unable to generate sufficient cash flow from operations to service its
indebtedness, it will be forced to adopt an alternate strategy that may
include actions such as reducing or delaying acquisitions and 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 satisfactory terms, if at all.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture imposes certain limitations on the ability of the Company to,
among other things, incur additional indebtedness, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, incur indebtedness that is subordinate
in right of payment to Senior Indebtedness and senior in right of payment to
the Notes, incur liens, imposes restrictions on the ability of a subsidiary to
pay dividends or make certain payments to the Company and its subsidiaries,
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the assets of the
Company. See "Description of Exchange Notes--Certain Covenants." If the
Company fails to comply with these covenants, it would be in default under the
Indenture and the principal and accrued interest on the Notes would become due
and payable. In addition, the Credit Facility contains other and more
restrictive covenants and prohibits the Company from prepaying its
indebtedness (including the Notes). The Credit Facility also requires the
Company to maintain specified financial ratios and satisfy certain financial
condition tests. The Company's ability to meet those financial ratios and
tests may be affected by events beyond its control and there can be no
assurance that the Company will meet those tests. A breach of any of these
covenants could result in a default under the Credit Facility and/or the
Indenture. If an event of default should occur under the Credit Facility, the
lenders can elect to declare all amounts of principal outstanding under the
Credit Facility, together with all accrued interest, to be immediately due and
payable. If the Company were unable to repay those
16
<PAGE>
amounts, the lenders could proceed against the collateral granted to them to
secure that indebtedness. If the Credit Facility indebtedness were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full that indebtedness and the other indebtedness of
the Company, including the Notes. Substantially all of the assets of the
Company are pledged as security under the Credit Facility. In addition, a
default under the Credit Facility or the instruments governing the Company's
or its subsidiaries' other indebtedness could constitute a cross-default under
the Indenture and any instruments governing the Company's or its subsidiaries'
other indebtedness, and a default under the Indenture could constitute a
cross-default under the Credit Facility or the instruments governing the
Company's or its subsidiaries' other indebtedness. See "Description of
Exchange Notes--Certain Covenants" and "--Events of Default" and "Description
of Credit Facility."
SUBORDINATION OF EXCHANGE NOTES; ASSET ENCUMBRANCE
The Exchange Notes will be, and the Private Notes are, subordinated in right
of payment to all Senior Indebtedness, including Senior Indebtedness incurred
after the date of the Indenture. As of September 30, 1997, the Company had an
aggregate of $1.8 million of Senior Indebtedness outstanding, including
guarantees of $1.1 million of indebtedness of Foreign Subsidiaries, and the
Company had available $60.0 million for borrowings under the Credit Facility.
The Indenture permits the Company to incur Senior Indebtedness under the
Credit Facility as well as additional Senior Indebtedness (provided certain
financial or other conditions are met). Certain of the Company's domestic
subsidiaries have guaranteed the obligations of the Company under the
Indenture and the Notes, but such guarantees are subordinated to all Senior
Indebtedness of such Subsidiary Guarantors, which include the guarantees of
the Company's indebtedness under the Credit Facility. The Exchange Notes and
the Guarantees will be, and the Private Notes and the Guarantees are,
subordinated in right of payment to all existing and future Senior
Indebtedness of the Company and the Subsidiary Guarantors, respectively,
including the principal, premium (if any) and interest with respect to the
Senior Indebtedness under the Credit Facility and guarantees thereof.
The Company may not pay principal of, premium (if any) on, or interest on,
the Notes, make any deposit pursuant to defeasance provisions or repurchase or
redeem or otherwise retire any Notes (i) if any Senior Indebtedness (as
defined) is not paid when due or (ii) if any other default on Designated
Senior Indebtedness occurs that permits the holders of such Designated Senior
Indebtedness to accelerate maturity of such Designated Senior Indebtedness, in
accordance with its terms, and the Trustee receives a notice of such default
unless, in either case, the default has been cured or waived, any such
acceleration has been rescinded or such Designated Senior Indebtedness has
been paid in full or, in the case of any default other than a payment default,
179 days have passed since the default notice is given. See "Description of
Exchange Notes--Subordination." Upon any payment or distribution of the assets
of the Company or any Subsidiary Guarantor in connection with a total or
partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or such Subsidiary Guarantor, the holders of Senior
Indebtedness will be entitled to receive payment in full before the holders of
the Notes are entitled to receive any payment. See "Description of Exchange
Notes--Subordination." The Private Notes also are, and the Exchange Notes will
be, unsecured and thus, in effect, will rank junior to any secured
indebtedness of the Company or the Subsidiary Guarantors. The indebtedness and
guarantees outstanding under the Credit Facility are secured by liens upon
substantially all assets, including all receivables, inventory and general
intangibles and equipment. See "Description of Credit Facility."
RELIANCE ON PAYMENTS OF SUBSIDIARY GUARANTORS; SURETYSHIP DEFENSES
The Company conducts all of the operations of its Imaging Business and
International Business, as well as a portion of its Physician Supply Business,
through its subsidiaries. Therefore, the Company is required to rely, in part,
upon payment from its subsidiaries for the funds necessary to meet its
obligations, including the payment of interest on the principal of the Notes.
The ability of the subsidiaries to make such payments will be subject to,
among other things, applicable laws. Claims of creditors of the Company's
subsidiaries will generally have priority as to the assets of such
subsidiaries over the claims of the Company.
17
<PAGE>
Although the Guarantees provide the holders of the Notes with a direct claim
against the assets of the Subsidiary Guarantors, enforcement of the Guarantees
against any Subsidiary Guarantor would be subject to certain "suretyship"
defenses available to guarantors generally, and such enforcement would also be
subject to certain defenses available to the Subsidiary Guarantors in certain
circumstances. See "--Fraudulent Conveyance Risks." Although the Indenture
contains waivers of most "suretyship" defenses, there can be no assurance that
those waivers would be enforced by a court in a particular case. To the extent
that the Guarantees are not enforceable, the Notes and Guarantees would be
effectively subordinated to all liabilities of the Subsidiary Guarantors,
including trade payables of such Subsidiary Guarantors, whether or not such
liabilities otherwise constitute Guarantor Senior Indebtedness under the
Indenture. In addition, certain of the Company's subsidiaries, primarily the
foreign subsidiaries, are not Subsidiary Guarantors, and the Notes are
effectively subordinated to all liabilities of such subsidiaries, including
trade payables. Moreover, although the Credit Facility will generally permit
subsidiaries to pay dividends in amounts sufficient to pay interest on the
Notes, the payment of dividends to the Company by its subsidiaries is
contingent upon the earnings of those subsidiaries and approval of those
subsidiaries.
CONSEQUENCES OF FAILURE TO EXCHANGE PRIVATE NOTES
Holders of Private Notes who do not exchange their Private Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the provisions in the Indenture regarding transfer and exchange of the Private
Notes and the restrictions on transfer of such Private Notes set forth in the
legend thereon as a consequence of the issuance of the Private Notes pursuant
to an exemption from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Private Notes may not be offered or sold, unless registered under
the Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register Private Notes under the Securities
Act. See "The Exchange Offer."
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Private Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Private Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the
Private Notes desiring to tender such Private Notes in exchange for Exchange
Notes should allow sufficient time to ensure timely delivery. The Company is
under no duty to give notification or defects or irregularities with respect
to the tenders of Private Notes for exchange. Private Notes that are not
tendered or are tendered but not accepted will, following the consummation of
the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof, and, upon consummation of the Exchange Offer certain
registration rights under the Registration Rights Agreement will terminate. In
addition, any holder of Private Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the Exchange 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. Each Participating
Broker-Dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." To the
extent that Private Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Private Notes could
be adversely affected. See "The Exchange Offer."
FRAUDULENT CONVEYANCE RISKS
If the court in a lawsuit brought by an unpaid creditor or representatives
of creditors, such as a trustee in bankruptcy or the Company or any Subsidiary
Guarantor as a debtor-in-possession, were to find under relevant federal and
state fraudulent conveyance statutes that the Company or any Subsidiary
Guarantor did not receive fair consideration or reasonably equivalent value
for incurring the indebtedness represented by the Private Notes
18
<PAGE>
or the Guarantee and that, at the time of such incurrence, the Company or such
Subsidiary Guarantor: (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 Subsidiary Guarantor 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 the Subsidiary Guarantor's obligations under
the Guarantee, subordinate the Notes or the Guarantee to the other
indebtedness of the Company or such Subsidiary Guarantor, or take other action
detrimental to the holders of the Notes. The measure of insolvency used by a
court will vary depending upon the law of the jurisdiction being applied.
Generally, however, a company will be considered insolvent for these purposes
if, at the time it incurred or incurs the indebtedness constituting the Notes,
either (i) the fair market value (or fair salable value) of its assets was
less than the amount required to pay its total existing debts and liabilities
(including the probable liability on contingent liabilities) as they become
absolute and matured or (ii) it was incurring debts beyond its ability to pay
as such debts mature.
The Company believes that it has received and will receive fair
consideration and reasonably equivalent value for the Private Notes and
Exchange Notes and that at the time of, and after giving effect to, the
incurrence of the indebtedness and obligations evidenced by the Private Notes
and the Exchange Notes, the Company and the Subsidiary Guarantors (i) were not
and will not be, as the case may be, insolvent nor rendered insolvent thereby,
(ii) had and will have, as the case may be, sufficient capital to operate
their business effectively, (iii) were incurring and will be incurring, as the
case may be, debts within their ability to pay as the same mature or become
due and (iv) had and will have, as the case may be, sufficient resources to
satisfy any probable money judgment against them in any pending action. In
reaching the foregoing conclusions, the Company has relied upon its analysis
of internal cash flow projections and estimated values of assets and
liabilities of the Company. There can be no assurance, however, that such
analysis will prove to be correct or that a court passing on such questions
would reach the same conclusions.
Additionally, under federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings are initiated by or against
the Company or any Subsidiary Guarantor within 90 days (or a longer period if
the holder of the Notes was deemed to be an "insider") after any payment by
the Company or any Subsidiary Guarantor with respect to the Notes or the
Guarantees or if the Company or any Subsidiary Guarantor 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.
ABILITY TO PURCHASE NOTES UPON A 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 its Notes at 101% of the
principal amount thereof plus accrued and unpaid interest outstanding, if any,
to the date of repurchase. A Change of Control will likely trigger an event of
default under the Credit Facility which would permit the lenders thereto to
accelerate the debt under the Credit Facility. However, there can be no
assurance that sufficient funds will be available at the time of any Change of
Control to make any required repurchases of Notes tendered and to repay debt
under the Credit Facility. In addition, the terms of the Credit Facility may
limit the Company's ability to purchase any Notes and will also identify
certain events that would constitute a change of control, as well as certain
other events with respect to the Company or certain of its subsidiaries, that
would constitute an event of default under the Credit Facility. See
"Description of Credit Facility." Any future credit agreements or other
agreements relating to other indebtedness 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 consent or repay such borrowing, the Company
would 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 further default under
certain of the Company's existing debt agreements and may constitute a default
under the terms of other indebtedness that the Company may enter into from
time to time. In addition, the provisions of the Indenture may not afford
holders
19
<PAGE>
of Notes protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect holders of Notes, if such transaction does
not result in a Change of Control. See "Description of Credit Facility" and
"Description of Exchange Notes--Change of Control."
ACQUISITION STRATEGY
The Company has grown through, and anticipates that it will continue to grow
through, the acquisition of medical-products distributors. For example, on
December 14, 1997, the Company entered into a definitive Merger Agreement
providing for the acquisition of GSMS by merger. Pursuant to the Merger
Agreement, each share of GSMS Common Stock issued and outstanding at the
effective time of the Merger (other than treasury shares) will be exchanged
for 1.75 shares of PSS Common Stock. Consummation of the Merger is subject to
approval of the shareholders of both the Company and GSMS and various state
and federal regulatory agencies and other customary conditions. The Company
has also added the Imaging Business and the International Business through
acquisitions and may enter new lines of business and new geographic areas
through acquisitions. Acquisitions, including the proposed Merger with GSMS,
may expose the Company to particular risks, including, without limitation,
diversion of management's attention, the inability to integrate acquired
companies into the Company's operations, assumption of liabilities and
amortization of goodwill and other acquired intangible assets, some or all of
which could have a material adverse effect on the financial condition or
results of operations of the Company. Depending on the value and nature of the
consideration paid by the Company for acquisitions, such acquisitions may
adversely affect the Company's liquidity. In making acquisitions in the
future, the Company anticipates that it may compete for acquisitions with
other companies, many of which are larger and have greater financial resources
than the Company. There can be no assurance that the Company will be
successful in consummating acquisitions and integrating them into the
Company's operations or that the anticipated benefits of such acquisitions
will be realized. The Company has financed acquisitions, and anticipates that
it will finance future acquisitions, through cash on hand, the issuance of
common stock and borrowings. Such financing may result in potentially dilutive
issuances of equity securities and the incurrence of additional debt, either
of which could have a material adverse effect on the Company's financial
condition and results of operations. The Company has taken, and in the future
may take, charges in connection with acquisitions. There can be no assurance
that the costs and expenses incurred will not exceed the estimates upon which
such charges are based. The Credit Facility limits acquisitions and contains
financial covenants which may further limit the Company's ability to make
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources," "Business" and
"Description of Credit Facility."
OPENING OF START-UP SERVICE CENTERS
The Company has grown through, and the Company anticipates that it will
continue to grow through, the opening of start-up service centers. The Company
anticipates that each start-up service center opened will generally incur
operating losses for a period of time which has historically been
approximately 18 months. Accordingly, the Company's planned expansion creates
numerous risks, including the risk that the expansion may have an adverse
effect on working capital and earnings during the expansion period, and that
substantial indebtedness may be incurred in connection with, and significant
losses could result from, unsuccessful start-ups.
EXPANSION INTO NEW LINES OF BUSINESS
The Company recently has expanded into new product areas, including
distributing imaging equipment, chemicals and supplies and providing technical
service to physicians, other alternate-site providers and hospitals through
its Imaging Business. The integration and operation of this new business may
place significant demands on the Company's management and other resources.
There can be no assurance that there will be any operating efficiencies
between the Physician Supply Business and the Imaging Business or that the
Imaging Business can be operated profitably. The Company has pursued, and
anticipates that it will continue to aggressively pursue,
20
<PAGE>
expansion opportunities in this market; however, there can be no assurance
that the Company will be successful in acquiring, integrating or operating
additional businesses. See "Acquisition Strategy" and "Business--
Acquisitions." In addition, although the Company is restricted by the terms of
the Indenture from engaging in any business other than those engaged in on the
date of the Indenture and certain reasonably related businesses, the Company
may in the future, enter into other lines of business, which may have the same
or additional risks as its existing businesses. There can be no assurance that
if the Company were to enter into any additional lines of business that it
would be able to operate such businesses successfully.
MANAGEMENT OF INTERNATIONAL BUSINESS
Through its WorldMed International, Inc. subsidiary, the Company has
recently acquired medical supply distributors serving physicians in Belgium,
France, Germany, Luxembourg and the Netherlands and plans to increase its
presence in European markets. As the Company expands internationally, it will
need to hire, train and retain qualified personnel in countries where
language, cultural or regulatory impediments may exist. The Company has
encountered and expects to encounter significant expense and delay in
expanding its international operations because of language and cultural
differences, and staffing, communications and related issues. There can be no
assurance that the Company's services and business practices will be accepted
by vendors, physicians or other involved parties in foreign markets. The cost
of medical care in many European countries is funded by the government, which
may significantly impact spending budgets in certain markets. International
revenues are subject to inherent risks, including political and economic
instability, difficulties in staffing and managing foreign operations and in
accounts receivable collection, fluctuating currency exchange rates, costs
associated with localizing service offerings in foreign countries, unexpected
changes in regulatory requirements, difficulties in the repatriation of
earnings and burdens of complying with a wide variety of foreign laws and
labor practices.
DEPENDENCE ON VENDOR RELATIONSHIPS
The Company distributes over 39,000 medical products manufactured by
approximately 3,000 vendors and is dependent on these vendors for the
manufacture and supply of product. The Company has entered into a contract
with Abbott which accounted for approximately 14% and 16% of the Company's
revenues in fiscal years 1996 and 1997, respectively, and which may be
terminated by Abbott if the Company does not meet certain sales levels. The
Company and Abbott have in the past renegotiated such sales levels. Sales
pursuant to a distribution agreement with F. Hoffman-La Roche Ltd. accounted
for approximately four percent of the Company's sales in fiscal year 1997. In
addition, the Company has entered into other separate exclusive distribution
agreements, including agreements for certain products manufactured by Siemens
AG, Hologic, Inc., C. R. Bard, Inc., Tanita Corporation of America, Inc. and
HumaScan Inc. The Company's ability to maintain good relations with these
vendors will affect the profitability of its business. Currently, the Company
relies on vendors to provide: (i) field sales representatives' technical and
selling support; (ii) agreeable purchasing and delivery terms; (iii) sales
performance incentives; (iv) financial support of sales and marketing
programs; and (v) promotional materials. There can be no assurance that the
Company will maintain good relations with its vendors.
DEPENDENCE ON KEY MANAGEMENT
The success of the Company is dependent upon the efforts and abilities of
its senior management. The loss of one or more of such individuals may
adversely affect the Company's business. Because of the Company's
decentralized operating structure, the Company is also dependent upon its
operations and sales managers for each of its service areas. There can be no
assurance that the Company will be able to retain such key personnel or
attract qualified personnel in the future.
DEPENDENCE ON SALES REPRESENTATIVES AND SERVICE SPECIALISTS
The Company believes that to be successful it must continue to hire, train
and retain highly qualified sales representatives and service specialists. The
Company's sales growth has resulted largely from hiring and
21
<PAGE>
developing new sales representatives and adding, through acquisitions,
established sales representatives whose existing customers generally have
become customers of the Company. Due to the relationships developed between
the Company's sales representatives and its customers, upon the departure of a
sales representative the Company faces the risk of losing the representative's
customers, especially if the representative were to act as a representative of
the Company's competitors. The Company generally requires its sales
representatives and service specialists to execute a non-competition agreement
as a condition of their employment, however the Company has not obtained non-
competition agreements from certain of the sales representatives and service
specialists hired through acquisitions. Although courts have generally upheld
the terms of the Company's non-competition agreements in the past, there can
be no assurance that such agreements will be upheld in the future. In
addition, the radiology and imaging equipment market served by the Imaging
Business is reliant on the hiring and retention of skilled service specialists
to maintain such equipment. There is a current shortage of these skilled
specialists, which may result in intense competition and increasing salaries.
Any inability of the Company to hire or retain such skilled specialists could
limit its ability to expand its Imaging Business and adversely affect its
business, financial condition and results of operations. There can be no
assurance that the Company will be able to retain or attract qualified
personnel in the future.
IMAGING BUSINESS TECHNOLOGY
The development of new technology may change the manner in which diagnostic
imaging services are provided. Recently, certain manufacturers have developed
digital radiology equipment that does not rely on film and film products,
which currently constitute a substantial percentage of the products
distributed by the Imaging Business. No assurance can be given that the
introduction and proliferation of digital radiology or other technological
changes will not result in a material adverse change in the Imaging Business.
While the Company anticipates that it will distribute new imaging technology,
there can be no assurance that the Company will obtain distribution agreements
or develop vendor relationships to distribute such new technology. In
addition, there can be no assurance that the Company would be able to
distribute any such new technology profitably.
REGULATION OF AND CHANGE IN THE PRACTICE OF MEDICINE
The health care industry, including the practice of medicine by physicians,
is subject to extensive government regulation, licensure and operating
procedures. The Company cannot predict the impact that present or future
regulations may have on operations of the Company or on its plan to expand its
business activities. In addition, as consolidation among physician provider
groups continues and provider networks are created, purchasing decisions may
shift to individuals with whom the Company has not had prior selling
relationships. The Company is increasingly focusing on national accounts where
the purchasing decision may not be made by the Company's traditional physician
customers. There can be no assurance that the Company will be able to maintain
its customer relationships in such circumstances or that such provider
consolidation will not result in reduced operating margins. See "Business--
Regulatory Matters."
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
The cost of a significant portion of medical care in the United States is
funded by government and private insurance programs, such as Medicare,
Medicaid and corporate health insurance plans. In recent years, government-
imposed limits on reimbursement of hospitals and other health care providers
have significantly impacted spending budgets in certain markets within the
medical-products industry. Private third-party reimbursement plans are also
developing increasingly sophisticated methods of controlling health care costs
through redesign of benefits and exploration of more cost-effective methods of
delivering health care. Accordingly, there can be no assurance that
reimbursement for purchase and use of medical products will not be limited or
reduced and thereby adversely affect future sales by the Company.
TWO-TIER PRICING
As a result of the Non-Profit Act of 1944, the medical-products industry is
subject to a two-tier pricing structure. Under this structure, certain
institutions, originally limited to non-profit hospitals, can obtain more
22
<PAGE>
favorable prices for medical products than the Company. The two-tiered pricing
structure continues to expand as many large integrated health care providers
and others with significant purchasing power demand more favorable pricing
terms. Although the Company is seeking to obtain similar terms from its
manufacturers, there can be no assurance that such terms can be obtained. Such
a pricing structure, should it persist, may place the Company at a competitive
disadvantage.
COMPETITION
The distribution and marketing of medical products is highly competitive.
The Company's competitors include full-line, full-service medical supply
companies, some of which are national in scope, local and regional
distributors and manufacturers who distribute their products directly to
users. These companies have sales representatives competing directly with the
Company. There are also several mail order firms which distribute medical
products on a national or regional basis. Some of the Company's competitors
are substantially larger in size and have substantially greater financial
resources than the Company. The Company could encounter additional competition
because many of the products it sells are readily obtainable by others from
various sources of supply and such competitors could consolidate into regional
or national networks. In addition, a competitor of the Company could obtain
exclusive rights to market a certain product to the exclusion of the Company.
There can be no assurance that the Company will not face increased competition
in the future.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
Net sales and operating results may fluctuate quarterly as a result of
demand for the Company's products and services, the introduction of new
products and services by the Company and its competitors, acquisitions or
investments, changes in manufacturers' prices or pricing policies, changes in
the level of operating expenses, product supply shortages, inventory
adjustments, changes in product mix and general competitive and economic
conditions. In additional, a substantial portion of the Company's net sales in
each quarter result from orders booked in such quarter. Accordingly, the
Company believes that period-to-period comparisons of its operating results
should not be relied upon as an indication of future performance. It is
possible that in certain future periods, the Company's operating results may
be below the expectations of analysts and investors, which could materially
and adversely affect the trading price of the Private Notes and, when issued,
the Exchange Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results of Operations."
LIABILITY EXPOSURE
Although the Company is not a manufacturer, the distribution of medical
supplies and equipment entails risks of product liability. Despite the fact
that the Company has not to date experienced any significant product liability
claims and currently maintains liability insurance coverage, such insurance is
expensive, difficult to obtain and may be unobtainable in the future on
acceptable terms, if at all. The Company operates approximately 620 vans to
deliver medical products on a same-day delivery basis. The Company has
experienced various claims regarding motor vehicle accidents, all of which
have been covered by insurance, subject to applicable retentions and
deductibles. The Company believes that it maintains adequate insurance
coverage for such claims. Nevertheless, the amount and scope of any coverage
may be inadequate in the event that a product liability or motor vehicle
accident claim is successfully asserted against the Company.
RELIANCE ON DATA PROCESSING
The Company's business is dependent upon its ongoing ability to obtain,
process, analyze and manage data, and to maintain and upgrade its data
processing capabilities. The Company typically receives rebates from
manufacturers for the purchase of certain products for its Imaging Business
and needs sophisticated systems to carefully track and apply for such rebates.
Interruption of data processing capabilities for any extended length of time,
the failure to upgrade data services, the inability of the Company's data
processing system to support the expanded scope of the Company's business or
to adequately track the Imaging Business rebates, difficulties in
23
<PAGE>
converting data and information systems after acquisitions, loss of stored
data, programming errors or other computer problems could have a material
adverse effect on the Company's business, financial condition and results of
operations.
ENVIRONMENTAL LIABILITIES AND REGULATIONS
The past and present business operations of the Company and the past and
present ownership and leasing of real property by the Company are subject to
extensive and changing federal, state, local and foreign environmental laws
and regulations, including those relating to the use, handling, storage,
discharge and disposal of hazardous substances. Certain of the products
distributed and serviced by the Imaging Business contain chemicals and
byproducts which require proper disposal under applicable environmental law.
The Company cannot predict what environmental legislation or regulations will
be enacted in the future, how existing or future laws or regulations will be
administered or interpreted or what environmental conditions may be found to
exist on its properties. Compliance with more stringent laws or regulations,
as well as more vigorous enforcement policies of applicable regulatory
agencies or stricter interpretations of existing laws, and discovery of new
conditions, may require additional expenditures by the Company, some of which
may be material.
ABSENCE OF ESTABLISHED TRADING MARKET
The Exchange Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to: (i) the
liquidity of any such market that may develop; (ii) the ability of holders of
Exchange Notes to sell their Exchange Notes; or (iii) the price at which the
holders of Exchange Notes would be able to sell their Exchange Notes. If such
a market were to exist, the Exchange Notes could trade at prices that may be
higher or lower than their principal amount or purchase price, depending on
many factors, including prevailing interest rates, the market for similar
notes and the financial performance of the Company and its subsidiaries. The
Company has been advised by the Initial Purchasers that they presently intend
to make a market in the Exchange Notes, when issued. However, the Initial
Purchasers are not obligated to do so, and any market-making activity with
respect to the Exchange Notes may be discontinued at any time without notice.
In addition, such market-making activity will be subject to the limits imposed
by the Securities Act and the Exchange Act. See "Exchange Offer." There can be
no assurance that even following registration of the Exchange Notes an active
trading market will exist for the Exchange Notes, or that such trading market
will be liquid.
24
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes offered
hereby. In consideration for issuing the Exchange Notes contemplated in this
Prospectus, the Company will receive Private Notes in like principal amount,
the form and terms of which are the same as the forms and terms of the
Exchange Notes (which replace the Private Notes), except as otherwise
described herein. The Private Notes surrendered in the exchange for Exchange
Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any increase or decrease in
the indebtedness of the Company. As such, no effect has been given to the
Exchange Offer in the capitalization tables.
The net proceeds of the Initial Offering (approximately $119.8 million after
Initial Purchasers' discounts and expenses associated with the Initial
Offering) have been and will be used to finance future acquisitions of
additional medical products distributors and for working capital and general
corporate purposes. Pending such uses, the net proceeds of the Initial
Offering have been invested in short-term interest-bearing securities. The
Company is restricted in its ability to invest the net proceeds of the Initial
Offering pending their application by the terms of the Indenture and the
Credit Facility. It is anticipated that the rate of return to be earned by the
Company on such net proceeds will be less than the interest rate on the Notes.
See "Description of Credit Facility" and "Description of Exchange Notes--
Certain Covenants--Limitation on Restricted Payments."
25
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, on an actual basis and as adjusted to reflect the Initial
Offering. This table should be read in conjunction with "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and the notes thereto included or incorporated by reference elsewhere in this
Prospectus, including the Annexes delivered herewith.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
---------------------------
ACTUAL AS ADJUSTED
------------ --------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Debt (1):
Credit Facility................................... $ 0 $ 0
Capital lease obligations......................... 315 315
Notes............................................. 0 125,000
Other debt........................................ 10,429 10,429
------------ ------------
Total long-term debt............................ 10,744 135,744
Total shareholders' equity.......................... 234,001 234,001
------------ ------------
Total capitalization............................ $244,745 $369,745
============ ============
</TABLE>
- --------
(1) Includes current maturities.
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for fiscal years 1995
through 1997 were derived from the audited consolidated financial statements
of the Company which include the pre-merger financial information for the
mergers of Taylor, X-ray Georgia, and S&W. The selected financial data for
fiscal years 1993 and 1994 has been derived from the Company's unaudited
consolidated financial statements which include the pre-merger financial
information for the mergers of Taylor, X-ray Georgia, and S&W. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the
Consolidated Financial Statements of the Company and the Notes thereto
included or incorporated by reference elsewhere in this Prospectus, including
the Annexes delivered herewith.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
-----------------------------------------------------
APRIL 2, APRIL 1,
1993 1994 MARCH 30, MARCH 29, MARCH 28,
(UNAUDITED) (UNAUDITED) 1995 1996 1997
----------- ----------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $318,515 $405,535 $471,985 $589,120 $763,054
Gross profit(7)......... 93,884 116,863 132,315 162,590 208,990
Selling, general and
administrative
expenses............... 87,987 108,246 121,407 141,160 186,941
Restructuring
charges(2)............. 303 308 4,389 -- --
Merger costs and
expenses(3)............ -- -- -- 15,732 12,128
Net income before
extraordinary item..... 1,467 2,336 60 2,129 4,427
Extraordinary loss, net
of tax(4).............. -- 327 -- -- --
Net income.............. $ 1,467 $ 2,009 $ 60 $ 2,129 $ 4,427
Net income before
extraordinary item per
share.................. $ 0.08 $ 0.12 $ -- $ 0.06 $ 0.12
Extraordinary loss per
share, net of tax...... -- $ (0.02) -- -- --
Net income per share.... $ 0.08 $ 0.14 $ -- $ 0.06 $ 0.12
Unaudited pro forma net
income including pro
forma tax adjustment on
pooled S-Corporation
income and excluding
merger costs and
expenses, restructuring
charges, and fiscal
year 1997 other
operating
charges(2)(3)(5)....... $ 1,490 $ 2,057 $ 4,802 $ 11,531 $ 14,533
Unaudited pro forma net
income per share
including pro forma tax
adjustment on pooled S-
Corporation income and
excluding merger costs
and expenses,
restructuring charges,
and fiscal year 1997
other operating
charges(2)(3)(5)....... $ 0.08 $ 0.11 $ 0.19 $ 0.35 $ 0.38
Weighted average shares
outstanding(6)......... 18,431 19,472 25,101 32,870 38,015
BALANCE SHEET DATA AT END
OF PERIOD:
Working capital......... $ 42,553 $ 51,487 $ 53,626 $172,696 $164,454
Total assets............ 105,345 137,985 134,426 278,958 298,286
Long-term liabilities... 45,459 60,757 33,869 4,132 5,194
Total shareholders'
equity................. 22,133 24,349 46,326 199,550 205,600
</TABLE>
- --------
(1) The Company's fiscal year ends on the Friday closest to March 31. Fiscal
years 1993 through 1995 ended on the Thursday closest to March 31. All
periods presented were 52 weeks.
(2) Restructuring charges reflect charges taken by a company merged with the
Company pursuant to a pooling-of-interests transaction, prior to the date
of merger. The fiscal year 1995 restructuring charge of $4,389 reflects
the assessment of former management of such merged company of the under-
realization of future benefits related to certain intangible assets. The
fiscal year 1994 restructuring charge of $308 resulted from such merged
company's consolidation of an acquisition. The fiscal year 1993
restructuring charge of $303 resulted from the write-down by former
management of such merged company of capitalized software costs.
(3) Merger costs and expenses reflect direct merger expenses incurred in
connection with mergers accounted for as pooling-of-interests
transactions.
(4) The extraordinary item in fiscal year 1994 resulted from early
extinguishment of debt by Taylor prior to its merger with the Company.
(5) Fiscal year 1997 other operating charges represent write-offs of inventory
of $4,090 and accounts receivable of $500 at branches involved in mergers.
(6) Adjusted to give effect to a three-for-one stock split in fiscal year
1996.
(7) Excludes fiscal year 1997 Physician Supply Business operating write-offs
of inventory of branches involved in mergers of approximately $4.1
million.
27
<PAGE>
BUSINESS
GENERAL
PSS is a specialty marketer and distributor of medical products to
physicians, other alternate-site providers and hospitals. PSS is the leading
distributor of medical supplies, equipment and pharmaceuticals to office-based
physicians in the United States based on revenues, serving over 104,000
physician offices (representing approximately 54% of all physician offices) in
all 50 states. The Company, which entered the imaging-supply market in
November 1996, has grown to be the second-largest distributor of imaging
supplies and equipment in the United States based on revenues, serving over
12,000 customer sites in 21 states. PSS also distributes medical products to
office-based physicians and hospitals in five European countries.
PSS employed over 800 highly trained sales representatives as of September
30, 1997, over 700 of which are focused on the physician-office market. This
large sales organization enables PSS to market medical products on a national
basis and has positioned the Company as a distributor of choice for
manufacturers whose products require consultative selling. PSS has established
exclusive or semi-exclusive distribution arrangements for certain products
with such leading manufacturers as Abbott, Siemens AG, Hologic, Inc., C. R.
Bard, Inc., HumaScan Inc. and F. Hoffman-La Roche Ltd. PSS distributes over
39,000 medical products from 89 service centers, 64 of which are focused on
the physician-office market, located throughout the United States and in
Europe, enabling the Company to be highly responsive to local market needs,
including providing same-day delivery service to most customers on a regular
basis.
INDUSTRY
The Company believes that the United States medical-products distribution
market aggregates approximately $34 billion in annual revenues, of which
approximately $6.5 billion represents the physician-office market (of which
approximately $1 billion are imaging-related medical products) and the balance
represents the hospital, ambulatory surgery center, long term care and home
health care markets. The Company believes that the imaging-supply market is an
approximately $5 billion component of the overall medical-products
distribution industry, encompassing each of the hospital, physician and other
provider segments. Revenues of the medical-products distribution industry are
estimated to be growing as a result of a growing and aging population,
increasing health care awareness, and expanding third-party insurance
coverage. In addition, the physician market is benefiting from the shift of
procedures and diagnostic testing from hospitals to alternate sites,
particularly physician offices.
The Company believes that in the United States there are approximately 300
companies serving the non-imaging physician-supply market and approximately
400 companies serving the imaging-supply market. The physician-supply market
has experienced rapid consolidation in recent years. The Company believes that
the imaging-supply market is in the early states of consolidation. The Company
believes that consolidation in the physician-supply and imaging-supply markets
is occurring due to local and regional distributors experiencing: (i) a lack
of purchasing and administrative economies of scale; (ii) reduced access to
medical equipment lines as manufacturers seek to reduce marketing costs by
minimizing the number of distributors they use; (iii) consolidation among
providers, who are increasingly seeking to reduce the number of suppliers from
which they purchase medical products; (iv) a lack of resources for continued
development and training of personnel for maintenance, expansion or
replacement of existing business; and (v) a lack of resources to develop new
distribution system technologies and services.
Through its subsidiary, WorldMed International, Inc., the Company operates
three European service centers distributing medical products to the physician
office and hospital markets in Belgium, France, Germany, Luxembourg and the
Netherlands. Government and industry estimates indicate that the medical-
products segment of the health care industry of these countries represents an
approximately $12 billion market. This industry is highly fragmented with over
1,000 distributors serving these countries.
28
<PAGE>
COMPANY STRATEGY
The Company's objectives are to be the leading distributor and marketer of
medical products to office-based physicians and providers of imaging services
in the United States, to expand its European medical supplies and equipment
business and to enhance its operating performance. The key components of the
Company's strategy to achieve these objectives are to continue to:
Pursue Strategic Acquisitions. The Company has made 42, 11, and four
acquisitions since fiscal year 1989 in its Physician Supply Business, Imaging
Business, and International Business, respectively. Recently, the Company
acquired General X-Ray and S&W, which had approximately $147.6 million in
revenues, collectively, for the twelve months ended March 31, 1997. In
addition, on December 14, 1997, the Company entered into a definitive Merger
Agreement providing for the acquisition of GSMS by merger. Pursuant to the
Merger Agreement, each share of GSMS Common Stock issued and outstanding at
the effective time of the Merger (other than treasury shares) will be
exchanged for 1.75 shares of PSS Common Stock. Consummation of the Merger is
subject to approval by the shareholders of both the Company and GSMS and
various state and federal regulatory agencies and other customary conditions.
After consummating a merger or acquisition, the Company begins an intensive
process of converting the acquired company to PSS' business model through
information systems conversion, personnel development and training, and
service and product expansion. The Company intends to continue to acquire
local, regional, and other distributors in new and existing markets where PSS
can leverage its distribution infrastructure, expand its geographic coverage
and gain market share.
Enhance Selling Capabilities. The Company believes its sales force and
managers are its most valuable corporate assets. PSS focuses not only on the
recruitment of sales personnel with superior sales aptitude, but also on the
initial and continued development of its sales force through training at PSS
University, its in-house educational center. The Company believes that this
investment in personnel and training enables PSS to provide high-quality
service to its customers, offer a sophisticated product line, and attract
manufacturers that desire a means of rapidly bringing new products and
technology to market.
Offer a Broad Product Line Emphasizing Exclusive Products. PSS seeks to meet
all of the medical products needs of office-based physicians and providers of
imaging services. The Company currently stocks over 35,500 medical products in
its Physician Supply Business and over 3,500 medical products in its Imaging
Business. PSS also seeks to establish exclusive distribution and marketing
arrangements for selected products. In the United States, the Company
currently has exclusive or semi-exclusive marketing arrangements for certain
products with Abbott, Siemens AG, Hologic, Inc., C. R. Bard, Inc., HumaScan,
Inc. and F. Hoffman-La Roche Ltd. The Company believes that its sophisticated
selling efforts, highly trained sales force, and large customer base provide
manufacturers with a unique sales channel through which to distribute new and
existing products that require consultative selling.
Provide Differentiated, High-Quality Service. The Company believes its
success to date has been based largely on its ability to provide superior
customer service, including same-day delivery and "no-hassle" returns. Unlike
its competitors, which generally ship products via common carrier, the Company
operates its own fleet of over 620 delivery vans, thus enabling the Company to
provide same-day delivery to virtually all of its customers. In addition, the
Company believes its consultative selling approach enables it to understand
and anticipate customer needs and that its information systems simplify and
expedite the ordering process.
Utilize Sophisticated Information Systems. In 1994, the Company implemented
ICONSM, an ordering and customer data system, with all its Physician Supply
Business sales representatives. ICONSM has increased time available to sales
representatives for selling, decreased operating expenses, and increased PSS'
ability to provide same-day delivery. During fiscal year 1997, the Company
developed and test marketed CutomerLink, an Internet-based system for
inventory management and purchasing. PSS is also currently developing a
separate hardware and software system for the Imaging Business that will
incorporate CustomerLink and ICONSM. The Company intends to continue to
develop sophisticated information technology, which it believes is essential
to its continued success in integrating acquired businesses and increasing
sales and profitability.
29
<PAGE>
Expand Operating Margins. The Company is pursuing several initiatives to
enhance its operating margins. With respect to sales, PSS is focusing its
efforts on higher-margin accounts and on sales of diagnostic equipment, often
on an exclusive or semi-exclusive basis, that involve ongoing sales of high-
margin reagents. With respect to its product line, PSS seeks to generate high
sales volumes of selected products and to obtain such products on a discounted
basis from manufacturers. Additionally, PSS has developed a private-label
product line, Penny Saver, which has enabled PSS to lower product-acquisition
and inventory-carrying costs. Finally, with respect to the Company's service
center expansion program, PSS intends in the future to emphasize acquisitions
over new-center development, avoiding the substantial start-up losses
associated with new-center development.
SALES AND DISTRIBUTION
PSS focuses on complete customer satisfaction, which it characterizes to its
customers as "no hassle" service. Consistent with this approach, the Company
generally offers its customers same-day delivery service on a regular basis,
highly trained, consultative sales professionals, a broad product line
including medical supplies, sophisticated diagnostic equipment and reagents,
and pharmaceuticals, no minimum order size or shipping charges, and permits
returns of unused, salable products for instant credit.
The Company has increased its emphasis on national customer accounts,
including large physician group practices, physician practice management
companies, physician-hospital organizations, physician management service
organizations and group purchasing organizations. In selling to these national
accounts, the Company emphasizes its core strengths of same-day service, which
permits stockless inventory, competitive pricing and high service levels,
including inventory maintenance. See "Risk Factors--Regulation of and Change
in the Practice of Medicine."
The Physician Supply Business of PSS maintains a highly decentralized
distribution network of 61 service centers operating over 550 delivery vans
throughout the United States. This distribution network, along with the
Company's ICONSM, has enabled PSS to generally provide same-day delivery
service. Customer orders received by 10:30 a.m. at the local service center
are generally delivered the same day within a 100 mile radius. Within a 30
mile radius, orders received by noon are generally delivered the same day.
Through its over 700 sales representatives in its Physician Supply Business
as of September 30, 1997, PSS distributes medical supplies and equipment to
physicians in approximately 104,000 office sites nationally. Generally, each
sales representative is responsible for calling on approximately 150 to 200
physician offices, with a minimum goal of visiting each office once every one
to two weeks.
The Imaging Business operates in a similar decentralized format with 25
service centers operating a total of over 70 delivery vans throughout 21
states. The Imaging Business has over 95 sales representatives and over 300
service specialists as of September 30, 1997. This business has approximately
12,000 customers including approximately 2,000 hospitals and approximately
10,000 alternate-site providers, including industrial and dental accounts.
The International Business operates three European service centers, located
in Belgium, Germany, and the Netherlands, employing approximately 25 sales
representatives and approximately 65 total employees.
All of the Company's service centers operate as a profit center led by a
management team that typically includes a sales manager and an operations
manager. Each service center employs sales representatives and staff,
including purchasing agents, customer service representatives, and warehouse
and delivery personnel. Employees are compensated based upon both individual
and service center performance. Both management and employee bonuses are based
largely upon asset management, attainment of goals and operating profit
performance.
PRODUCTS
The Company carries a significant investment in inventory to meet the rapid
delivery requirements of its customers. The Company distributes over 39,000
different products manufactured by approximately 3,000
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manufacturers. During the twelve months ended March 28, 1997, Abbott was the
only vendor which accounted for more than 10% of the Company's inventory
purchases. See "Risk Factors--Dependence on Vendor Relationships."
Physician Supply Business
Through its Physician Supply Business, the Company distributes medical
products consisting of medical supplies, diagnostic equipment, and
pharmaceuticals. The following is a discussion of the types of products
offered by the Physician Supply Business. The Physician Supply Business sells
over 35,500 medical products.
Medical Supplies. The Physician Supply Business sells a broad range of
medical supplies, including various types and sizes of paper goods, needles
and syringes, gauze and wound dressings, sutures, latex gloves, orthopedic
soft goods and casting products, wood tongue blades and applicators,
sterilization and intravenous solutions, specimen containers, diagnostic
equipment reagents, and diagnostic rapid test kits for pregnancy, strep,
mononucleosis, chlamydia, H-Pylori, and bladder cancer.
In order to lower product-acquisition and inventory-carrying costs, PSS has
implemented a new Penny Saver product line. The Penny Saver products are those
most frequently used by PSS customers. This product line provides customers a
choice between name-brand products and the Penny Saver quality, low-price
alternatives. Currently, the Company has over 250 products under the Penny
Saver label.
PSS plans to continue to focus on providing products and services to the
primary care physician market whether the physician is a single practitioner
or a member of a large group practice. In that effort, PSS developed Network
PlusSM, a comprehensive savings plan for physicians in which PSS offers
special group purchasing contract pricing and provides periodic cost analyses
to help manage the supply needs of each physician. Under this program, when a
physician office guarantees 80% of its purchase volume to PSS, the Company
will guarantee the lowest purchase prices on certain products as well as
certain service guarantees. The Company has recently signed distribution
agreements with several national and regional integrated network systems and
managed care groups.
Medical Equipment. The Physician Supply Business equipment lines include
blood chemistry analyzers, automated cell and differential counters,
immunoassay analyzers, bone densitometers, exam tables and furniture,
electrocardiograph monitors and defibrillators, cardiac stress systems, holter
monitors, flexible sigmoidoscopy scopes, autoclaves, spirometers, pulse
oximeters, tympanometers, and microscopes. Demand for diagnostic equipment has
increased recently, reflecting in part, technological advances which enable
increasingly sophisticated diagnostic tests to be performed in the physician's
office. Sales of diagnostic equipment, while generally lower in gross margin
than supplies, normally entail the ongoing reordering of disposable diagnostic
reagents which generally yield higher margins.
The Company recently entered into four separate exclusive distribution
agreements for certain products manufactured by Siemens AG, Hologic, Inc., C.
R. Bard, Inc., and Tanita Corporation of America, Inc. These supplement the
Company's existing exclusive distribution agreements for certain products with
Abbott and HumaScan Inc. and a semi-exclusive distribution agreement with F.
Hoffman-La Roche Ltd. The Company believes these strategic alliances will
continue to broaden the Company's product offerings to the Physician Supply
Business customers.
Pharmaceuticals. The Company's pharmaceutical sales include vaccines,
injectables and ointments. As a result of the changing dynamics in the
pharmaceutical industry, particularly the reduction in sales personnel focused
on physicians' offices, pharmaceutical manufacturers are increasingly seeking
alternative means of distribution. The Company believes that its consultative
sales approach and its emphasis on training have allowed PSS to be highly
effective in selling pharmaceuticals to the physician-office market. The
Company has recently entered into a three-year primary distribution agreement
for certain pharmaceuticals and related products of
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<PAGE>
Cardinal Health, Inc. The Company believes this agreement will allow it to
reduce its pharmaceutical acquisition costs.
Imaging Business
The Imaging Business distributes a broad range of imaging equipment and
supplies, including general radiographic and mammography systems, fluoroscopic
and electrophysiologic systems, angiographic equipment, medical resonance
imaging (MRI), cath lab and mobile vascular labs, C-arm and ultrasound
equipment. The Imaging Business also distributes consumable and accessory
products, including film and film handling products, barium, lead and lead
apparel and darkroom cabinets. See "Risk Factors--Imaging Business Technology"
and "--Environmental Liabilities and Regulation."
International Business
The International Business distributes medical supplies, equipment and
pharmaceuticals similar to those provided by the Physician Supply Business to
five European countries. The International Business offers products to the
European physician office and hospital markets. See "Risk Factors--Management
of International Business."
RECRUITMENT AND DEVELOPMENT
The Company believes its managers and sales force are its most valuable
corporate assets. Accordingly, the Company invests significant resources in
recruiting, training and developing these employees. PSS spent approximately
$2.6 million for training and development in fiscal year 1997. Over the past
ten years, the Company has refined its recruitment practices and development
procedures for its Physician Supply Business and the Company is currently
developing a similar training program for the sales representatives and
service specialists of its Imaging Business. The Company's comprehensive
program for its Physician Supply Business includes the following:
Recruitment. The Company has developed a recruitment program to help provide
it with a source of mobile and committed sales representatives. The Company
believes that it is a leader in its industry in recruiting sales
representatives on college and university campuses. The Company's recruiters
use state-of-the-art marketing materials to attract candidates who demonstrate
superior sales aptitude. The Company also recruits college graduates with up
to five years experience in business, government or the military as
operational management trainees.
Initial Development. Each trainee is initially assigned to a service center.
Under the supervision of local managers, training consists of a combination of
self-study, individual instruction and interaction with customers and vendors.
Such training includes 16 one-week courses providing instruction on products,
procedures and selling skills. During this development program, the trainee
attends the Jacksonville, Florida training center ("PSS University") for
additional training. Individual progress is measured weekly through formal
testing and role playing, resulting in continued advancement to graduation,
usually within 20 weeks. The Company designs the program to be strenuous and
only approximately 70% of the trainees successfully complete the program. Upon
graduation, the newly appointed sales representative assumes responsibility
for the first available sales territory, within a preferred region regardless
of location. The Company typically has approximately 30 sales candidates at
various stages of the training process. The Company believes that the level of
its expenditures in developing new sales representatives and its ability to
place new sales representatives quickly in a new region is unique within the
industry. The new sales graduate is placed on a 15-month salary-to-commission
conversion program. Presently, approximately 95% of the Company's sales force
is compensated on a straight commission basis.
Operations Management. The Company's development program for its operations
management trainees consists of approximately twelve months of intensive
training and development. After recruitment, the operations management trainee
is transferred to at least three service centers and is given various and
gradually increasing levels of responsibility. The trainee is assigned to an
operations management position when it becomes available at a service center,
regardless of location. The Company has available approximately five
operations management trainees to support its growth.
Continued Development. The Company provides several programs to continue
development of its sales and management organization. The programs provided by
PSS University include a leadership program for
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<PAGE>
management candidates, senior sales representatives and general managers, a
program emphasizing creativity and innovation for first-year managers, and a
management development program. In addition, the Company encourages its sales
representatives to participate in industry-accredited self-study programs.
Every sales representative routinely attends local sales meetings, annual
sales and marketing meetings, key vendor product conferences and continuing
education programs at PSS University. Additionally, the Company is developing
training programs on customer service, purchasing and other field operations.
At September 30, 1997, the Company had approximately 800 sales
representatives, 300 service specialists and 2,700 total employees. The
Company considers its employee relations to be excellent. See "Risk Factors--
Dependence on Key Management" and "--Dependence on Sales Representatives and
Service Specialists."
INFORMATION SYSTEMS
The Physician Supply Business maintains a decentralized information system
with data acquisition at the local service centers and a central corporate
data base that is accessible from all of the service centers. The information
systems were designed to allow the service center to have both the hardware
and software to conduct operations independently. The failure of a computer
system at a service center would not affect the operations of any other
service center or the corporate system. Likewise, the short-term failure of
the corporate system would not affect the operations of any service center.
See "Risk Factors--Reliance on Data Processing."
ICONSM is a sales force automation tool which allows the Physician Supply
Business sales representatives to access critical customer information and
place orders from any location using a pen-based, hand-held computer system.
ICONSM provides the sales representatives with customer pricing, contracts,
backorders, inventory levels, account status and instant ordering. The
customer's order is transmitted via wireless transmission to the corporate
system and then transmitted from the corporate system to the local service
center in less than two minutes. ICONSM has increased time available for
selling, decreased operating expenses in the service centers and enhanced the
Company's ability to provide same-day delivery to customers. Utilizing ICONSM,
sales representatives can give product demonstrations, provide equipment
feasibility studies and perform revenue and return-on-investment analyses for
specific equipment. ICONSM also gives the sales representative the ability to
provide quotes and bids to the larger accounts.
To enable the Company to maintain high customer order fill rates on a
consistent basis, the Company utilizes its BEAR system. Each service center
reports its inventory quantities on a daily basis. The separate service center
reports are combined into one company-wide inventory report containing product
number, quantity on hand and historical usage. This systems reduces back-
orders to customers and reduces the Company's total inventory through
increased inventory efficiencies. BEAR also displays the on-hand usage
quantities of neighboring service centers that are within one commercial-
shipping day of the service center.
During fiscal year 1997, PSS developed and test-marketed the CustomerLink
system. The Company believes this system is the first Internet-based health
care information system designed and used specifically for inventory
management and purchasing for the medical practice. Company customers can
access CustomerLink through the Internet at http://www.pssd.com after
receiving their personal password from the Company. All company customers,
regardless of size, with access to the Internet, will be given access to
services and on-line information, including: (i) on-line order placement and
confirmation; (ii) customer-specific pricing, product availability, back
orders and utilization reports; (iii) working capital management reports; and
(iv) practice compliance assistance for OSHA and CLIA, including a database of
medical safety sheets.
The Company is implementing a delivery automation system that is expected to
be completed in fiscal year 1998. The system will provide electronic signature
recognition and delivery routing which the Company believes will improve the
Company's distribution efficiency.
The Company is currently in the process of developing and implementing
separate systems for its Imaging Business which will include the ICONSM and
CustomerLink systems. The Company expects the Imaging Business system to be
implemented in fiscal year 1998.
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<PAGE>
PURCHASING AND VENDOR RELATIONSHIPS
The Company aggressively seeks to purchase the medical supplies and
equipment it distributes at the lowest possible price through volume
discounts, rebates and product line consolidation. The Company's corporate
materials management department negotiates all of its contract terms with
vendors. Individual orders are placed by the Company's purchasing agents,
located at the Company's service centers, who are responsible for purchasing
and maintaining the inventory. Supplies and equipment are delivered directly
from vendors to the service centers.
The Company aggressively pursues the opportunity to market and sell medical
equipment and supplies on an exclusive basis. Manufacturers of medical
diagnostic equipment and supplies typically offer distribution rights only to
a selected group of distributors and are increasingly seeking to reduce the
number of distributors selling their products to end users in an effort to
reduce the cost associated with marketing and field support. The Company has
been successful in assisting manufacturers in their development and marketing
plans and in obtaining the exclusive right to sell certain products. The
Company believes that its ability to capture such distribution rights
represents a significant barrier to the entry of competitors.
The Company recently completed the second year of the Abbott Agreement,
which provides for the exclusive distribution of certain Abbott diagnostic
products. The Abbott Agreement has positioned PSS as the sole distributor to
physician offices with 24 or fewer physicians for, among other products, the
CELL DYN(R) 1400, 1600 and 1700 hematology products, Abbott Vision(R) blood
chemistry analyzers and reagents, AXyM(R) and IMx(R) immunoassay analyzers and
reagents, and the Abbott Testpack(R) line of rapid tests and has also enabled
the Company to cross-sell its other products to Abbott customers. Abbott may
terminate the Abbott Agreement if the Company fails to meet certain sales
levels. Abbott products constituted approximately 16% and 18% of the Company's
sales in fiscal years 1996 and 1997, respectively.
Currently, the Company has contractual alliances with many vendors including
F. Hoffman-LaRoche, Ltd. These alliances provide the Company volume
incentives, dedicated field support, and select relationships with leading
manufacturers. As a result of the Company's performance in selling their
products, these entities participate with the Company in relationships ranging
from exclusivity to shared market resources. In the office-based physician
market, the Company is the United States leader of sales of hematology and
chemistry products for F. Hoffman-La Roche Ltd., which constituted
approximately four percent of the Company's sales in fiscal year 1997.
The Company recently entered into four separate exclusive distribution
agreements for certain products manufactured by Siemens AG (cardiology and
OB/GYN ultrasound equipment), Hologic, Inc. (bone densitometry analyzer), C.
R. Bard, Inc. (bladder cancer diagnostic test) and Tanita Corporation of
America, Inc. (body weight and fat analyzer). In addition, the Company has
entered into an exclusive distribution agreement with HumaScan Inc. (non-
invasive breast tumor detection screen) and has recently entered into a
primary distribution agreement with Cardinal Health, Inc. (certain
pharmaceuticals). These strategic alliances should continue to broaden the
Company's product offerings to both the Physician Supply Business and Imaging
Business customers. See "Risk Factors--Dependence on Vendor Relationships."
ACQUISITIONS
The Company's Physician Supply Business has grown from one service center
located in Jacksonville, Florida in 1983 to 61 service centers currently.
Historically, the Company's growth has been accomplished through both the
start-up of service centers and the acquisition of local and regional medical
supply and equipment distributors. Since fiscal year 1994 the Company has
accelerated its acquisition of medical supply and equipment distributors both
in number and in materiality of the operations acquired. See "Risk Factors--
Acquisition Strategy" and "--Opening of Start-Up Service Centers."
With the November 1996 acquisition of a medical diagnostic imaging supply
and equipment distributor, the Company began the operations of its Imaging
Business. Subsequent acquisitions have resulted in 25 Imaging
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<PAGE>
Business service centers operating throughout 21 states. The Company's
objectives for the Imaging Business during fiscal year 1998 are to: (i)
continue geographic expansion with acquisitions of local and regional imaging
distributors to leverage existing infrastructure; (ii) develop and implement a
separate hardware and software system for the business utilizing the Physician
Supply Business' ICONSM and CustomerLink systems; (iii) expand the products
and services currently provided; (iv) implement same-day delivery; and (v)
develop a PSS University training program specifically tailored for the
Imaging Business. See "Risk Factors--Expansion into New Lines of Business."
PSS views the acquisition of medical-products distributors as an integral
part of its growth strategy. The Company intends to continue to acquire local
and regional distributors especially in existing markets where it can leverage
its distribution infrastructure, gain market share, and expand geographically.
PSS believes that the consolidation in the physician-supply and imaging-supply
markets is occurring due to local and regional distributors experiencing: (i)
a lack of purchasing and administrative economies of scale; (ii) reduced
access to medical equipment lines as manufacturers seek to reduce marketing
costs by minimizing the number of distributors; (iii) consolidation among
providers, who are increasingly seeking to reduce the number of suppliers from
which they purchase medical products; (iv) a lack of resources for continued
development and training of personnel for maintenance, expansion or
replacement of existing business; and (v) a lack of resources to develop new
distribution system technologies and services.
On December 14, 1997, the Company entered into a definitive Merger Agreement
providing for the acquisition of GSMS by merger. GSMS is the largest
distributor of medical supplies and related products to the long-term care
industry, operating 23 regional distribution centers which serve 50 states.
Pursuant to the Merger Agreement, each share of GSMS Common Stock issued and
outstanding at the effective time of the Merger (other than treasury shares)
will be exchanged for 1.75 shares of PSS Common Stock. Consummation of the
Merger is subject to approval of the shareholders of both the Company and GSMS
and various state and federal regulatory agencies and other customary
conditions.
PSS has completed six mergers and acquisitions to date in fiscal year 1998.
For example, in July 1997, the Company completed the merger of General X-Ray
and certain affiliated entities, distributors of radiology and imaging
equipment which operated seven distribution centers and distributed to seven
states, primarily in the Midwest. In September 1997, the Company completed the
merger of S&W, a distributor of radiology and imaging equipment, chemicals and
supplies, and provider of technical services to hospitals and alternate-site
providers, which operated five locations which served four Northeastern
states.
The Company completed ten mergers and acquisitions in fiscal year 1997,
including the acquisition of Diagnostic Imaging, Inc., a distributor based in
Jacksonville, Florida which began the operations of its Imaging Business.
Diagnostic Imaging, Inc. operated eight distribution centers with 24 sales
representatives and 75 service specialists. In fiscal year 1997, the Company
expanded its Imaging Business through mergers with X-ray Georgia and Rad-Tech
X-Ray, Inc., both based in the Atlanta, Georgia area, which collectively
served six states in the Southeast with 13 sales representatives and 51
service specialists and the merger with Chesapeake X-Ray Corporation based in
Roanoke, Virginia, which served four states in the Southeast with five sales
representatives and 15 service specialists.
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<PAGE>
PROPERTIES
The Company maintains 89 service centers providing service to 50 states
throughout the United States, as well as Belgium, France, Germany, Luxembourg
and the Netherlands. All service center locations are leased by the Company,
with the exception of the service center located in Leuven, Belgium. The
following tables set forth the service center locations and areas which they
service for the Physician Supply Business, Imaging Business and International
Business.
Physician Supply Business
<TABLE>
<CAPTION>
LOCATIONS STATES SERVED LOCATIONS STATES SERVED
--------- ------------- --------- -------------
<S> <C> <C> <C>
Albany, NY NY, CT, VT Louisville, KY IN, KY
Albuquerque, NM NM, CO, TX Lubbock, TX TX
Atlanta, GA GA, AL Memphis, TN AR, MS, TN
Baltimore, MD MD, PA, VA, WV Milwaukee, WI WI
Beaumont, TX TX Minneapolis, MN IA, MN, MT, ND, SD, WI
Birmingham, AL AL, MS Mobile, AL AL, FL, MS
Boise, ID ID, MT Nashville, TN IL, KY, TN
Charlotte, NC NC, SC, VA, TN New Orleans, LA LA, MS, TX
Chattanooga, TN AL, GA, TN Norfolk, VA NC, VA, WV
Chicago, IL IL, IN, WI Omaha, NE CO, NE, IA, WY
Cincinnati, OH KY, IN, OH, WV Orlando, FL FL
Cleveland, OH OH Philadelphia, PA DE, NJ, NY, PA
Columbia, SC SC, GA Phoenix, AZ AZ
Dallas, TX TX, OK Pittsburgh, PA PA, WV, MD, OH, NY
Davenport, IA IA, IL Portland, OR CA, OR, WA
Deerfield Beach, FL FL Raleigh, NC NC, VA
Denver, CO CO, NM, WY Richmond, VA VA
Detroit, MI MI Roanoke, VA TN, VA
Honolulu, HI HI Rochester, NY NY
Houston, TX TX, OK Salt Lake City, UT CO, NV, UT
Indianapolis, IN IN, IL San Antonio, TX TX
Jackson, MS MS, LA San Diego, CA CA
Jacksonville, FL FL, GA, SC San Francisco, CA CA
Kansas City, KS IL, IA, KS, MO Seattle, WA WA, AK
Knoxville, TN KY, NC, TN St. Louis, MO IL, MO
Lafayette, LA LA St. Petersburg, FL FL
Las Vegas, NV NV Tallahassee, FL AL, FL, GA
Little Rock, AR TX, AR Tulsa, OK AK, OK, MO
Long Island, NY CT, NJ, NY Union, NJ NJ, NY
Los Angeles, CA (North) CA Wareham, MA RI, CT, ME, MA, NH
Los Angeles, CA (South) CA
Imaging Business
<CAPTION>
LOCATIONS STATES SERVED LOCATIONS STATES SERVED
--------- ------------- --------- -------------
<S> <C> <C> <C>
Atlanta, GA GA, SC Mobile, AL AL, FL, MS
Birmingham, AL AL, MS Nashville, TN KY, TN
Charlotte, NC NC, SC Raleigh, NC NC
Columbia, SC SC, GA Richmond, VA VA
Pompano Beach, FL FL Roanoke, VA TN, VA, WV
Jacksonville, FL FL, GA Tallahassee, FL FL, GA, AL
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
LOCATIONS STATES SERVED LOCATIONS STATES SERVED
--------- ------------- --------- -------------
<S> <C> <C> <C>
Gainesville, FL FL Savannah, GA GA, SC
Memphis, TN AR, KY, TN, MS Winston Salem, NC NC, VA
Tampa, FL FL Chicago, IL IL, IN, IA, WI
St. Louis, MO MO, IL, IA, AR Indianapolis, IN IN, OH, KY
Rochester, NY NY, PA Albany, NY NY, CT, PA
Syracuse, NY NY, PA Buffalo, NY NY, PA
Newburgh, NY NY, CT, NJ, PA
International Business
<CAPTION>
LOCATIONS COUNTRIES SERVED
--------- ----------------
<S> <C> <C> <C>
Leuven, Belgium Belgium, France, Germany
Dusseldorf, Germany Germany, Luxembourg
Utrecht, Netherlands Netherlands
</TABLE>
In the aggregate, the Company's service centers consist of approximately
945,000 square feet, of which all is leased, with the exception of the
distribution center in Leuven, Belgium and a building in Beaumont, Texas,
under lease agreements with expiration dates through 2001. The Company's
service centers range in size from 4,800 square feet to 51,000 square feet.
The corporate offices of PSS consist of approximately 50,000 square feet of
leased office space located at 4345 Southpoint Boulevard, Jacksonville,
Florida 32216. The lease for this space expires in April 2002.
At September 30, 1997, the Company's facilities provided adequate space for
the Company's operations. Throughout the Company's history of growth, the
Company has been able to secure the required facilities.
COMPETITION
PSS operates in a highly competitive environment. The Company's principal
competitors are multi-market medical distributors that are full-line, full-
service medical supply companies, some of which are national in scope. These
national companies have sales representatives and service specialists
competing directly with PSS, are substantially larger in size, and have
substantially greater financial resources than PSS. There are also numerous
local dealers and mail order firms that distribute medical supplies and
equipment within the same market as the Company. Most local dealers are
privately owned and operate with limited product lines. There are several mail
order firms which distribute medical supplies on a national or regional basis.
The Company also competes with certain manufacturers that sell their products
both to distributors and directly to users, including office-based physicians.
See "Risk Factors--Competition."
REGULATORY MATTERS
The Company's business is subject to regulation under the Federal Food,
Drug, and Cosmetic Act, the Prescription Drug Marketing Act of 1987, the
Controlled Substances Act and other regulation by the U.S. Food and Drug
Administration and state laws applicable to the distribution and manufacture
of medical devices and over-the-counter pharmaceutical products as well as the
distribution of prescription pharmaceutical products.
The Federal Food, Drug, and Cosmetic Act generally regulates the manufacture
of drug and medical devices shipped in interstate commerce, including such
matters as labeling, packaging, storage and handling of such products. The
Prescription Drug Marketing Act of 1987, which amended the Federal Food, Drug
and Cosmetic Act, establishes certain requirements applicable to the wholesale
distribution of prescription drugs, including the requirements that wholesale
drug distributors be registered with the Secretary of Health and Human
Services or be licensed in each state in which they conduct business in
accordance with federally established guidelines on storage, handling, and
records maintenance. Under the Controlled Substances Act, the Company, as a
distributor
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<PAGE>
of controlled substances, is required to obtain annually a registration from
the Attorney General in accordance with specified rules and regulations and is
subject to inspection by the Drug Enforcement Administration acting on behalf
of the Attorney General. The Company is required to maintain licenses and
permits for the distribution of pharmaceutical products and medical devices
under the laws of the states in which it operates. In addition, the Company's
physician customers are subject to significant federal and state regulation.
There can be no assurance that regulations that impact the physicians'
practices will not have a material adverse impact on the Company's business.
The Company is also subject to regulation in the European countries where
the International Business markets its products. Many of the regulations
applicable in such countries are similar to those of the U.S. Food and Drug
Administration. The national health or social security organizations of
certain countries require the products distributed by the Company to be
qualified before they can be marketed in those countries.
Federal, state and foreign regulations regarding the sale and distribution
of medical supplies, equipment and devices by the Company are subject to
change. The Company cannot predict what impact, if any, such changes might
have on its business. See "Risk Factors--Regulation of and Change in the
Practice of Medicine" and "--Environmental Liabilities and Regulations."
LEGAL PROCEEDINGS
Although the Company does not manufacture products, the distribution of
medical supplies and equipment entails inherent risks of product liability.
The Company has not experienced any significant product liability claims and
maintains product liability insurance coverage. In addition, the Company is
party to various legal and administrative proceedings and claims arising in
the normal course of business. While any litigation contains an element of
uncertainty, the Company believes that the outcome of any proceedings or
claims which are pending or known to be threatened will not have a material
adverse effect on the Company's consolidated business, financial condition or
results of operations. See "Risk Factors--Liability Exposure."
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Patrick C. Kelly.............. 50 Chairman of the Board, Chief Executive Officer and Director
John F. Sasen, Sr............. 55 President and Director
David A. Smith................ 37 Executive Vice President, Chief Financial Officer and Director
James B. Stallings, Jr. ...... 42 Chief Operating Officer
Frederick E. Dell............. 36 Executive Vice President; President of Diagnostic Imaging, Inc.
Delmer W. Dallas.............. 66 Director
T. O'Neal Douglas............. 61 Director
Fred Elefant.................. 50 General Counsel, Secretary and Director
Delores Kesler................ 56 Director
William C. Mason.............. 59 Director
James L.L. Tullis............. 50 Director
</TABLE>
Mr. Kelly, a co-founder of the Company, has served as Chairman of the Board
and Chief Executive Officer of the Company since its inception in May 1983 and
as President of the Company from May 1983 to August 1995. Prior to founding
the Company, from August 1976 to February 1983, Mr. Kelly served as Sales
Manager, General Manager and Vice President of Intermedco, Inc., a Houston-
based medical supply company. Mr. Kelly serves as the Chairman of the
Jacksonville Federal Reserve Board.
Mr. Sasen has served on the Board of Directors of the Company since July
1993, as President of the Company since August 1995 and as Chief Executive
Officer of the Physician Supply Business since April 1997. Mr. Sasen served as
Chief Operating Officer of the Company from December 1993 to March 1997 and
served as Executive Vice President of the Company from December 1993 to August
1995. From August 1990 to December 1992, he served the Company as Vice
President-Sales and Marketing; from January 1993 to July 1993, as Regional
Vice President, and from August 1993 to December 1993 as Executive Vice
President. Prior to joining the Company, Mr. Sasen was Vice President-Sales,
Marketing and Distributor Relations for a division of Becton Dickinson &
Company ("Becton Dickinson"), a manufacturer of health care products. In that
position, Mr. Sasen directed product development and marketing efforts,
technical services, product services and customer service. Mr. Sasen was with
Becton Dickinson for over 20 years. In addition, Mr. Sasen serves as a
director of HumaScan, Inc., a manufacturer of a breast tumor thermal detection
device.
Mr. Smith has served on the Board of Directors of the Company since July
1993 and as Executive Vice President since April 1996 and Chief Financial
Officer of the Company since April 1992. Mr. Smith served as a Vice President
of the Company from April 1992 to April 1996. Prior to serving as Vice
President and Chief Financial Officer, Mr. Smith served the Company as a
Regional Manager, General Manager, Sales Manager and Operations Manager from
July 1987 to June 1993. Prior to joining the Company, Mr. Smith was employed
by Coopers & Lybrand from October 1985 through June 1987, and by Smoak, Davis
and Nixon, C.P.A., from May 1983 through September 1985.
Mr. Stallings has served as Chief Operating Officer since July 1997. Prior
to this position, Mr. Stallings served as Executive Vice President--Southern
Region since March 1997 and Executive Vice President--Sales and Marketing from
April 1996 to March 1997. From 1988 to 1996, Mr. Stallings held several
positions with IBM Corporation, including Director of Worldwide Sales--AS/400
Division, Director of Business Re-engineering and General Manager. From 1984
to 1987, Mr. Stallings served as a manager of Rohm Corporation. In addition to
his responsibilities with the Company, Mr. Stallings serves on the Board of
Directors for Sun Bank of Northeast Florida.
39
<PAGE>
Mr. Dell has served as Executive Vice President of the Company and as
President of Diagnostic Imaging, Inc. since November 1996. Prior to these
positions, Mr. Dell served as Senior Vice President--Southern Region of the
Company from April 1996 to November 1996 and served as Vice President--
Southern Region from January 1994 to March 1996. Mr. Dell also served as
director of the Company from July 1991 through July 1992. He served as
Regional Manager and Vice President of the Company's Western Region from
December 1989 to January 1994. From April 1984 through November 1989, Mr. Dell
served the Company in various sales and management positions.
Mr. Dallas has served on the Board of Directors of the Company since October
1989. Since 1984, Mr. Dallas has been the Chairman of the Board of Acosta
Sales Co., Inc. ("Acosta"), a food brokerage company operating in the
Southeastern United Sates. He has also served on the Board of Directors of
Acosta since 1966.
Mr. Douglas has served on the Board of Directors of the Company since July
1993. Mr. Douglas is the Chairman and Chief Executive Officer of American
Heritage Life Insurance Co. and American Heritage Life Investment Company
(collectively, "AHL"). He has been with AHL since 1983, serving as President
since 1986 and Chief Executive Officer since 1990. In addition, Mr. Douglas
serves as a director of Barnett Bank of Jacksonville, N.A.
Mr. Elefant has served on the Board of Directors of the Company and as
Secretary of the Company since 1984. Mr. Elefant has been engaged in the
private practice of law in Jacksonville, Florida since 1973. Since January
1989, he has practiced as Fred Elefant, P.A. He was a member of the law firm
of Mahoney, Adams, Milam, Surface & Grimsley, P.A., now Mahoney Adams &
Criser, P.A., from 1983 to 1989.
Ms. Kesler has served on the Board of Directors of the Company since July
1993. Ms. Kesler has been Chairman and CEO of Kesler, Pass & Associates, Inc.
since 1996. Prior to that, Ms. Kesler was Chairman of AccuStaff Incorporated
("AccuStaff"), the successor to ATS Services, Inc. ("ATS"), a franchisor of
temporary employment operations from January until June 1996. She founded ATS
in May 1978 and served as its Chairman and Chief Executive Officer until its
merger with three other temporary employment agencies in May 1992. Ms. Kesler
is a past member of an executive committee with the National Association of
Temporary Services and serves on the Board of Directors of AccuStaff and Clay
County Bank in Orange Park, Florida.
Mr. Mason has served on the Board of Directors of the Company since April
1996. Mr. Mason is Vice Chairman and Chief Executive Officer of Baptist/St.
Vincent's Health System, Inc. located in Jacksonville, Florida and has served
in various positions throughout that organization since 1984.
Mr. Tullis has served on the Board of Directors of the Company since
November 1989. Mr. Tullis was nominated to serve on the Board of Directors of
the Company for a three-year term beginning in 1994 pursuant to an agreement
with the Company. Since September 1987, Mr. Tullis has been a general partner
of Tullis-Dickerson Partners, the general partner of Tullis-Dickerson Capital
Focus, L.P., a venture capital fund that invests in the health care industry
and a shareholder of the Company. Mr. Tullis has served as Chairman of the
Board of Directors and Chief Executive Officer of Tullis-Dickerson & Co.,
Inc., a venture capital company which acts as a management company for Tullis-
Dickerson Capital Focus, L.P., since July 1986. Mr. Tullis also serves on the
Board of Directors of American Consolidated Laboratories, Inc., a manufacturer
of contact lenses, Scandipharm, Inc., a developer and manufacturer of
pharmaceutical products and services, and Acme United, Inc., a manufacturer of
scissors and other medical products.
Executive officers of the Company are elected annually and serve at the
discretion of the Board. There are no family relationships between or among
any of the Company's directors or executive officers.
40
<PAGE>
CERTAIN TRANSACTIONS
Fred Elefant, a member of the Board of Directors and Secretary of the
Company, provides legal services as general counsel to the Company. Fees for
such legal services were approximately $124,000, $136,000 and $132,000 in
fiscal years 1995, 1996 and 1997, respectively.
T. O'Neal Douglas, a member of the Board of Directors, is chairman and chief
executive officer of the insurance company that administered the Company's
self-insurance program through December 31, 1995. Administrative fees paid to
the insurance company were approximately $339,000 for fiscal year 1995 and
$484,000 during the first nine months of fiscal year 1996. The Company changed
its self-insurance administrator as of January 1, 1996 to an unrelated party.
In May 1997, the Company loaned Patrick C. Kelly, Chairman of the Board and
Chief Executive Officer of the Company, approximately $216,000, all of which
is currently outstanding, and in September 1997, the Company loaned Mr. Kelly
an additional approximately $3.2 million to refinance debt that Mr. Kelly
incurred in connection with his previous purchases of Common Stock. The loans
bear interest at the applicable federal rate and 6.55%, respectively, and are
expected to be repaid over a 10-year period.
Prior to the date of issuance of the Private Notes, the Company made loans
to certain employees in the aggregate of $0.6 million.
41
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table reflects the number of shares of common stock, par value
$0.01 per share (the "Common Stock"), beneficially owned as of September 30,
1997, by (i) each person who is known by the Company to beneficially own more
than five percent of the outstanding Common Stock, (ii) each of the Chief
Executive Officer and four other most highly compensated officers of the
Company, (iii) each director, and (iv) all of the Company's executive officers
and directors as a group. Unless otherwise noted, all shares are owned
directly with sole voting and dispositive powers.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME SHARES TOTAL(1)
---- --------- ----------
<S> <C> <C>
Putnam Investments, Inc.(2)......................................... 4,166,268 10.4%
Edgemont Asset Management Corp.(2).................................. 3,765,000 9.4
Physician Sales & Service, Inc. Employee Stock Ownership Plan &
Trust(2)........................................................... 2,104,000 5.2
Patrick C. Kelly(3)(4).............................................. 1,128,323 2.8
John F. Sasen, Sr.(3)............................................... 229,844 *
Frederick E. Dell(3)................................................ 239,449 *
David A. Smith(3)................................................... 209,494 *
James B. Stallings, Jr.(3).......................................... 47,566 *
Delmer W. Dallas.................................................... 131,144 *
T. O'Neal Douglas................................................... 18,000 *
Fred Elefant(3)(5).................................................. 530,255 1.8
Delores P. Kesler................................................... 1,500 *
James L.L. Tullis(6)................................................ 217,860 *
William C. Mason.................................................... -- --
All Executive Officers and Directors as a group (11 persons)(3)..... 3,236,181 8.1%
</TABLE>
- --------
* Less than 1%
(1) Based upon 40,097,445 shares of Common Stock outstanding as of September
30, 1997.
(2) The addresses for holders of five percent or more of the Common Stock
outstanding are as follows: Putnam Investments, Inc., One Post Office
Square, Boston, MA 02109; Edgemont Asset Management Corp., 140 East 45th
Street, New York, New York 10017; and Physician Sales & Service, Inc.
Employee Stock Ownership Plan & Trust, 4345 Southpoint Boulevard,
Jacksonville, Florida 32216.
(3) Included in such beneficial ownership are shares of Common Stock issuable
upon the exercise of certain options exercisable immediately or within 60
days of September 30, 1997 as follows: Mr. Kelly, 506,806 shares; Mr.
Sasen, 110,106 shares; Mr. Dell, 66,160 shares; Mr. Smith, 73,266 shares;
Mr. Stallings, 44,566 shares; Mr. Elefant, 17,539 shares; Mr. Tullis,
14,296 shares; and executive officers and directors as a group, 1,059,637
shares. Also included in such beneficial ownership are shares held for the
account of certain individuals by the ESOP as follows: Mr. Kelly, 77,487
shares; Mr. Sasen, 18,872 shares; Mr. Smith, 25,959 shares; Mr. Dell,
96,420 shares; and all executive officers and directors as a group,
386,830 shares.
(4) Excludes 400,000 shares held in trust for Mr. Kelly's daughters.
(5) Includes 400,000 shares held in trust for Mr. Kelly's daughters for which
Mr. Elefant serves as co-trustee.
(6) Includes 127,881 shares owned by Tullis Dickerson Capital Focus, L.P. and
11,200 shares owned by Tullis Dickerson Partners. Mr. Tullis is the
general partner of Tullis-Dickerson Partners, the sole general partner of
Tullis-Dickerson Capital Focus, L.P.
42
<PAGE>
DESCRIPTION OF CREDIT FACILITY
The Company is party to an Amended and Restated Loan and Security Agreement,
dated December 21, 1994, as amended, among the Company, certain of its
subsidiaries, NationsBank N.A. (formerly known as NationsBank of Georgia,
N.A.), as agent, and the lenders party thereto (the "Credit Facility"). The
Credit Facility consists of a $60.0 million revolving credit facility,
including a subfacility for letters of credit, which may be increased to $75.0
million at the option of the Company.
Loans under the Credit Facility will be evidenced by notes and mature on or
before April 30, 1998, at which time the Credit Facility may be extended
annually at the agent's sole discretion upon request by the Company. The
Credit Facility provides for loans in the amount of 85% of the outstanding
amount of eligible accounts receivable plus the lesser of $30.0 million or 50%
of eligible inventory (as such terms are defined in the Credit Facility).
Interest accrues at a variable rate indexed, at the Company's option, at the
agent's prime rate or the London Interbank Offered Rate ("LIBOR"), plus an
applicable margin which varies based upon certain leverage ratios
requirements. Interest rates may vary from prime to prime plus 75 basis points
or from LIBOR plus 150 basis points to LIBOR plus 250 basis points, based upon
the Company's applicable leverage ratio.
The Company's obligations under the Credit Facility are secured by a lien on
substantially all of the assets of the Company and certain of its
subsidiaries, including accounts receivable, inventory, equipment, intangible
and other property. Amounts outstanding under the Credit Facility are joint
and several direct obligations of the Company and certain of its subsidiaries.
The Credit Facility contains operating and financial covenants, including,
without limitation, requirements to maintain leverage and debt service
coverage ratios and minimum tangible net worth. In addition, the Credit
Facility includes customary covenants relating to the delivery of financial
statements, reports, notices and other information, access to information and
properties, maintenance of insurance, payment of taxes, maintenance of assets,
nature of business, corporate existence and rights, compliance with applicable
laws, including environmental laws, transactions with affiliates, use of
proceeds, limitations on indebtedness, limitations on liens, limitations on
certain mergers and sales of assets, limitations on investments, limitations
on stock repurchases, and limitations on debt payments and other
distributions, including prepayment or redemption of the Notes. The Company
obtained a waiver of such covenants to the extent necessary to permit the
offering of the Notes.
The Credit Facility provides for an annual fee to the agent, an unused
commitment fee, letter of credit fees and an activation fee if the Company
elects to increase the line of credit to $75.0 million.
The Credit Facility contains certain events of default after expiration of
applicable grace periods, including failure to make payments under the Credit
Facility, breach of representations and warranties, breach of covenants,
certain cross-defaults, certain events of insolvency or bankruptcy with
respect to the Company or its subsidiaries, certain judgments against the
Company and certain events relating to changes in senior management of the
Company.
43
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued as a separate series under the Indenture
(the "Indenture"), dated as of October 7, 1997, by and among the Company, the
Subsidiary Guarantors and SunTrust Bank, Central Florida, National
Association, as Trustee (the "Trustee"). The form and terms of the Exchange
Notes are the same as the form and terms of the Private Notes (which they
replace) except that (i) the Exchange Notes bear a different CUSIP Number from
the Private Notes, (ii) the Exchange Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, and (iii) the holders of Exchange Notes will not be entitled to
certain rights under the Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the Private Notes
in certain circumstances relating to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer is consummated. The following
summary of certain provisions of the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of
the Indenture, including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the TIA as in effect on the
date of the Indenture. A copy of the Indenture and Registration Rights
Agreement may be obtained from the Company or the Trustee. The definitions of
certain capitalized terms used in the following summary are set forth below
under "--Certain Definitions." For purposes of this section, references to the
"Company" include only Physician Sales & Service, Inc., and not its
Subsidiaries.
The Private Notes are, and the Exchange Notes will be, general unsecured
obligations of the Company and will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Company, including the
Company's obligations under the Credit Facility. The Guarantees will be
general unsecured obligations of the Subsidiary Guarantors and will be
subordinated in right of payment to all existing and future Guarantor Senior
Indebtedness of the Subsidiary Guarantors. As of September 30, 1997, the
Company had approximately $1.8 million of Senior Indebtedness (including
guarantees of $1.1 million of Indebtedness of Foreign Subsidiaries), and the
Subsidiary Guarantors had approximately $0.4 million of Guarantor Senior
Indebtedness. In addition, the Company had commitments of $60.0 million
available under the Credit Facility which is secured by substantially all of
the assets of the Company and certain of its subsidiaries. See "Risk Factors--
Subordination of Notes; Asset Encumbrance" and "--Reliance on Payments of
Subsidiary Guarantors; Suretyship Defenses." The Exchange Notes will also be,
and the Private Notes are, structurally subordinated to all indebtedness and
other obligations of each of the Company's Subsidiaries other than the
Subsidiary Guarantors (to the extent of the assets of such Subsidiary). As of
September 30, 1997, the aggregate Indebtedness of the Company's Subsidiaries,
other than the Subsidiary Guarantors, was $1.1 million. The Indenture permits
the incurrence of additional Indebtedness in the future.
The operations of the Company are conducted both by the Company itself and
through its Subsidiaries, and the Company may, therefore, be dependent upon
the cash flow of its Subsidiaries to meet its debt obligations, including its
obligations under the Notes. While all of the existing domestic subsidiaries
of the Company are, and all future material domestic subsidiaries are expected
to be, Subsidiary Guarantors, the Foreign Subsidiaries of the Company are not
Subsidiary Guarantors and may be restricted in their ability to pay dividends
to the Company pursuant to instruments governing indebtedness of such
Subsidiaries. See "Risk Factors--Reliance on Payments of Subsidiary
Guarantors; Suretyship Defenses."
Initially, WorldMed, Inc., WorldMed International, Inc. and WorldMed, N.V.,
the Company's Foreign Subsidiaries, which as of September 30, 1997 represented
less than 1% of the Company's Consolidated Net Worth, will be Unrestricted
Subsidiaries. Under certain circumstances, the Company will be able to
designate any Subsidiary formed by the Company or acquired by the Company
after the original issuance of the Notes as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be Subsidiary Guarantors and will not be
subject to most of the restrictive covenants set forth in the Indenture.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Private Notes and
the Exchange Notes. The Exchange Notes may be presented for registration or
transfer and exchange
44
<PAGE>
at the offices of the Registrar, which initially will be the Trustee's
corporate trust office. The Company may change any Paying Agent and Registrar
without notice to holders of the Notes (the "Holders"). The Company will pay
principal (and premium, if any) on the Notes at the Trustee's corporate office
in New York, New York. Except as set forth below under "Book Entry; Delivery
and Form--Same-Day Settlement and Payment" at the Company's option, interest
may be paid at the Trustee's corporate trust office or by check mailed to the
registered address of Holders; provided that all payments of principal,
interest, and premium, if any, with respect to Exchange Notes, the Holders of
which have given wire transfer instructions to the Company will be required to
be made by wire transfer of immediately available next day funds to the
accounts specified by the Holders thereof. Any Private Notes remain
outstanding after the completion of the Exchange Offer, together with the
Exchange Notes issued in connection with the Exchange Offer, will be treated
as a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $250,000,000, of
which Private Notes in the aggregate principal amount of $125,000,000 were
issued in the Initial Offering and will mature on October 1, 2007. Additional
amounts may be issued in one or more series from time to time subject to the
limitations set forth under "--Certain Covenants--Limitation on Incurrence of
Additional Indebtedness" and the restrictions contained in the Credit
Facility. Interest on the Notes will accrue at the rate of 8 1/2% per annum
and will be payable semiannually in cash on each April 1 and October 1,
commencing on April 1, 1998, to the Persons who are registered Holders at the
close of business on the March 15 and September 15 immediately preceding the
applicable interest payment date. Interest on the Exchange Notes will accrue
from the Issue Date. Holders whose Private Notes are accepted for exchange
will be deemed to have waived the right to receive any interest accrued on the
Private Notes. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
MANDATORY REDEMPTION
Except as set forth below under "--Change of Control" and "--Certain
Covenants--Limitation on Asset Sales," the Company is not required to make
mandatory redemption or sinking fund payments with respect to the Notes.
OPTIONAL REDEMPTION
Optional Redemption. The Exchange Notes will be, and the Private Notes are,
redeemable, at the Company's option, in whole at any time or in part from time
to time, on and after October 1, 2002, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on October 1 of the year set forth below,
plus, in each case, accrued and unpaid interest thereon, if any, to the date
of redemption (subject to the rights of holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002............................... 104.250%
2003.............................. 103.188%
2004.............................. 102.125%
2005.............................. 101.063%
2006 and thereafter............... 100.000%
</TABLE>
Optional Redemption upon Public Equity Offerings. At any time, or from time
to time, on or prior to October 1, 2000, the Company may, at its option, use
the net cash proceeds of one or more Public Equity Offerings to redeem up to
an aggregate of 40% of the principal amount of the Notes originally issued at
a redemption price equal to 108.500% of the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of redemption
(subject to the rights of holders of record on the relevant record date to
receive
45
<PAGE>
interest due on the relevant interest payment date); provided that at least
60% of the aggregate principal amount of the Notes originally issued in the
Initial Offering remain outstanding immediately after the occurrence of any
such redemption. In order to effect the foregoing redemption with the proceeds
of any Public Equity Offering, the Company shall make such redemption not more
than 60 days after the consummation of any such Public Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed or, if such Notes are not
then listed on a national securities exchange, on a pro rata basis, by lot or
by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Notes of a principal amount of $1,000 or less shall be
redeemed in part; provided, further, that if a partial redemption is made with
the proceeds of a Public Equity Offering, selection of the Notes or portions
thereof for redemption shall be made by the Trustee only on a pro rata basis
or on as nearly a pro rata basis as is practicable (subject to DTC
procedures), unless such method is otherwise prohibited. 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 a 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 so long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Private Notes is, and on the Exchange
Notes will be, subordinated in right of payment to the prior Payment in Full
of all Obligations with respect to any Senior Indebtedness, whether
outstanding on the Issue Date or thereafter incurred. Upon any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to creditors in an Insolvency or Liquidation
Proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due upon all Senior Indebtedness shall first be
paid in full in cash or Cash Equivalents, or such payment duly provided for to
the satisfaction of the holders of Senior Indebtedness, by the Company or any
of its Subsidiaries, before any payment or distribution of any kind or
character is made on account of any Obligations on the Notes, or for the
acquisition, by the Company or any of its Subsidiaries, of any of the Notes
for cash or property, except for Permitted Insolvency Payments. Upon any such
Insolvency or Liquidation Proceeding, any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or securities
(other than Permitted Insolvency Payments), to which the Holders of the Notes
or the Trustee would be entitled will be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the Holders of the Notes or by the
Trustee if received by them, directly to the holders of Senior Indebtedness
(pro rata to such holders on the basis of the amounts of Senior Indebtedness
held by such holders) or their Representatives, as their interests may appear,
for application to the payment of the Senior Indebtedness remaining unpaid
until all such Senior Indebtedness has been paid in full, after giving effect
to any concurrent payment, distribution or provision therefor to or for the
holders of Senior Indebtedness.
If either: (i) any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by declaration or otherwise, of any
principal of, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Senior
Indebtedness, or (ii) any default occurs and is continuing with respect to any
Designated Senior Indebtedness resulting in the acceleration of the maturity
of all or any portion of any Designated Senior Indebtedness, no payment of any
kind or character (other than Permitted Insolvency Payments) shall be made by
the Company or any of its Subsidiaries with respect to any Obligations on the
Notes or to acquire any of the Notes for cash or property. In addition, if any
other event of default occurs and is continuing with respect to any Designated
Senior Indebtedness, as such event of default is
46
<PAGE>
defined in the instrument creating or evidencing such Designated Senior
Indebtedness, permitting the holders of such Designated Senior Indebtedness
then outstanding to accelerate the maturity thereof and if the Representative
for the respective issue of Designated Senior Indebtedness gives written
notice of the event of default to the Trustee (a "Default Notice"), then,
unless and until all events of default have been cured or waived or have
ceased to exist or the Trustee receives notice from the Representative for the
respective issue of Designated Senior Indebtedness terminating the Blockage
Period (as defined below), during the 179 days after the delivery of such
Default Notice (the "Blockage Period"), neither the Company nor any of its
Subsidiaries shall: (x) make any payment of any kind or character (other than
Permitted Insolvency Payments) with respect to any Obligations on the Notes or
(y) acquire any of the Notes for cash or property (other than in exchange for
Permitted Insolvency Payments). Notwithstanding anything herein to the
contrary, in no event will a Blockage Period extend beyond 179 days from the
date of the commencement of the Blockage Period and only one such Blockage
Period may be commenced within any 365 consecutive days. No event of default
which existed or was continuing on the date of the commencement of any
Blockage Period with respect to the Designated Senior Indebtedness shall be,
or be made, the basis for commencement of a second Blockage Period by the
Representative of such Designated Senior Indebtedness whether or not within a
period of 365 consecutive days, unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such
Blockage Period that, in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed
or was continuing shall constitute a new event of default for this purpose).
By reason of such subordination, in the event of an Insolvency or
Liquidation Proceeding relating to the Company, creditors of the Company who
are not holders of Senior Indebtedness, including the Holders of the Notes,
may recover less, ratably, than holders of Senior Indebtedness.
The Indenture contains other customary subordination provisions regarding
turnover of payments, subrogation and the like.
GUARANTEES
Each Subsidiary Guarantor has fully and unconditionally guaranteed and will
fully and unconditionally guarantee, jointly and severally, to each Holder and
the Trustee, subject to subordination provisions substantially the same as
those described above, the full and prompt payment of principal of and
interest on the Private Notes and Exchange Notes, respectively, and of all
other Obligations under the Indenture.
The obligations of each Subsidiary Guarantor under its Guarantee are and
shall be limited to the maximum amount as will, after giving effect to all
other contingent and fixed liabilities of such Subsidiary Guarantor
(including, without limitation, any Obligations under the Credit Facility) and
after giving effect to any collections from or payments made by or on behalf
of any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under its Guarantee or pursuant to its contribution
obligations under the Indenture, result in the obligations of such Subsidiary
Guarantor under such Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. Each Subsidiary Guarantor that
makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor in a pro rata amount based
on the Adjusted Net Assets of each Subsidiary Guarantor.
The Indebtedness evidenced by each Guarantee (including the payment of
principal of, premium, if any, and interest on the Notes) is and will be
subordinated to Guarantor Senior Indebtedness (defined with respect to the
Indebtedness of a Subsidiary Guarantor in the same manner as Senior
Indebtedness is defined with respect to the Company) on the same terms as the
Private Notes are, and the Exchange Notes will be, subordinated to Senior
Indebtedness. As of June 30, 1997, the Subsidiary Guarantors had approximately
$0.4 million of Guarantor Senior Indebtedness. See "--Subordination" above.
47
<PAGE>
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless, subject to the provisions of the following
paragraph: (i) the Person formed by or surviving any such consolidation or
merger (if other than such Subsidiary Guarantor) assumes all the Obligations
of such Subsidiary Guarantor under the Notes, the Indenture, and the
Registration Rights Agreement 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) such Subsidiary Guarantor, or any Person formed by or surviving any such
consolidation or merger, would have Consolidated Net Worth (immediately after
giving effect to such transaction), equal to or greater than the Consolidated
Net Worth of such Subsidiary Guarantor immediately preceding the transaction;
and (iv) the Company would be permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation
on Incurrence of Additional Indebtedness"covenant. The requirements of clauses
(iii) and (iv) of this paragraph will not apply in the case of a consolidation
with or merger with or into the Company or another Subsidiary Guarantor.
The Indenture provides that: (a) in the event of a sale or other disposition
of all or substantially all of the assets of any Subsidiary Guarantor, by way
of merger, consolidation or otherwise, or a sale or other disposition of all
of the Capital Stock of any Subsidiary Guarantor, or (b) in the event that the
Company designates a Subsidiary Guarantor to be an Unrestricted Subsidiary, or
such Subsidiary Guarantor ceases to be a Subsidiary of the Company, then such
Subsidiary Guarantor (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
Subsidiary Guarantor or any such designation) or the entity acquiring the
property (in the event of a sale or other disposition of all or substantially
all of the assets of such Subsidiary Guarantor) will be released and relieved
of any obligations under its Guarantee; provided that the Net Cash Proceeds of
such sale or other disposition are applied in accordance with the applicable
provisions of the Indenture. See "--Change of Control" and "--Certain
Covenants--Limitation on Asset Sales." In the case of a sale, assignment,
lease, transfer, conveyance or other disposition of all or substantially all
of the assets of a Subsidiary Guarantor, upon the assumption provided for in
clause (i) of the covenant described in the prior paragraph, such Subsidiary
Guarantor shall be discharged from all further liability and obligation under
the Indenture.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control, each
Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued interest to the date of purchase.
The Credit Facility will restrict the Company from repurchasing any Notes
and also provides that certain asset sales and change of control events with
respect to the Company would constitute a default thereunder. Any future
credit agreements or other agreements relating to Senior Indebtedness to which
the Company becomes a party may contain similar restrictions and provisions.
The Indenture provides that prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to: (i) repay in full all Indebtedness and terminate all
commitments under the Credit Facility and all other Senior Indebtedness the
terms of which require repayment upon a Change of Control or offer to repay in
full and terminate all commitments under all Indebtedness under the Credit
Facility and all other such Senior Indebtedness and to repay the Indebtedness
owed to each lender which has accepted such offer or (ii) obtain the requisite
consents under the Credit Facility and all other Senior Indebtedness to permit
the repurchase of the Notes as provided below. If the Company does not obtain
such 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 Facility and would likely cause an
event of default under any other outstanding Senior Indebtedness. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of Notes. See "Risk Factors--Subordination of
Notes; Asset Encumbrance" and "Description of Credit Facility."
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Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a
copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date
such notice is mailed, other than as may be required by law (the "Change of
Control Payment Date"). Holders electing to have a Note purchased pursuant to
a Change of Control Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third business day prior to the Change of Control
Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not
have available funds to meet its purchase obligations. However, there can be
no assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company
and its Subsidiaries to incur additional Indebtedness, to grant liens on its
property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes,
and there can be no assurance that the Company or the acquiring party will
have sufficient financial resources to effect such redemption or repurchase.
Such restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout
of the Company or any of its Subsidiaries by the management of the Company.
While such restrictions cover a wide variety of arrangements which have
traditionally been used to effect highly leveraged transactions, the Indenture
may not afford the Holders of Notes protection in all circumstances from the
adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction, and the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Issuers repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction that does not constitute a Change of
Control.
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 each of the Company and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
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, 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 may be
uncertain.
The Company will 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 Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
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 or 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.
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CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume, guarantee, acquire, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for payment of
(collectively, "incur") any Indebtedness (other than Permitted Indebtedness);
provided, however, that if no Default or Event of Default shall have occurred
and be continuing at the time of or as a consequence of the incurrence of any
such Indebtedness, the Company and its Subsidiaries may incur Indebtedness
(including, without limitation, Acquired Indebtedness) if on the date of the
incurrence of such Indebtedness, after giving effect to the incurrence
thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is
greater than 2.0 to 1.0. For purposes of determining compliance with this
covenant, in the event that an item of Indebtedness meets the criteria of more
than one of the categories of Permitted Indebtedness described in the
definition thereof or is entitled to be incurred pursuant to the preceding
sentence, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such category or pursuant to the preceding sentence.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly: (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock or any Restricted
Subsidiary's Capital Stock; (b) purchase, redeem or otherwise acquire or
retire for value any Capital Stock of the Company or any Subsidiary of the
Company or any warrants, rights or options to purchase or acquire shares of
any class of such Capital Stock; (c) make any Investment (other than Permitted
Investments); or (d) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Pari Passu Debt
or Indebtedness subordinated in right of payment to the Notes or the
Guarantees, except a payment of interest or principal at Stated Maturity (each
of the foregoing actions set forth in clauses (a), (b), (c) and (d) being
referred to as a "Restricted Payment"; provided, however, that any payment
made by a Restricted Subsidiary prior to its acquisition by, or merger into,
the Company or a Subsidiary of the Company shall not constitute a Restricted
Payment for purposes of this covenant), unless at the time of such Restricted
Payment and immediately after giving effect thereto, (i) no Default or Event
of Default shall have occurred and be continuing; and (ii) the Company is able
to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant; and (iii) the aggregate amount of Restricted Payments
(including such proposed Restricted Payment) made subsequent to the Issue Date
(the amount expended for such purposes, if other than in cash, being the fair
market value of such property as determined reasonably and in good faith by
the Board of Directors of the Company) is less than the sum of: (w) 50% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company earned subsequent to
the Issue Date and on or prior to the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting period); plus
(x) 100% of the aggregate net cash proceeds received by the Company from any
Person (other than a Subsidiary of the Company) from the issuance and sale
subsequent to the Issue Date and on or prior to the Reference Date of
Qualified Capital Stock of the Company; plus (y) 100% of the net cash proceeds
from the sale of Investments by the Company (other than Permitted Investments)
provided that such Investment was made after the Issue Date; plus (z) without
duplication of any amounts included in clause (iii)(x) above, 100% of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Capital Stock (excluding, in the case of
clauses (iii)(x) and (z), any net cash proceeds from a Public Equity Offering
to the extent used to redeem the Notes).
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph shall not prohibit: (1) the payment of any dividend within
60 days after the date of declaration of such dividend if the dividend would
have been permitted on the date of declaration; or (2) if no Default or Event
of Default shall have occurred and be continuing, the acquisition of any
shares of Qualified Capital Stock of the Company or payment, redemption,
acquisition or defeasance of Pari Passu Debt or Indebtedness subordinated in
right of
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payment to the Notes or the Guarantees, either (i) solely in exchange for
shares of Qualified Capital Stock of the Company or (ii) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company) of shares of Qualified Capital Stock of
the Company (excluding, in the case of clause (2)(ii), any net cash proceeds
from a Public Equity Offering to the extent used to redeem the Notes); (3) the
defeasance, redemption, repurchase or other acquisition of Pari Passu Debt or
subordinated Indebtedness with the net cash proceeds from an incurrence of
Refinancing Indebtedness; (4) the payment of any dividend or distribution by a
Restricted Subsidiary of the Company to the Company or a Wholly Owned
Restricted Subsidiary of the Company; (5) the repurchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company held
by any member of the Company's (or any of its Subsidiaries') management
pursuant to any management equity subscription agreement, stock option
agreement or employment agreement either (a) in the case of a stock option
agreement, in effect as of the date of the Indenture, or (b) upon the
termination of such person's employment; provided that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Capital Stock
pursuant to this clause (b) shall not exceed $1,000,000 in any twelve-month
period and no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (6) if no Default or Event of
Default shall have occurred and be continuing, repurchases of Capital Stock
deemed to occur upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price thereof; (7) Investments in,
including Contributions to, a Restricted Subsidiary if such Restricted
Subsidiary is not a Foreign Subsidiary and (a) executes and delivers to the
Trustee a supplemental indenture in form reasonably satisfactory to the
Trustee pursuant to which such Restricted Subsidiary shall guarantee all of
the Obligations of the Company with respect to the Indenture and the Notes and
(b) delivers to the Trustee an Opinion of Counsel reasonably satisfactory to
the Trustee to the effect that such supplemental indenture has been duly
executed and delivered by such Restricted Subsidiary and is in compliance with
the terms of the Indenture; and (8) Investments made after the Issue Date in
Foreign Subsidiaries in an aggregate amount not exceeding $20,000,000 at any
one time outstanding. In determining the aggregate amount of Restricted
Payments made subsequent to the Issue Date in accordance with clause (iii) of
the immediately preceding paragraph, amounts expended pursuant to clauses (1)
and (5) shall be included and amounts expended pursuant to clauses (2), (3),
(4), (6), (7) and (8) shall not be included in such calculation.
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 complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations
may be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless: (i) the
Company or the applicable 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 sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors); (ii) at least 75% of the consideration
received by the Company or such Restricted Subsidiary, as the case may be,
from such Asset Sale shall be in the form of cash or Cash Equivalents and is
received at the time of such disposition; 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
(I) contingent liabilities (except to the extent reflected (or reserved for)
on a balance sheet of the Company or any Restricted Subsidiary as of the date
prior to the date of consummation of such transaction) and (II) liabilities
that are by their terms subordinated to the Notes or the Guarantees) 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 within 90 days by the Company or such
Restricted Subsidiary into cash or Cash Equivalents (to the extent so
received), shall be deemed to be cash or Cash Equivalents for purposes of this
provision, provided further, that the 75% limitation referred to above shall
not apply to any Asset Sale in which the cash portion of the consideration
received therefor is equal to or greater than the after-tax net cash proceeds
that would have been received by the Company had a transaction involving the
same assets complied with the aforementioned 75% limitation but was not
structured with the same tax benefits as the actual transaction; and (iii)
upon the consummation of an Asset Sale, the Company shall apply, or cause such
Restricted Subsidiary to apply, the Net
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Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof
either (A) to prepay or irrevocably cash collateralize any Senior Indebtedness
and, in the case of any Senior Indebtedness under any Revolving Credit
Facility, effect a permanent reduction in the availability under such
Revolving Credit Facility, (B) to make an investment in, or Business
Acquisition of, properties and assets (other than cash, Cash Equivalents or
inventory) that (x) replace the properties and assets that were the subject of
such Asset Sale or (y) will be used in a Permitted Business ("Replacement
Assets"); provided, however, that in the event the Company or such Restricted
Subsidiary made an investment in, or Business Acquisition of, Replacement
Assets within 180 days prior to such sale, such prior investment shall also
satisfy the requirements of this clause (B), or (C) a combination of
prepayment and investment permitted by the foregoing clauses (iii)(A) and
(iii)(B). On the 366th day after an Asset Sale or such earlier date, if any,
as the Board of Directors of the Company or of such Subsidiary determines not
to apply the Net Cash Proceeds relating to such Asset Sale as set forth in
clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each,
a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash
Proceeds which have not been applied on or before such Net Proceeds Offer
Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the
next preceding sentence (each a "Net Proceeds Offer Amount") shall be applied
by the Company or such Subsidiary to make an offer to purchase (the "Net
Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less
than 30 nor more than 45 days following the applicable Net Proceeds Offer
Trigger Date, from all Holders on a pro rata basis, that amount of Notes equal
to the Net Proceeds Offer Amount at a price equal to 100% of the principal
amount of the Notes to be purchased, plus accrued and unpaid interest thereon,
if any, to the date of purchase; provided, however, that if at any time any
non-cash consideration received by the Company or any Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash or Cash Equivalents (other than
interest received with respect to any such non-cash consideration), then such
conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance
with this covenant. The Company may defer the Net Proceeds Offer until there
is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of
$5,000,000 resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of
$5,000,000, shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under "--Merger, Consolidation and Sale of
Assets," the successor corporation shall be deemed to have sold the properties
and assets of the Company and its Subsidiaries not so transferred for purposes
of this covenant, and shall comply with the provisions of this covenant with
respect to such deemed sale as if it were an Asset Sale. In addition, the fair
market value of such properties and assets of the Company or its Subsidiaries
deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this
covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent: (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets (including
inventory) and the remainder constitutes cash or Cash Equivalents and (ii)
such Asset Sale is for fair market value; provided that any consideration not
constituting Replacement Assets (including inventory) received by the Company
or any of its Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds subject to
the provisions of the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly
tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law. To the extent that the
aggregate amount of Notes tendered pursuant to a Net Proceeds Offer is less
than the Net Proceeds Offer Amount, the Company may use any remaining Net
Proceeds Offer Amount for general corporate purposes.
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The Company will 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 Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Limitation
on Asset Sale" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Limitation on Asset Sale" provisions of
the Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or
make any other distributions on or in respect of its Capital Stock; (b) make
loans or advances or to pay or guarantee any Indebtedness or other obligation
owed to the Company or any other Restricted Subsidiary of the Company; or (c)
transfer any of its property or assets to the Company or any other Restricted
Subsidiary of the Company, except for such encumbrances or restrictions
existing under or by reason of: (1) applicable law; (2) the Indenture or the
Credit Facility as in effect on the Issue Date; (3) customary non-ssignment
provisions of any contract or any lease governing a leasehold interest of any
Subsidiary of the Company; (4) any instrument governing Acquired Indebtedness,
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person or the properties or
assets of the Person so acquired or any Subsidiary thereof; (5) agreements
existing on the Issue Date to the extent and in the manner such agreements are
in effect on the Issue Date; (6) purchase money obligations for property
acquired that impose restrictions of the nature described in clause (4) above
on the property so acquired; (7) any instrument or agreement governing
Indebtedness permitted to be incurred under the Indenture, which is secured,
or permitted to be secured, by a Lien permitted to be incurred under the
Indenture, which encumbrance or restriction is not applicable to any property
or assets other than the property or assets subject to, or permitted to be
subject to, such Lien; (8) an agreement governing Indebtedness incurred to
Refinance the Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (2), (4), (5), (6) or (7) above; provided,
however, that the provisions relating to such encumbrance or restriction
contained in any such Refinancing are no less favorable to the Company in any
material respect as determined by the Board of Directors of the Company in
their reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such clause
(2), (4), (5), (6) or (7); or (9) restrictions contained in any purchase or
sale agreement relating to the purchase or sale of a Subsidiary; provided,
that such restriction does not extend to any assets other than those being
acquired or sold.
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Company (i) will not, and will not permit any of its
Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose
of any Capital Stock of any Restricted Subsidiary of the Company to any Person
(other than the Company or a Restricted Subsidiary of the Company), unless (a)
such transfer, conveyance, sale, lease or other disposition is of all the
Capital Stock of such Restricted Subsidiary or of Local Qualifying Securities
and (b) the Net Cash Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described above
under the caption "--Limitation on Asset Sales," and (ii) will not permit any
Restricted Subsidiary of the Company to issue any of its Capital Stock (other
than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares or Local Qualifying Securities) to any Person other than to
the Company or a Restricted Subsidiary of the Company; provided, however, the
foregoing restrictions will not apply to transfers, conveyances, sales, leases
or other dispositions (collectively "dispositions") of any Capital Stock of
any Restricted Subsidiary that have a fair market value at the time of such
disposition of less than $250,000.
Limitation on Liens. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries
whether owned on the Issue Date or acquired after the Issue Date, or any
proceeds therefrom, or assign or otherwise convey any right to receive income
or profits therefrom unless: (i) in the case of Liens securing Indebtedness
that is expressly subordinate or
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junior in right of payment to the Notes, the Notes are secured by a Lien on
such property, assets or proceeds that is senior in priority to such Liens and
(ii) in all other cases, the Notes are equally and ratably secured, except for
(A) Liens existing as of the Issue Date to the extent and in the manner such
Liens are in effect on the Issue Date; (B) Liens securing Senior Indebtedness;
(C) Liens securing Guarantor Senior Indebtedness; (D) Liens of the Company or
a Wholly Owned Restricted Subsidiary of the Company on assets of any
Restricted Subsidiary of the Company; (E) Liens securing Refinancing
Indebtedness which is incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under the Indenture and which has been incurred in
accordance with the provisions of the Indenture; provided, however, that such
Liens; (X) extend to no more assets and are no more restrictive than the Liens
in respect of the Indebtedness being Refinanced and (Y) do not extend to or
cover any property or assets of the Company or any of its Subsidiaries not
securing the Indebtedness so Refinanced; (F) Permitted Liens; and (G) Liens on
accounts and related general intangibles of an Accounts Receivable Subsidiary.
Prohibition on Incurrence of Layered Indebtedness. 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 Indebtedness and (b) senior in any
respect in right of payment to the Notes and (ii) no Subsidiary Guarantor 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
Guarantor Senior Indebtedness and (b) senior in right of payment to its
Guarantee.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or
into any Person, or sell, assign, transfer, lease, convey or otherwise dispose
of (or cause or permit any Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of
the Company's assets (determined on a consolidated basis for the Company and
the Company's Subsidiaries) whether as an entirety or substantially as an
entirety to any Person unless: (i) either (1) the Company shall be the
surviving or continuing corporation or (2) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
the Person which acquires by sale, assignment, transfer, lease, conveyance or
other disposition the properties and assets of the Company and of the
Company's Subsidiaries substantially as an entirety (the "Surviving Entity")
(x) shall be a corporation organized and validly existing under the laws of
the United States or any State thereof or the District of Columbia and (y)
shall expressly assume, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee, the due
and punctual payment of the principal of, and premium, if any, and interest on
all of the Notes and the performance of every covenant of the Notes, the
Indenture and the Registration Rights Agreement on the part of the Company to
be performed or observed; (ii) immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness
incurred or anticipated to be incurred in connection with or in respect of
such transaction), the Company or such Surviving Entity, as the case may be,
(1) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction
and (2) shall be able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the "--Limitation on
Incurrence of Additional Indebtedness" covenant; (iii) immediately before and
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including, without limitation, giving
effect to any Indebtedness and Acquired Indebtedness incurred or anticipated
to be incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing; and (iv) the Company or the Surviving Entity shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture comply with
the applicable provisions of the Indenture and that all conditions precedent
in the Indenture relating to such transaction have been satisfied.
Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the
foregoing, in which the Company is not the continuing corporation, the
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successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, lease or transfer is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such.
Limitations on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with, or for the
benefit of, any of its Affiliates (each an "Affiliate Transaction"), other
than (x) Affiliate Transactions permitted under the next succeeding paragraph
below and (y) Affiliate Transactions on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that could reasonably
have been obtained in a comparable transaction at such time on an arm's-length
basis from a Person that is not an Affiliate of the Company or such Restricted
Subsidiary. All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $1,000,000
shall be approved by the Board of Directors of the Company or such Restricted
Subsidiary, as the case may be, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary of the Company enters into an Affiliate Transaction (or
a series of related Affiliate Transactions related to a common plan) that
involves aggregate payments or other property with a fair market value of more
than $5,000,000, the Company or such Restricted Subsidiary, as the case may
be, shall, prior to the consummation thereof, obtain a favorable opinion as to
the fairness of such transaction or series of related transactions to the
Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the
same with the Trustee.
The restrictions set forth in the preceding paragraph shall not apply to,
and the following shall be deemed not to be Affiliate Transactions, (i)
reasonable fees and compensation paid to, and indemnity provided on behalf of,
officers, directors or employees of the Company or any Subsidiary of the
Company as determined in good faith by the Company's Board of Directors; (ii)
transactions exclusively between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or exclusively between or among such Wholly
Owned Restricted Subsidiaries, provided such transactions are not otherwise
prohibited by the Indenture and in the case of transactions involving Wholly
Owned Restricted Subsidiaries that are Foreign Subsidiaries, such transactions
are on terms no less favorable to the other Wholly Owned Restricted Subsidiary
than those that could reasonably have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate of the Company or such Subsidiary; (iii) any agreement as in effect
as of the Issue Date or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) in any replacement
agreement thereto so long as any such amendment or replacement agreement is
not more disadvantageous to the Holders in any material respect than the
original agreement as in effect on the Issue Date; (iv) transactions permitted
by the provisions of the Indenture described under the covenant entitled
"Sales of Accounts Receivable;" (v) Restricted Payments and Permitted
Investments permitted by the Indenture; (vi) transactions entered into by
Subsidiaries prior to their acquisition by the Company or a Subsidiary
thereof; (vii) loans or credit, the forgiveness of loans or credit and
purchases of Capital Stock pursuant to an Executive Stock Purchase Program;
provided, that the gross proceeds of any loans or credit are used to purchase
Capital Stock of the Company from the Company; and (viii) purchases of Capital
Stock other than Disqualified Capital Stock by the Company's Employee Stock
Ownership Plan or Employee Stock Purchase Plan.
Sale and Leaseback Transactions. 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 or any Restricted Subsidiary may enter
into a Sale and Leaseback Transaction if (i) the Company could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such Sale and Leaseback Transaction pursuant to the covenant described above
under the caption "--Limitation on Incurrence of Additional Indebtedness" and
(b) incurred a Lien to secure such Indebtedness pursuant to the covenant
described above
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under the caption "--Limitation on Liens" and (ii) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the fair market
value (in the case of gross cash proceeds in excess of $5,000,000 as
determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction.
Limitation on Restricted and Unrestricted Subsidiaries. The Board of
Directors of the Company may, if no Default or Event of Default shall have
occurred and be continuing or would arise therefrom, designate an Unrestricted
Subsidiary to be a Restricted Subsidiary, provided, however, that (i) any such
redesignation shall be deemed to be an incurrence as of the date of such
redesignation by the Company and its Restricted Subsidiaries of the
Indebtedness (if any) of such redesignated Subsidiary for purposes of "--
Limitation on Incurrence of Additional Indebtedness" above, and (ii) unless
such redesignated Subsidiary shall not have any Indebtedness outstanding
(other than Permitted Indebtedness), no such designation shall be permitted if
immediately after giving effect to such redesignation and the incurrence of
any such additional Indebtedness (other than Permitted Indebtedness) the
Company could not incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to "--Limitation on Incurrence of Additional
Indebtedness" above.
The Board of Directors of the Company also may, if no Default or Event of
Default shall have occurred and be continuing or would arise therefrom,
designate any Restricted Subsidiary to be an Unrestricted Subsidiary if (i)
such designation is at that time permitted under "--Limitation on Restricted
Payments" above, (ii) immediately after giving effect to such designation, the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to "--Limitation of Incurrence of Additional
Indebtedness" above, and (iii) such Subsidiary meets the requirements of
clause (II) of the definition of the term Unrestricted Subsidiary. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions and was permitted by
the covenant described above under the caption "Certain Covenants--Limitation
on Restricted Payments" and setting forth in reasonable detail the underlying
calculations.
For purposes of the covenant described under "--Limitation on Restricted
Payments" above, (i) an "Investment" shall be deemed to have been made at the
time any Restricted Subsidiary of the Company is designated as an Unrestricted
Subsidiary in an amount (proportionate to the Company's equity interest in
such Subsidiary) equal to the net worth of such Restricted Subsidiary at the
time that such Restricted Subsidiary is designated as an Unrestricted
Subsidiary; (ii) at any date, the aggregate amount of all Restricted Payments
made as Investments since the Issue Date shall exclude and be reduced by an
amount (proportionate to the Company's equity interest in such Subsidiary)
equal to the net worth of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated as a Restricted Subsidiary, not to
exceed, in the case of any such redesignation of an Unrestricted Subsidiary as
a Restricted Subsidiary, the amount of Investments previously made by the
Company and its Restricted Subsidiaries in such Unrestricted Subsidiary (in
each case (i) and (ii), "net worth" is to be calculated based upon the fair
market value of the assets of such Subsidiary as of any such date of
designation); and (iii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer.
If, at any time, any Unrestricted Subsidiary would fail to meet the
requirements of clause (II) of the definition of the term Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any 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 described under the caption "--Limitation on
Incurrence of Additional Indebtedness," the Company shall be in default of
such covenant).
The Subsidiaries of the Company that are not designated by the Board of
Directors of the Company as Restricted or Unrestricted Subsidiaries will be
deemed to be Restricted Subsidiaries of the Company. Notwithstanding the
foregoing, all Subsidiaries of an Unrestricted Subsidiary will be Unrestricted
Subsidiaries.
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Business Activities. The Company will not, and will not permit any of its
Restricted Subsidiaries to, engage in any business other than Permitted
Businesses, except to such extent as would not be material to the Company and
its Restricted Subsidiaries taken as a whole.
Sales of Accounts Receivable. The Company may, and any of its Restricted
Subsidiaries may, sell, at any time and from time to time, all of their
respective accounts receivable (and related general intangibles) to an
Accounts Receivable Subsidiary; provided that (i) the cash received in each
sale is not less than 90% of the aggregate face value of the receivables sold
and the remainder of the consideration received in each such sale is a
promissory note (a "Promissory Note") which is subordinated to no Indebtedness
or obligation other than that due to the financial institution or other entity
providing the financing to the Accounts Receivable Subsidiary with respect to
such accounts receivable (a "Financier");provided further that the Initial
Sale will include all eligible accounts receivable of the Company and/or its
Restricted Subsidiaries that will be party to such arrangements in existence
on the date of the Initial Sale, (ii) the cash proceeds received from the
Initial Sale less reasonable and customary transaction costs will be deemed to
be Net Cash Proceeds and will be applied in accordance with the covenant
entitled "Limitation on Asset Sales;" and (iii) the Company and its Restricted
Subsidiaries will sell their accounts receivable to the Accounts Receivable
Subsidiary no less frequently than on a weekly basis.
The Company (i) will not permit any Accounts Receivable Subsidiary to sell
any accounts receivable purchased from the Company or any of its Restricted
Subsidiaries to any other person except on an arm's-length basis and solely
for consideration in the form of cash or Cash Equivalents, (ii) will not
permit the Accounts Receivable Subsidiary to engage in any business or
transaction other than the purchase, financing and sale of accounts receivable
of the Company and its Restricted Subsidiaries and activities incidental
thereto, (iii) will not permit any Accounts Receivable Subsidiary to incur
Indebtedness in an amount in excess of the book value of such Accounts
Receivable Subsidiary's total assets, as determined in accordance with GAAP,
(iv) will, at least as frequently as monthly, cause the Accounts Receivable
Subsidiary to remit to the Company as payment on the Promissory Notes, all
available cash or Cash Equivalents not held in a collection account pledged to
a Financier, to the extent not applied to pay or maintain reserves for
reasonable operating expenses of the Accounts Receivable Subsidiary or to
satisfy reasonable minimum operating capital requirements and (v) will not,
and will not permit any of its Subsidiaries to, sell accounts receivable to
any Accounts Receivable Subsidiary upon (1) the occurrence of a Default with
respect to the Company and its Restricted Subsidiaries and (2) the occurrence
of certain events of bankruptcy or insolvency with respect to such Accounts
Receivable Subsidiary.
Payments for Consent. Neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any
of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Additional Guarantees. The Indenture provides that (i) if the Company or any
of its Restricted Subsidiaries shall, after the date of the Indenture,
transfer or cause to be transferred, including by way of any Investment, in
one or a series of transactions (whether or not related), any assets,
businesses, divisions, real property or equipment having an aggregate fair
market value (as determined in good faith by the Board of Directors) in excess
of $1.0 million to any Restricted Subsidiary that is not a Subsidiary
Guarantor or a Foreign Subsidiary, (ii) if the Company or any of its
Restricted Subsidiaries shall acquire another Restricted Subsidiary other than
a Foreign Subsidiary having total assets with a fair market value (as
determined in good faith by the Board of Directors) in excess of $1.0 million,
or (iii) if any Restricted Subsidiary other than a Foreign Subsidiary shall
incur Acquired Indebtedness in excess of $1.0 million, then the Company shall,
at the time of such transfer, acquisition or incurrence, (i) cause such
transferee, acquired Restricted Subsidiary or Restricted Subsidiary incurring
Acquired Indebtedness (if not then a Subsidiary Guarantor) to execute a
Guarantee of the Obligations of the Company under the Notes in the form set
forth in the Indenture and (ii) deliver to the Trustee an Opinion of Counsel,
in form reasonably satisfactory to the Trustee, that such Guarantee is a
valid, binding and enforceable
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obligation of such transferee, acquired Restricted Subsidiary or Restricted
Subsidiary incurring Acquired Debt, subject to customary exceptions for
bankruptcy, fraudulent conveyance and equitable principles. Notwithstanding
the foregoing, the Company or any of its Restricted Subsidiaries may make an
Investment in any Wholly Owned Restricted Subsidiary of the Company without
compliance with this covenant provided that such Investment is permitted by
the covenant described under the caption, "Limitation on Restricted Payments."
Reports to Holders. The Company will deliver to the Trustee within 15 days
after the filing of the same with the Commission, copies of the quarterly and
annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act. The Indenture will further provide that,
notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the Commission, to the extent permitted, and provide the Trustee and
Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company
will also comply with the other provisions of TIA (S) 314(a). At the Company's
expense, the Company shall cause an annual report if furnished by it to
stockholders generally and each quarterly or other financial report if
furnished by it to stockholders generally to be filed with the Trustee and
mailed to the Holders at their addresses appearing in the register of Notes
maintained by the Registrar at the time of such mailing or furnishing to
stockholders. The Company shall make such annual, quarterly and other
financial reports available to securities analysts and prospective investors
upon request.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes or any amount payable
pursuant to any Guarantee with respect to interest when the same becomes
due and payable and the default continues for a period of 30 days (whether
or not such payment shall be prohibited by the subordination provisions of
the Indenture);
(ii) the failure to pay the principal on any Notes or any amount payable
pursuant to any Guarantee (other than as provided in (i)), when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period
of 30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the "Merger, Consolidation
and Sale of Assets" covenant, which will constitute an Event of Default
with such notice requirement but without such passage of time requirement);
(iv) there shall be a default under any Indebtedness of the Company or
any Subsidiary (other than an Unrestricted Subsidiary whose Indebtedness is
not then guaranteed by the Company or any of its Restricted Subsidiaries),
whether such Indebtedness now exists or shall hereinafter be created, if
both (A) such default either (1) results from the failure to pay any such
Indebtedness at its stated final maturity or (2) relates to an obligation
other than the obligation to pay such Indebtedness at its stated final
maturity and results in the holder or holders of such Indebtedness causing
such Indebtedness to become due prior to its stated final maturity and (B)
the principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness in default for failure to pay
principal at stated final maturity or the maturity of which has been so
accelerated, aggregates $5,000,000 or more at any one time outstanding;
(v) one or more judgments (to the extent not covered by insurance and as
to which the insurer has not acknowledged coverage in writing) in an
aggregate amount in excess of $5,000,000 shall have been rendered against
the Company or any of its Subsidiaries and such judgments remain
undischarged, unpaid, unbonded or unstayed for a period of 60 days after
such judgment or judgments become final and non-appealable;
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(vi) certain events of bankruptcy affecting the Company, any Subsidiary
Guarantor or any of their Significant Subsidiaries (other than an
Unrestricted Subsidiary whose Indebtedness is not then guaranteed by the
Company or any of its Restricted Subsidiaries); or
(vii) except as permitted by the Indenture, any Guarantee shall cease to
be, or be asserted in writing by any Subsidiary Guarantor or the Company
not to be, in full force and effect, and enforceable in accordance with the
terms.
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding
Notes may declare the principal of and accrued interest on 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 5 business days after receipt by
the Company and the Representative under the Credit Facility of such
Acceleration Notice. If an Event of Default specified in clause (vi) above
occurs and is continuing, then all unpaid principal of, and premium, if any,
and accrued and unpaid interest on all of the 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.
At any time after a declaration of acceleration with respect to the Notes as
described in the preceding paragraph, the Holders of a majority in principal
amount of the Notes may rescind and cancel such declaration and its
consequences (i) if the rescission would not conflict with any judgment or
decree, (ii) if all existing Events of Default have been cured or waived
except nonpayment of principal or interest that has become due solely because
of the acceleration, (iii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid, (iv) if the Company has paid the Trustee its reasonable
compensation and reimbursed the Trustee for its expenses, disbursements and
advances and (v) in the event of the cure or waiver of an Event of Default of
the type described in clause (vi) of the description above of Events of
Default, the Trustee shall have received an Officers' Certificate that such
Event of Default has been cured or waived. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest
on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding the prohibition on redemption of the
Notes prior to the First Call Date, then the premium specified in the
Indenture for redemption as of the First Call Date shall also become
immediately due and payable to the extent permitted by law upon the
acceleration of the Notes.
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Under the Indenture, the Company is required to provide an Officers'
Certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default
or Event of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder, as such, of the Company or
any Subsidiary shall have any liability for any obligations of the Company or
any Subsidiary under the Notes, any Guarantee or the Indenture. Each holder of
the 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.
This provision does not affect any possible claims under the federal
securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes (and each
Subsidiary Guarantor shall be discharged from any and all obligations with
respect thereto and with respect to its Guarantee) ("Legal Defeasance"). Such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes,
except for (i) the rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on the Notes when such payments
are due, (ii) 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 payments, (iii)
the rights, powers, trust, duties and immunities of the Trustee and the
Company's obligations in connection therewith and (iv) 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 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, reorganization and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the Notes on the stated
date for payment thereof or on the applicable redemption date, as the case may
be; (ii) in the case of Legal Defeasance, 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
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance, 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 will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an Officers'
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Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Senior
Indebtedness, including, without limitation, those arising under the Indenture
and (B) after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; and (ix) certain other
customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together
with irrevocable instructions from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case may
be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Subsidiary Guarantors and the Trustee,
without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies,
so long as such change does not, in the opinion of the Trustee, adversely
affect the rights of any of the Holders in any material respect. In
formulating its opinion on such matters, the Trustee will be entitled to rely
on such evidence as it deems appropriate, including, without limitation,
solely on an Opinion of Counsel. Other modifications and amendments of the
Indenture may be made with the consent of the Holders of a majority in
principal amount of the then outstanding Notes issued under the Indenture,
except that, without the consent of each Holder affected thereby, no amendment
may: (i) reduce the principal amount of Notes whose Holders must consent to an
amendment; (ii) reduce the rate of or change or have the effect of changing
the time for payment of interest, including defaulted interest, on any Notes;
(iii) reduce the principal of or change or have the effect of changing the
fixed maturity of any Notes, or change the date on which any Notes may be
subject to redemption or repurchase, or reduce the redemption or repurchase
price therefor; (iv) make any Notes payable in money other than that stated in
the Notes; (v) make any change in provisions of the Indenture protecting the
right of each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount of Notes to
waive Defaults or Events of Default; (vi) amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate a
Net Proceeds Offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto; (vii) modify
or change any provision of the Indenture or the related definitions affecting
the subordination or ranking of the Notes or the Guarantees in a manner which
adversely affects the Holders or (ix) release any Subsidiary Guarantor from
any of its obligations under the Guarantee other than in accordance with the
terms of the Indenture.
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GOVERNING LAW
The Indenture provides that it and the Notes are governed by, and construed
in accordance with, the laws of the State of New York but without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture,
and use the same degree of care and skill in its exercise as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions; provided
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Accounts Receivable Subsidiary" means a newly created, Unrestricted
Subsidiary of the Company (i) which is formed solely for the purpose of, and
which engages in no activities other than activities in connection with,
financing accounts receivable of the Company and/or its Restricted
Subsidiaries, (ii) which is designated by the Board of Directors of the
Company as an Accounts Receivable Subsidiary pursuant to a Board of Directors'
resolution set forth in an Officers' Certificate and delivered to the Trustee,
(iii) that has total assets at the time of such creation and designation with
a book value of $10,000 or less, (iv) which has no Indebtedness other than
Non-Recourse Debt, and (v) with which neither the Company nor any Restricted
Subsidiary of the Company has any contract, agreement, arrangement or
understanding other than contracts, agreements, arrangements and
understandings entered into in the ordinary course of business in connection
with sales of accounts receivable in accordance with the covenant entitled
"Sale of Accounts Receivables" and fees payable in the ordinary course of
business in connection with servicing accounts receivable.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of
its Subsidiaries or assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with,
or in anticipation or contemplation of, such Person becoming a Subsidiary of
the Company or such acquisition, merger or consolidation.
"Act" means the Securities Act of 1933, as amended.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
lesser of the amount by which (x) the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including,
without limitation, contingent liabilities (after giving effect to all other
fixed and contingent liabilities incurred or assumed on such date), but
excluding liabilities under the Guarantee of such Subsidiary Guarantor at such
date and (y) the present fair salable value of the assets of such Subsidiary
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Subsidiary Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on
such date and after giving effect to any collection from any Subsidiary of
such Subsidiary Guarantor in respect of the obligations of such Subsidiary
under the Guarantee), excluding debt in respect of the Guarantee, as they
become absolute and matured.
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"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
provided,that beneficial ownership of 10% or more of the voting Capital Stock
of a Person shall be deemed to be control. The terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction, but excluding any such transaction consummated by a Restricted
Subsidiary prior to its acquisition by, or merger into, the Company or a
Subsidiary of the Company) to any Person other than the Company or a Wholly
Owned Restricted Subsidiary of the Company of (a) any Capital Stock of any
Subsidiary of the Company; or (b) any other property or assets of the Company
or any Restricted Subsidiary of the Company other than in the ordinary course
of business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Subsidiaries receive aggregate consideration of less than $250,000 provided
that aggregate of all such transactions in any single calendar year shall not
exceed $1,000,000, (ii) sales of accounts receivables to the Accounts
Receivable Subsidiary in accordance with the covenant entitled "Sales of
Accounts Receivable" and (iii) the sale, lease, conveyance, disposition or
other transfer (x) of all or substantially all of the assets of the Company as
permitted under "Merger, Consolidation and Sale of Assets," (y) involving only
cash, Cash Equivalents or inventory in the ordinary course of business or
obsolete equipment in the ordinary course of business consistent with past
practices of the Company, or (z) involving only the lease or sublease of any
real or personal property in the ordinary course of business.
"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).
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Business Acquisition" means (a) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or any Subsidiary of the Company, or
shall be merged with or into the Company or any Subsidiary of the Company, or
(b) the acquisition by the Company or any Subsidiary of the Company of the
assets of any Person (other than a Subsidiary of the Company) which constitute
all or substantially all of the assets of such Person or comprises any
division or line of business of such Person or any other properties or assets
of such Person other than in the ordinary course of business.
"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, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this
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definition, the amount of such obligations at any date shall be the
capitalized amount of such obligations at such date, determined in accordance
with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof or which the holder has the right to require the issuer to repurchase
at a price greater than or equal to the principal amount thereof within one
year from the date of acquisition and, at the time of acquisition, having one
of the two highest ratings obtainable from both Standard & Poor's Corporation
("S&P") and Moody's Investors Service, Inc. ("Moody's"); (iii) commercial
paper maturing no more than one year from the date of creation thereof and, at
the time of acquisition, having one of the two highest ratings obtainable from
both S&P and Moody's; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by any
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and surplus of not
less than $250,000,000; (v) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (i)
above with a fair market value greater than or equal to the repurchase price,
entered into with any bank meeting the qualifications specified in clause (iv)
above; and (vi) investments in money market funds which invest substantially
all their assets in securities of the types described in clauses (i) through
(v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction 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 or group of
related Persons for purposes of Section 13(d) of the Exchange Act (a "Group")
together with any Affiliates thereof (whether or not otherwise in compliance
with the provisions of the Indenture); (ii) the approval by the holders of
Capital Stock of the Company of any plan or proposal for the liquidation or
dissolution of the Company (whether or not otherwise in compliance with the
provisions of the Indenture); (iii) the acquisition in one or more
transactions, by any Person or Group of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of either more than 30% (or in
the case of any Person or Group that beneficially owns 10% or more of the
aggregate ordinary voting power as of the Issue Date, 35%) of the aggregate
ordinary voting power represented by the issued and outstanding Capital Stock
of the Company or more than 40% of the aggregate issued and outstanding Common
Stock of the Company; or (iv) the replacement of a majority of the Board of
Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at
least a majority of the Board of Directors of the Company then still in office
who either were members of such Board of Directors at the beginning of such
period or whose election as a member of such Board of Directors was previously
so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes
of such Person and its Subsidiaries paid or accrued in accordance with GAAP
for such period (other than income taxes attributable to extraordinary,
unusual or nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business or other transactions the
effect of which has been excluded from Consolidated Net Income), (B)
Consolidated Interest Expense and (C) Consolidated Non-cash
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Charges less any non-cash items increasing Consolidated Net Income for such
period, all as determined on a consolidated basis for such Person and its
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges
of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving
effect on a pro forma basis for the period of such calculation to (i) the
incurrence or repayment of any Indebtedness of such Person or any of its
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital or revolving credit
facilities, occurring during the Four Quarter Period or at any time subsequent
to the last day of the Four Quarter Period and on or prior to the Transaction
Date, as if such incurrence or repayment, as the case may be (and the
application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Business Acquisitions (including,
without limitation, any Business Acquisition giving rise to the need to make
such calculation as a result of such Person or one of its Subsidiaries
(including any Person who becomes a Subsidiary as a result of the Business
Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA for such Four Quarter
Period attributable to the Person or assets which are the subject of the
Business Acquisition or Asset Sale during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the last day of
the Four Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or Business Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of the
Four Quarter Period. If such Person or any of its Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of
the Transaction Date and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; (2) if
interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period; and (3) notwithstanding clause (1)
above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense,
plus (ii) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person and its Restricted Subsidiaries (other than
dividends paid in Qualified Capital Stock or dividends to the extent payable
to the Company or its Restricted Subsidiaries) paid, accrued or scheduled to
be paid or accrued during such period (other than in the case of Preferred
Stock of such Person and its Restricted Subsidiaries for which the dividends
are tax deductible for Federal income tax purposes) times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated Federal, state and local tax rate of such
Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, whether paid or
accrued, including without limitation, (a) any amortization of debt discount
and amortization or write-off of deferred financing costs, (b) the
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net costs under Interest Swap Obligations, (c) all capitalized interest and
(d) the interest portion of any deferred payment obligation, including with
respect to Attributable Debt; (ii) the aggregate dividend payments of such
Person and its Restricted Subsidiaries for such period with respect to
Disqualified Capital Stock; and (iii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such
Person and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Subsidiaries for
such period on a consolidated basis (before Preferred Stock (other than
Disqualified Stock) dividend requirements), determined in accordance with
GAAP; provided that there shall be excluded therefrom (a) after-tax gains and
losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains or losses,
(c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Subsidiary of the referent
Person or is merged or consolidated with the referent Person or any Subsidiary
of the referent Person, (d) the net income (but not loss) of any Restricted
Subsidiary of the referent Person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that
income is restricted (or subject to tax) by a contract, operation of law or
otherwise, (e) the net income of any Person, other than a Restricted
Subsidiary of the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Wholly Owned Restricted
Subsidiary of the referent Person by such Person, (f) any restoration to
income of any contingency reserve, except to the extent that provision for
such reserve was made out of Consolidated Net Income accrued at any time
following the Issue Date, (g) income or loss attributable to discontinued
operations (including, without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued), (h) in
the case of a successor to the referent Person by consolidation or merger or
as a transferee of the referent Person's assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets, (i) any
gain realized in connection with the disposition of any securities other than
Cash Equivalents by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries, (j) all gains or losses from the cumulative effect of any change
in accounting principles and (k) Consolidated Pooling Expenses.
"Consolidated Net Worth" means, (A) with respect to any partnership, the
common and preferred partnership equity of such partnership and its
consolidated subsidiaries, as determined on a consolidated basis in accordance
with GAAP, and (B) with respect to any other Person as of any date, the sum of
(i) the consolidated equity of the common equity holders of such Person and
its consolidated Subsidiaries as of such date plus (ii) the respective amounts
reported on such Person's balance sheet as of such date with respect to any
series of preferred equity (other than Disqualified Capital Stock) that by its
terms is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other
than write-ups resulting from foreign currency translations and write-ups of
tangible assets of a going concern business made within 12 months after the
acquisition of such business) subsequent to the date of the Indenture in the
book value of any asset owned by such Person or a consolidated Subsidiary of
such Person, (y) all investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries (except, in each case,
Permitted Investments), plus (z) all unamortized debt discount and expense and
unamortized deferred charges as of such date, all of the foregoing determined
in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Subsidiaries reducing Consolidated Net Income of such
Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires
an accrual of or a reserve relating to possible cash charges or expenditures
for any future or past period).
"Consolidated Pooling Expenses" of any Person means for any period, with
respect to such Person and its Restricted Subsidiaries on a consolidated
basis, the transaction, merger-related and non-recurring costs and
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expenses for such period recorded in connection with a pooling-of-interests
transaction, in accordance with GAAP, but only to the extent such expenses
would have been capitalized, in accordance with GAAP, if such transaction had
been a purchase transaction including, but not limited to, severance costs,
plant closings, relocations and like costs.
"Contributions" means any loans, cash advances, capital contributions,
investments or other transfers of assets for either (i) Capital Stock or (ii)
less than fair value by the Company or any of its Restricted Subsidiaries to
any Subsidiary or other Affiliate of the Company or any of its Restricted
Subsidiaries other than to a Subsidiary Guarantor.
"Credit Facility" means the Amended and Restated Loan and Security
Agreement, dated as of December 21, 1994, by and among the Company, PSS Texas,
Inc., PSS Rhode Island, Inc., Standard/Crescent City Surgical Supplies, Inc.,
and the financial institutions party thereto from time to time and
NationsBank, N.A. (formerly known as NationsBank of Georgia, N.A.), as agent,
together with the related documents thereto (including, without limitation,
any guarantee agreements and security documents), in each case as such
agreements may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, and any agreement
extending the maturity of, Refinancing, replacing or otherwise restructuring
(including increasing the amount of available borrowings thereunder (provided
that such increase in borrowings is permitted by the "Limitation on Incurrence
of Additional Indebtedness"covenant above)) all or any portion of the
Indebtedness (or commitment to extend such Indebtedness) under such agreement
or any successor or replacement agreement and whether by the same or any other
agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Indebtedness" means (i) Indebtedness under or in respect
of the Credit Facility and (ii) any other Indebtedness constituting Senior
Indebtedness which, at the time of determination, has an aggregate principal
amount of at least $25.0 million and is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by the Company.
"Disqualified Capital Stock" means, with respect to any person, any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature.
"Escrowed Purchase Price" means the deferred purchase price of property,
including a Business Acquisition, for which an escrow of cash or Cash
Equivalents has been established, and with respect to which the payment
obligation (whether contingent or fixed) does not exceed the amount of such
escrow, plus the earnings actually received thereon.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"Executive Stock Purchase Program" means any plan or program implemented by
the Company pursuant to which the Company provides loans or otherwise extends
credit to officers of the Company for the purpose of purchasing Common Stock
of the Company from the Company in an amount not less than the amount of such
loans or credit. Under the terms of any Executive Stock Purchase Program, the
Company may, based on the financial performance of the Company, forgive the
repayment of all or any portion of such loan.
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"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of
the Board of Directors of the Company delivered to the Trustee.
"First Call Date" means October 1, 2002.
"Foreign Subsidiary" means any Subsidiary of the Company either (a) which is
organized outside of the United States of America, (b) whose principal
activities are conducted outside of the United States of America or (c) whose
only material assets are Capital Stock in Subsidiaries which are Foreign
Subsidiaries.
"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 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 as of the Issue Date.
"Indebtedness" means with respect to any Person, without duplication, (i)
all indebtedness of such Person, whether or not contingent, for borrowed
money, (ii) all indebtedness of such Person evidenced by bonds, debentures,
notes or other similar instruments, (iii) all Capitalized Lease Obligations of
such Person, (iv) all indebtedness or other obligations of such Person issued
or assumed as the deferred purchase price of property other than Escrowed
Purchase Price, all conditional sale obligations and all Obligations under any
title retention agreement (but excluding trade accounts payable and other
accrued liabilities arising in the ordinary course of business that are not in
default or overdue by 90 days or more or are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted), (v) all
indebtedness for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) guarantees and other
contingent obligations in respect of Indebtedness referred to in clauses (i)
through (v) above and clause (viii) below of such Person or any other Person,
(vii) all indebtedness of any other Person of the type referred to in clauses
(i) through (vi) which are secured by any lien on any property or asset of
such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the
Obligation so secured, (viii) all indebtedness under Currency Agreements and
Interest Swap Agreements of such Person and (ix) all Disqualified Capital
Stock issued by such Person with the amount of Indebtedness represented by
such Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital Stock, such fair market
value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock. The amount of any
Indebtedness (other than Disqualified Capital Stock) outstanding as of any
date shall be (i) the accreted value thereof, to the extent such Indebtedness
does not require current payments of interest, and (ii) the principal amount
thereof, together with any interest thereon that is more than 30 days past
due, in the case of any other Indebtedness.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified
to perform the task for which it is to be engaged.
"Initial Sale" means the first transaction in which accounts receivable are
sold by the Company and/or its Restricted Subsidiaries to an Accounts
Receivable Subsidiary.
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"Insolvency or Liquidation Proceedings" means with respect to any Person (i)
any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding relative to
such Person or to the creditors of such Person, as such, or to the assets of
such Person, or (ii) any liquidation, dissolution, reorganization or winding
up of such Person, whether voluntary or involuntary and involving insolvency
or bankruptcy, or (iii) any assignment for the benefit of creditors or any
other marshaling of assets and liabilities of such Person.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee,
other than a guarantee of Indebtedness of a Foreign Subsidiary permitted by
the "Limitation on Incurrence of Additional Indebtedness" covenant) or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase or acquisition by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any
other Person (including a Subsidiary of the referent Person). "Investment"
shall exclude extensions of trade credit by the Company and its Subsidiaries
on commercially reasonable terms in accordance with normal trade practices of
the Company or such Subsidiary, as the case may be. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any
Capital Stock of any direct or indirect Restricted Subsidiary of the Company
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 or disposition equal
to the fair market value of the Capital Stock of such Subsidiary not sold or
disposed. For the purposes of the "Limitation on Restricted Payments"
covenant, the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by the Company or any
of its Subsidiaries, without any adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such
Investment, reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts
would be included in Consolidated Net Income.
"Issue Date" means October 7, 1997.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
"Local Qualifying Securities" with respect to any Foreign Subsidiary means
the minimum amount of Capital Stock of such Foreign Subsidiary required by
applicable law of the country in which the Foreign Subsidiary is located to be
owned by a citizen of such country.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) income taxes paid or payable after
taking into account any reduction in consolidated income tax liability due to
available tax credits or deductions and any tax sharing arrangements, (c)
repayment
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of Indebtedness that is required to be repaid in connection with such Asset
Sale and (d) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) or (b) is directly or indirectly liable (as a guarantor or
otherwise); (ii) 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 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 (iii) as to
which the lenders, except for lenders under Indebtedness in existence on the
Issue Date or instruments governing Acquired Indebtedness (a) have
acknowledged that they do not have recourse to the holder of the Capital Stock
of the debtor or (b) have been notified in writing that they will not have any
recourse to the stock or assets of either the Company or any of its Restricted
Subsidiaries.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Pari Passu Debt" means any Indebtedness of the Company or its Restricted
Subsidiaries which, by its terms, is pari passu in right of payment to the
Notes or the Guarantees.
"Payment in Full" (together with any correlative phrases, e.g., "paid in
full" and "pay in full") means (i) with respect to any Senior Indebtedness
other than Senior Indebtedness under or in respect of the Credit Facility,
payment in full thereof or due provision for payment thereof (x) in accordance
with the terms of the agreement or instrument pursuant to which such Senior
Indebtedness was issued or is governed or (y) otherwise to the reasonable
satisfaction of the holders of such Senior Indebtedness, which shall include,
in any Insolvency or Liquidation Proceeding, approval by such holders
individually or as a class, of the provision for payment thereof, and (ii)
with respect to Senior Indebtedness under or in respect of the Credit
Facility, payment in full thereof in cash or Cash Equivalents.
"Permitted Business" means the business of the Company and its Subsidiaries
as existing on the Issue Date or such other businesses as the Board of
Directors of the Company determines are reasonably related thereto as
evidenced by a Board Resolution.
"Permitted Indebtedness" means without duplication, each of the following:
i) Indebtedness under the Notes and the Indenture;
ii) Indebtedness under the Guarantees;
iii) Indebtedness incurred pursuant to the Credit Facility (and the
guarantees thereunder) in an aggregate principal amount at any time
outstanding not to exceed $30,000,000;
iv) other Indebtedness of the Company and its Subsidiaries outstanding on
the Issue Date reduced by the amount of any scheduled amortization payments
or mandatory prepayments when actually paid or permanent reductions
thereon;
v) Interest Swap Obligations of the Company covering Indebtedness of the
Company or any of its Subsidiaries and Interest Swap Obligations of any
Subsidiary of the Company covering Indebtedness of such Subsidiary;
provided, however, that (x) such Interest Swap Obligations are designed to
protect the Company and its Subsidiaries from fluctuations in interest
rates on Indebtedness incurred in accordance with
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the Indenture (and are used for bona fide hedging, and not speculative,
purposes); and (y) the notional principal amount of such Interest Swap
Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
vi) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
(i) are designed to protect against fluctuations in currency value (and are
used for bona fide hedging, and not speculative, purposes) and (ii) do not
increase the Indebtedness of the Company and its Subsidiaries outstanding
other than as a result of fluctuations in foreign currency exchange rates
or by reason of fees, indemnities and compensation payable thereunder;
vii) Indebtedness of the Company or a Wholly Owned Restricted Subsidiary
of the Company that is a Subsidiary Guarantor to the Company or to a Wholly
Owned Restricted Subsidiary of the Company that is Subsidiary Guarantor for
so long as such Indebtedness is held by the Company or a Wholly Owned
Restricted Subsidiary of the Company that is a Subsidiary Guarantor, in
each case subject to no Lien held by a Person other than the Company or a
Wholly Owned Restricted Subsidiary of the Company that is a Subsidiary
Guarantor; provided that (x) if as of any date any Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company that is a
Subsidiary Guarantor owns or holds any such Indebtedness or holds a Lien in
respect of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness and (y) any Indebtedness of the Company to any Wholly Owned
Restricted Subsidiary of the Company is unsecured and subordinated,
pursuant to a written agreement, to the Company's Obligations under the
Indenture and the Notes;
viii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within two business days of incurrence;
ix) Indebtedness of the Company or any of its Subsidiaries represented by
letters of credit or guarantees by or for the account of the Company or
such Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
x) Refinancing Indebtedness;
xi) Indebtedness incurred by the Company or any Restricted Subsidiary of
the Company in connection with the purchase, cost of construction or
improvement of property (real or personal) or equipment or other capital
expenditures in the ordinary course of business or consisting of
Capitalized Lease Obligations; provided that at the time of the incurrence
thereof, such Indebtedness, does not exceed $5,000,000 (less any
Refinancing Indebtedness incurred to refinance any Indebtedness incurred
under this clause xi);
xii) Acquired Indebtedness of a Subsidiary, which Subsidiary was acquired
after the Issue Date and which Acquired Indebtedness was in existence at
the time of acquisition of such Subsidiary, if such Acquired Indebtedness
is Non-Recourse Debt (except with respect to such Subsidiary and its
Subsidiaries) and such Acquired Indebtedness does not exceed $10,000,000 in
the aggregate outstanding at any time;
xiii) Indebtedness in the form of holdback notes or deferred purchase
price in connection with a Business Acquisition in an amount not to exceed
20% of the purchase price of such Business Acquisition;
xiv) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred in connection
with the disposition of any business, assets or Restricted Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or Restricted Subsidiary for the
purpose of financing such acquisition;provided that the maximum aggregate
liability in respect of all such Indebtedness shall at no time exceed the
gross proceeds actually received by the Company and the Restricted
Subsidiary in connection with such disposition;
xv) Obligations in respect of performance bonds and completion guarantees
provided by the Company or any Restricted Subsidiary of the Company in the
ordinary course of business;
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xvi) Guarantees by the Company or a Restricted Subsidiary of the Company
of Indebtedness incurred by the Company or a Restricted Subsidiary of the
Company so long as the incurrence of such Indebtedness by the Company or
any such Restricted Subsidiary of the Company is otherwise permitted by the
terms of the Indenture;
xvii) Indebtedness of Foreign Subsidiaries (which is Non-Recourse Debt,
except with respect to such entities) that are Restricted Subsidiaries in
an amount, at any time outstanding not to exceed $5,000,000;
xviii) Non-Recourse Debt of Unrestricted Subsidiaries; provided, however,
that if any such Indebtedness ceases to be Non-Recourse Debt of an
Unrestricted Subsidiary, such event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary of the Company; and
xix) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $35,000,000 at
any one time outstanding.
"Permitted Insolvency Payments" means (i) securities distributed to the
Holders of the Notes in an Insolvency or Liquidation Proceeding pursuant to a
plan of reorganization consented to by each class of the Senior Indebtedness,
but only if all of the terms and conditions of such securities (including,
without limitation, term, tenor, interest, amortization, subordination,
standstills, covenants and defaults), are at least as favorable (and provide
the same relative benefits) to the holders of Senior Indebtedness and to the
holders of any security distributed in such Insolvency or Liquidation
Proceeding on account of any such Senior Indebtedness as the terms and
conditions of the Notes and the Indenture are, and provide to the holders of
Senior Indebtedness, and (ii) payments from a trust established pursuant to
the provisions of the Indenture described under "Satisfaction and Discharge of
the Indenture", provided that payment into such trust was not made either (x)
within 90 days prior to the commencement of an Insolvency or Liquidation
Proceeding, or (y) during any period in which payment on the Notes is blocked
pursuant to the subordination provisions of the Indenture.
"Permitted Investments" means (i) Investments by the Company or any
Subsidiary of the Company in any Person engaged in a Permitted Business that
is or will become immediately after such Investment a Wholly Owned Restricted
Subsidiary of the Company other than a Foreign Subsidiary or that will merge
or consolidate into the Company or a Wholly Owned Restricted Subsidiary of the
Company other than a Foreign Subsidiary, (ii) Investments in the Company by
any Subsidiary of the Company; provided that any Indebtedness evidencing such
Investment is unsecured and subordinated to the Company's obligations under
the Notes and the Indenture, pursuant to a written agreement and to the same
extent that the Notes are subordinated to Senior Indebtedness; (iii)
investments in cash and Cash Equivalents; (iv) loans and advances to employees
and officers of the Company and its Subsidiaries (a) in existence as of the
Issue Date, (b) in the ordinary course of business for bona fide business
purposes not in excess of $2,000,000 at any one time outstanding or (c)
pursuant to an Executive Stock Purchase Program; (v) Currency Agreements and
Interest Swap Obligations entered into in the ordinary course of the Company's
or its Subsidiaries' businesses and otherwise in compliance with the
Indenture; (vi) Investments in securities of trade creditors or customers
received in settlement of trade receivables at such time as the account debtor
is insolvent or otherwise unable to pay or pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of
such trade creditors or customers; (vii) Investments made by the Company or
its Subsidiaries as a result of consideration received in connection with an
Asset Sale made in compliance with the "Limitation on Asset Sales" covenant;
(viii) Investments in an Accounts Receivable Subsidiary received in
consideration of sales of accounts receivable in accordance with the covenant
entitled "Sales of Accounts Receivable;" (ix) Investments by the Company or a
Wholly Owned Restricted Subsidiary in the form of loans or advances described
in clause (vii) of the definition of the term Permitted Indebtedness; and (x)
additional Investments made after the Issue Date in an aggregate amount not
exceeding $10,000,000 at any one time outstanding.
"Permitted Liens" means the following types of Liens:
i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Subsidiaries shall have set
aside on its books such reserves as may be required pursuant to GAAP;
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ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
iv) Liens securing letters of credit issued in the ordinary course of
business consistent with past practice in connection with the items
referred to in clause (iii) or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
v) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
vi) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Subsidiaries;
vii) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
viii) purchase money Liens to finance property or assets of the Company
or any Subsidiary of the Company acquired or constructed in the ordinary
course of business; provided, however, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Subsidiary
of the Company other than the property and assets so acquired and (B) the
Lien securing such Indebtedness shall be created within 90 days of such
acquisition;
ix) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
x) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
xi) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Subsidiaries, including rights of offset and set-off;
xii) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
xiii) Liens securing Indebtedness under Currency Agreements;
xiv) Liens securing Acquired Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; provided
that (A) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by the Company or a
Subsidiary of the Company and were not granted in connection with, or in
anticipation of, the incurrence of such Acquired Indebtedness by the
Company or a Subsidiary of the Company and (B) such Liens do not extend to
or cover any property or assets of the Company or of any of its
Subsidiaries other than the property or assets that secured the Acquired
Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Subsidiary of the Company and are no more
favorable to the lien holders than those securing the Acquired Indebtedness
prior to the incurrence of such Acquired Indebtedness by the Company or a
Subsidiary of the Company;
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xv) Liens to secure Attributable Debt 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 Restricted Subsidiary other than the assets which are the
subject of the Sale and Leaseback Transaction in which the Attributable
Debt is incurred.
xvi) Leases or subleases granted to others not interfering in any
material respect with the business of the Company or any of its
Subsidiaries;
xvii) Any interest or title of a lessor in the property subject to any
lease, whether characterized as capitalized or operating other than any
such interest or title resulting from or arising out of a default by the
Company or any of its Subsidiaries of its obligations under such lease;
xviii) Liens arising from filing UCC financing statements for
precautionary purposes in connection with true leases of personal property
that are otherwise permitted under the Indenture and under which the
Company or any of its Subsidiaries is lessee; and
xix) Liens in favor of the Trustee and any substantially equivalent Lien
granted to any trustee or similar institution under any indenture governing
Indebtedness permitted to be incurred or outstanding under the Indenture.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, a governmental agency or political
subdivision thereof or other entity.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Public Equity Offering" means an underwritten equity offering, pursuant to
an effective registration statement under the Act, of the Qualified Capital
Stock of the Company, or of any entity of which the Company is a direct or
indirect subsidiary, to the extent the proceeds thereof shall have been
received or contributed to the Company.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Subsidiary of the Company of Indebtedness (other than Indebtedness under the
Credit Facility) incurred in accordance with the "Limitation on Incurrence of
Additional Indebtedness" covenant (other than pursuant to clause (v), (vi),
(vii), (viii) or (ix) of the definition of Permitted Indebtedness), in each
case that does not (1) result in an increase in the aggregate principal amount
of Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium or penalty required to be paid under the terms
of the instrument governing such Indebtedness and plus the amount of
reasonable expenses incurred by the Company in connection with such
Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y)
if such Indebtedness being Refinanced is subordinate or junior to the Notes or
any Guarantee, then such Refinancing Indebtedness shall have a final maturity
date later than 91 days after the final maturity date of the Notes and shall
be subordinate to the Notes at least to the same extent and in the same manner
as the Indebtedness being Refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; provided that
if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior
Indebtedness shall at all times
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constitute the holders of a majority in outstanding principal amount of such
Designated Senior Indebtedness in respect of any Designated Senior
Indebtedness.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means one or more revolving credit facilities
under the Credit Facility.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Subsidiary of any property, whether owned by the
Company or any Subsidiary at the Issue Date or later acquired, which has been
or is to be sold or transferred by the Company or such Subsidiary to such
Person or to any other Person from whom funds have been or are to be advanced
by such Person on the security of such Property.
"Senior Indebtedness" means, all Indebtedness and other Obligations
specified below payable directly or indirectly by the Company or any of its
Restricted Subsidiaries (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law), whether outstanding on the Issue Date or
thereafter created, incurred or assumed, by the Company or any of its
Restricted Subsidiaries: (i) the principal of, interest on and all other
Obligations related to, the Credit Facility (including without limitation all
loans, letters of credit and other extensions of credit under the Credit
Facility, and all expenses, fees, reimbursements, indemnities and other
amounts owing pursuant to the Credit Facility); (ii) amounts payable in
respect of any Interest Swap Obligations and Currency Agreements; (iii) all
Indebtedness not prohibited by the "--Limitation on Incurrence of Additional
Indebtedness" covenant that is not expressly pari passu with or subordinated
to the Notes; and (iv) all permitted Refinancings thereof. Notwithstanding the
foregoing, "Senior Indebtedness" shall not include (a) any Indebtedness of the
Company to a Subsidiary of the Company, (b) Indebtedness to, or guaranteed on
behalf of, any Affiliate of the Company or any Subsidiary of the Company
(including, without limitation, amounts owed for compensation), (c) accounts
payable and other amounts due to trade creditors in connection with obtaining
goods, materials or services, (d) Indebtedness represented by Disqualified
Capital Stock, (e) any liability for federal, state, local or other taxes owed
or owing by the Company, (f) Indebtedness incurred in violation of the
Indenture provisions set forth under "--Limitation on Incurrence of Additional
Indebtedness,"(g) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (h) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of the
Company.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w) of
Regulation S-X under the Securities Act.
"Stated Maturity" means, with respect to any installment of interest,
accreted value or principal on any series of Indebtedness, the date on which
such payment of interest or principal is due or is scheduled to be paid in the
original documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest,
accreted value or principal prior to the date originally scheduled for the
payment or accretion thereof.
"Subsidiary", with respect to any Person, means (i) any corporation, limited
liability company, limited partnership or limited liability partnership,
general partnership of which the outstanding Capital Stock having at least a
majority of the votes entitled to be cast in the election of directors (or
Persons having similar control or authority) under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under
ordinary circumstances is at the time, directly or indirectly, owned by such
Person.
"Subsidiary Guarantor" means (i) initially, Diagnostic Imaging, Inc., PSS
Service, Inc., PSS Holding, Inc., Physician Sales & Service Limited
Partnership, PSS Rhode Island, Inc., PSS Texas, Inc., PSS Delaware, Inc.,
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PSS Physician Services, Inc., Standard/Crescent City Surgical Supplies, Inc.
and S&W X-Ray, Inc., and (ii) each of the Company's Subsidiaries that in the
future executes a supplemental indenture in which such Subsidiary agrees to be
bound by the terms of the Indenture as a Subsidiary Guarantor; provided that
any Person constituting a Subsidiary Guarantor as described above shall cease
to be a Subsidiary Guarantor when its respective Guarantee is released in
accordance with the terms thereof.
"Unrestricted Subsidiary" means (I) WorldMed, Inc., WorldMed International,
Inc., and WorldMed, N.V. and (II) any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a
Board Resolution in compliance with the "Limitation on Restricted and
Unrestricted Subsidiaries"covenant but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; provided,
however,that any such Non-Recourse Debt may be guaranteed by the Company or
its Restricted Subsidiaries, provided, that such guarantee is permitted by the
"--Limitation on Incurrence of Additional Indebtedness"covenant; (b) on the
date of such designation 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 or such Restricted Subsidiary; (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Capital Stock or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed
or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one director on its board of directors that is not a director or
executive officer of the Company or its Restricted Subsidiaries and has at
least one executive officer that is not a director or executive officer of the
Company or its Restricted Subsidiaries.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment 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, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities
(other than Local Qualifying Securities) are owned by such Person or any
Wholly Owned Restricted Subsidiary of such Person.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Private Notes were originally sold by the Company on October 7, 1997 to
the Initial Purchasers pursuant to the Purchase Agreement, dated as of October
2, 1997, by and among the Initial Purchasers, the Company and the Subsidiary
Guarantors (the "Purchase Agreement"). The Initial Purchasers subsequently
placed the Private Notes (i) within the United States to qualified
institutional buyers in reliance on Rule 144A under the Securities Act and
(ii) to a limited number on institutional "accredited investors," within the
meaning of Rule 501(a) (1), (2), (3) or (7) under the Securities Act, that
agreed in writing to comply with certain transfer restrictions and other
conditions. As a condition to the Purchase Agreement, the Company, the
Subsidiary Guarantors and the Initial Purchasers entered into the Registration
Rights Agreement on the Issue Date pursuant to which the Company agreed, for
the benefit of the holders, that it will at its expense (i) within 30 days
after the Issue Date (the "Filing Date"), file a registration statement on an
appropriate registration form (the "Exchange Offer Registration Statement")
with the Commission with respect to a registered offer (the "Exchange Offer")
to exchange the Private Notes for notes of the Company (the "Exchange Notes"),
guaranteed by the Subsidiary
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Guarantors which Exchange Notes will have terms identical to the Private Notes
(except (A) the Exchange Notes will bear a different CUSIP Number from the
Private Notes, (B) the issuance of the Exchange Notes will have been
registered under the Securities Act and, therefore, the Exchange Notes will
not bear legends restricting the transfer thereof and (C) holders of the
Exchange Notes will not be entitled to certain rights of holders of Private
Notes under the Registration Rights Agreement) and (ii) use its best efforts
to cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act within 120 days after the Issue Date. Upon the
Exchange Offer Registration Statement being declared effective, the Company
and the Subsidiary Guarantors will offer the Exchange Notes (and the related
guarantees) in exchange for surrender of the Private Notes (and the related
guarantees). The Company and the Subsidiary Guarantors will keep the Exchange
Offer open for acceptance for not less than thirty days (or longer if required
by applicable law) after the date notice of the Exchange Offer is mailed to
the holders of Private Notes. For each of the Private Notes surrendered
pursuant to the Exchange Offer, the holder who surrendered such Private Note
will receive an Exchange Note having a principal amount equal to that of the
surrendered Private Note. Interest on each Exchange Note will accrue from the
Issue Date. Holders whose Private Notes are accepted for exchange will be
deemed to have waived the right to receive any interest accrued on the Private
Notes.
Under existing interpretations of the Commission contained in several "no-
action" letters to third parties and unrelated to the Company or the Exchange
Offer, the Company believes that holders of the Private Notes (other than any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who exchange the Private Notes for Exchange
Notes pursuant to the Exchange Offer generally may offer the Exchange Notes
for resale, resell the Exchange Notes and otherwise transfer the Exchange
Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided, however, that each holder that
wishes to exchange its Private Notes for Exchange Notes will be required to
represent (i) that any Exchange Notes to be received by it will be acquired in
the ordinary course of its business, (ii) that at the time of the commencement
of the Exchange Offer it has no arrangement or understanding with any person
to participate in the distribution (within the meaning of Securities Act) of
the Exchange Notes in violation of the Securities Act, (iii) that it is not an
"affiliate" (as defined in Rule 405 promulgated under the Securities Act) of
the Company, (iv) if such holder is not a Participating Broker-Dealer, that it
is not engaged in, and does not intend to engage in, the distribution of
Exchange Notes and (v) if such holder is a Participating Broker-Dealer that
will receive Exchange Notes for its own account in exchange for Private Notes
that were acquired as a result of market-making or other trading activities,
that it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such Exchange Notes. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other
than a resale of an unsold allotment from the original sale of the Private
Notes) with the Prospectus contained in the Exchange Offer Registration
Statement. The Company and the Subsidiary Guarantors have agreed to make
available during the period required by the Securities Act, a prospectus
meeting the requirements of the Securities Act for use by Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements for use in connection with any resale of such Exchange Notes. In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or an exemption
therefrom is available and complied with.
If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Company and the Subsidiary
Guarantors are not permitted to effect an Exchange Offer, (ii) the Exchange
Offer is not consummated within 165 days of the Issue Date, (iii) in certain
circumstances, certain holders of unregistered Exchange Notes so request, or
(iv) in the case of any holder that participates in the Exchange Offer, such
holder does not receive Exchange Notes on the date of the exchange that may be
sold without restriction under state and federal securities laws (other than
due solely to the status of such holder as an affiliate of the Company or any
Subsidiary Guarantor within the meaning of the Securities Act), then in each
case, the Company and the Subsidiary Guarantors will (x) promptly deliver to
the holders and the Trustee written notice (the "Shelf Notice") thereof and
(y) at their sole expense, (a) as promptly as practicable, file a shelf
registration statement covering resales of the Notes (the "Shelf Registration
Statement"), (b) use their best efforts to cause the Shelf
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Registration Statement to be declared effective under the Securities Act and
(c) use their best efforts to keep effective the Shelf Registration Statement
until the earlier of two years after the Issue Date or such time as all of the
applicable Notes have been sold thereunder. The Company will, in the event
that a Shelf Registration Statement is filed, provide to each holder copies of
the prospectus that it is a part of the Shelf Registration Statement, notify
each such holder when the Shelf Registration Statement for the Notes has
become effective and take certain other actions as are required to permit
unrestricted resales of the Notes. A holder that sells Notes pursuant to the
Shelf Registration Statement will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such
holder (including certain indemnification rights and obligations).
If the Company or the Subsidiary Guarantors fails to comply with the above
provision or if the Exchange Offer Registration Statement or the Shelf
Registration Statement fails to become effective, then, as liquidated damages,
additional interest (the "Additional Interest") shall become payable in
respect of the Notes as follows:
(i) if (A) neither the Exchange Offer Registration Statement nor the
Shelf Registration Statement is filed with the Commission within 30 days
following the Issue Date or (B) notwithstanding that the Company and the
Subsidiary Guarantors have consummated or will consummate an Exchange
Offer, the Company and the Subsidiary Guarantors are required to file a
Shelf Registration Statement and such Shelf Registration Statement is not
filed on or prior to the date required by the Registration Rights
Agreement, then commencing on the day after either such required filing
date, Additional Interest shall accrue on the principal amount of the Notes
at a rate of .50% per annum for the first 90 days immediately following
each such filing date, such Additional Interest rate increasing by an
additional .50% per annum at the beginning of each subsequent 90-day
period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission within 120
days following the Issue Date or (B) notwithstanding that the Company and
the Subsidiary Guarantors have consummated or will consummate an Exchange
Offer, the Company and the Subsidiary Guarantors are required to file a
Shelf Registration Statement and such Shelf Registration Statement is not
declared effective by the Commission on or prior to the 90th day following
the date such Shelf Registration Statement was filed, then, commencing on
the day after either such required effective date. Additional Interest
shall accrue on the principal amount of the Notes at a rate of .50% per
annum for the first 90 days immediately following such date, such
Additional Interest rate increasing by an additional .50% per annum at the
beginning of each subsequent 90-day period; or
(iii) if (A) the Company and the Subsidiary Guarantors have not exchanged
Exchange Notes for all Notes validly tendered in accordance with the terms
of the Exchange Offer on or prior to the 45th day after the date on which
the Exchange Offer Registration Statement was declared effective or (B) if
applicable, the Shelf Registration Statement has been declared effective
and such Shelf Registration Statement ceases to be effective at any time
prior to the second anniversary of the Issue Date (other than after such
time as all Notes have been disposed of thereunder), then Additional
Interest shall accrue on the principal amount of the Notes at a rate of
.50% per annum for the first 90 days commencing on (x) the 46th day after
such effective date, in the case of (A) above, or (y) the day such Shelf
Registration Statement ceases to be effective in the case of (B) above,
such Additional Interest rate increasing by an additional .50% per annum at
the beginning of each subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not
exceed in the aggregate 1.0% per annum; provided, further, however, that (1)
upon the filing of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Offer Registration or a Shelf Registration
Statement (in the case of clause (ii) above), or (3) upon the exchange of
Exchange Notes for all Notes tendered (in the case of clause (iii) (A) above),
or upon the effectiveness of the Shelf Registration Statement which had ceased
to remain effective (in the case of clause (iii) (B) above).
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Additional Interest on the Private Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii)
above will be payable in cash, on the same original interest payment dates as
the Private Notes.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to all the provisions of the Registration Rights
Agreement a copy of which will be available upon request to the Company.
TERM 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 any and all Private
Notes validly 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 Exchange Notes in exchange for each $1,000 principal amount of outstanding
Private Notes accepted in the Exchange Offer. Holders may tender some or all
of their Private Notes pursuant to the Exchange Offer. However, Private Notes
may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the Exchange Notes bear a different CUSIP
Number from the Private Notes, (ii) the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof and (iii) the holders of the Exchange Notes will not be
entitled to certain rights under the Registration Rights Agreement, including
the provisions providing for an increase in the interest rate on the Private
Notes in certain circumstances relating to the timing of the Exchange Offer,
all of which rights will terminate when the Exchange Offer is terminated. The
Exchange Notes will evidence the same debt as the Private Notes and will be
entitled to the benefits of the Indenture. See "Description of Exchange
Notes."
As of the date of this Prospectus, $125,000,000 aggregate principal amount
of Private Notes were outstanding. This Prospectus and the Letter of
Transmittal are being mailed to persons who were Holders of Private Notes on
the close of business on the date of this Prospectus.
Holders of Private Notes do not have any appraisal or dissenters' rights
under the Business Corporation Act of Florida or the Indenture in connection
with the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Private Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise the certificates for any such unaccepted Private Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Private 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 Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances 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
January 30, 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.
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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 an announcement thereof, each prior to 9:00 a.m., New York
City time on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
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, whether before or after any tender of the
Private Notes. 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.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes will accrue from the Issue Date, i.e.,
October 7, 1997, payable semi-annually in arrears on each of April 1 and
October 1 of each year, commencing April 1, 1998 at the rate of 8 1/2% per
annum. Holders whose Private Notes are accepted for exchange will be deemed to
have waived the right to receive any interest accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a Holder of Private Notes may tender such Private Notes in the Exchange
Offer. To tender in the Exchange Offer, a holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the
Private Notes and any other required documents, to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. To be tendered
effectively, the Private Notes, Letter of Transmittal and other required
documents must be completed and 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. Delivery of the Private Notes may be made by book-
entry transfer in accordance with the procedures described below. Confirmation
of such book-entry transfer must be received by the Exchange Agent prior to
the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the Company
the representations set forth above in the second paragraph under the heading
"--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute 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 PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER 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 PRIVATE NOTES SHOULD BE SENT TO
THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Private 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
register holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Private Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution (as defined). 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 guarantees must be by a member
firm of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private 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 Private
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, offices
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Private Notes at the book-entry transfer facility. The Depository Trust
Company (the "Book-Entry Transfer Facility"), for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Private Notes by causing such Book-Entry
Transfer Facility to transfer such Private Notes into the Exchange Agent's
account with respect to the Private Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the
Private Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are 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.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Private Notes and withdrawal of tendered
Private 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 Private Notes not properly tendered or any Private
Notes the Company's acceptance of which would, in the opinion of counsel for
the Company, be unlawful. The Company also reserves the right in their sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Private 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 Private Notes must be
cured within such time as the Issuer shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Private 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, a soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available, (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent or (iii) who cannot complete the procedures for book-entry transfer,
prior to the Expiration Date, may effect a tender if:
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(j) the tender is made through an Eligible Institution;
(k) 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 certificate number(s)
of such Private Notes and the principal amount of Private Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
five New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the
certificates(s) representing the Private Notes (or a confirmation of book-
entry transfer of such Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility), and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(l) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificates(s) representing all
tendered Private Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Private Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility), and all other documents required by
the Letter of Transmittal are received by the Exchange Agent upon five 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 Private Notes according to the
guaranteed delivery procedures set forth above.
ACCEPTANCE OF PRIVATE NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Private Notes
properly tendered and will issue the Exchange Notes promptly after acceptance
of the Private Notes. See "Conditions" below. For purposes of the Exchange
Offer, the Company will be deemed to have accepted properly tendered Private
Notes for exchange when, as and if the Company has given oral or written
notice thereof to the Exchange Agent. For each Private Note accepted for
exchange, the holder of such Private Note will receive an Exchange Note having
a principal amount equal to that of the surrendered Private Note.
In all cases, issuance of Exchange Notes for Private Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Private Notes or a
timely Book-Entry Confirmation of such Private 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 Private Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Private Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted
or non-exchanged Private Notes will be returned without expense to the
tendering holder thereof (for, in the case of Private Notes tendered by book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry procedures described below, such non-
exchanged Private 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.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal 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. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Private Notes to be
withdrawn (the "Depositor"), (ii) identify the Private Notes to be withdrawn
(including the certificate number(s) and principal amount of such Private
Notes, or, in the case of Private Notes transferred by book-entry transfer,
the name and number of the account at the
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Book-Entry Transfer Facility to be credited), (iii) be signed by the holder in
the same manner as the original signature on the Letter of Transmittal by
which such Private Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Private Notes register the transfer of such
Private Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any such Private Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, whose determination shall be final and binding on all parties.
Any Private Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be
issued with respect thereto unless the Private Notes so withdrawn are validly
retendered. Any Private Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Private Notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any
Private Notes, and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Private Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by any governmental agency which might materially impair the ability of the
Company or the Subsidiary Guarantors to proceed with the Exchange Offer or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or the Subsidiary Guarantors;
(b) the Exchange Offer violates applicable law or any applicable
interpretation of the staff of the Commission; or
(c) any governmental approval has not been obtained, which approval the
Company and the Subsidiary Guarantors shall deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Private Notes and
return all tendered Private Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Private Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Private Notes (see "--Withdrawal of Tenders") or (iii) waiver such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes which have not been withdrawn. In addition,
the Company has reserved the right, notwithstanding the satisfaction of each
of the foregoing conditions, to terminate or amend the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Private Notes being tendered or accepted for exchange.
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EXCHANGE AGENT
SunTrust Bank, Central Florida, NA, which also acts as Trustee under the
Indenture, has been appointed as Exchange Agent for 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:
By Registered or CertifiedBy Facsimile Transmission: By Overnight Courier:
Mail:
SunTrust Bank Central SunTrust Bank, Central
SunTrust Bank, Central Florida, NA Florida, NA
Florida, NA (407) 237-4791 c/o First Chicago Trust
c/o First Chicago Trust Company of New York
Company of New York Attn: Theresa Hawkins Corporate Trust
Corporate Trust Confirm by Telephone: 8th Floor
8th Floor Theresa Hawkins 14 Wall Street
14 Wall Street (407) 237-4791 New York, NY 10005
New York, NY 10005
For Information Call:
Theresa Hawkins
(407) 237-4791
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
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 telegraph, telecopy, 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 brokers, dealers or others to
solicit 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 fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Private Notes, which is face value, as reflected in the Company's accounting
records on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Company. The expenses of the Exchange Offer
will be amortized over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Private Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Private
Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) so long as the Private Notes are eligible for resale pursuant
to Rule 144A, to a person inside the United States whom the seller reasonably
believes is a qualified institutional buyer within the meaning
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of Rule 144A under the Securities Act in a transaction meeting the
requirements of Rule 144A, in accordance with Rule 144 under the Securities
Act, or pursuant to another exemption from the registration requirements of
the Securities Act (and based upon an opinion of counsel reasonably acceptable
to the Company), (iii) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 904 under the Securities Act, or
(iv) pursuant to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States.
Following the consummation of the Exchange Offer, holders of the Private
Notes who were eligible to participate in the Exchange Offer but who did not
tender their Private Notes will not have any further registration rights,
except with respect to a Shelf Registration Statement in the event that a
Shelf Notice is delivered by the Company, and such Private Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity
of the market for such Private Notes could be adversely affected.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in certain "no-action" letters issued to
third parties and unrelated to the Company and the Exchange Offer, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Private Notes may be offered for resale, resold and otherwise transferred
by 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 such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders have no intention, nor any
arrangement or understanding with any person, to participate in the
distribution of such Exchange Notes in violation of the provisions of the
Securities Act. However, if any holder acquires Exchange Notes in the Exchange
Offer for the purpose of distributing or participating in the distribution of
the Exchange Notes, such holder cannot rely on the position of the staff of
the Commission enunciated in such "no-action" letters or any similar
interpretive letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, unless an exemption from registration is otherwise available.
Further, each Participating Broker-Dealer that receives Exchange Notes for its
own account in exchange for Private Notes, where such Private Notes were
acquired by such Participating Broker-Dealer as a result of market-making or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Notes. As contemplated by these "no-
action" letters and the Registration Rights Agreement, each holder accepting
the Exchange Offer is required to make certain representations to the Company
in the Letter of Transmittal. See "Purpose and Effect of Exchange Offer."
BOOK-ENTRY; DELIVERY AND FORM
Except as described below under "--Certificated Securities," the Private
Notes (and the related guarantees) are represented by one or more permanent
global certificates in definitive, fully registered form (the "Outstanding
Global Notes") and the Exchange Notes will be issued in the form of one or
more, permanent global certificates in definitive fully registered form (the
"Exchange Global Notes"). The term "Global Notes" means the Outstanding Global
Note, or the Exchange Global Note, as the context may require. The Outstanding
Global Notes were deposited on the date of closing of the sale of the Private
Notes, and the Exchange Global Notes will be deposited on the date of closing
of the Exchange Offer, with the Trustee as custodian for The Depository Trust
Company ("DTC"), New York, New York, and registered in the name of a nominee
of DTC, in each case for credit to an account of a direct or indirect
participant as described below. The Outstanding Global Notes are subject to
certain restrictions on transfer set forth therein and will bear a legend
regarding such restrictions.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. In addition, transfer of beneficial interests in the Global Notes
will be subject to the applicable rules and procedures of DTC and its direct
or indirect participants,
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which may change from time to time. Beneficial interests in the Global Notes
may not be exchanged for Notes in certificated form except in the limited
circumstances described below. See "--Certificated Securities."
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITORY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of Participants. The Participants include securities brokers and
dealers (including the Initial Purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through the Participants or
Indirect Participants. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Company that pursuant to procedures established by
it, (i) upon deposit of the Exchange Global Notes, DTC will credit the
accounts of Participants as designated in the appropriate Letters of
Transmittal with portions of the principal amount of Exchange Global Notes and
(ii) ownership of such interests in the Exchange Global Notes will be shown
on, and the transfer ownership thereof will be effected only through, records
maintained by DTC (with respect to Participants) or by Participants and the
Indirect Participants (with respect to other owners of beneficial interests in
the Exchange Global Notes). Investors in the Exchange Global Notes may hold
their interests therein directly through DTC, if they are Participants in such
system, or indirectly through organizations that are Participants in such
system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interest in a Global Note to such persons may be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants and certain banks, the ability of
a person having a beneficial interest in a Global Note to pledge such interest
to persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of
physical certificate evidencing such interests. For certain other restrictions
on the transferability of the Notes, see "--Certificated Securities."
Except as described below, owners of interests in the Global Notes will not
have Notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
holders thereof under the Indenture for any purpose.
Payments in respect of the principal and premium and interest on a Global
Note registered in the name of DTC or its nominee will be payable by the
Trustee to DTC or its nominee in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, the Company and the Trustee
will treat the persons in whose names the Notes, including the Global Notes,
are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or
will have any responsibility or liability for (i) any aspect of DTC's records
or any Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interests in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Notes or (ii) any other matter relating to
the actions and practices of DTC or any of its Participants or Indirect
Participants.
DTC has advised the Company that its current practices, upon receipt of any
payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
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payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global Notes as shown on the records of DTC. Payments by
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or its Participants in
identifying the beneficial owners of the Notes, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the Notes for
all purposes.
Interests in the Global Notes will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and its participants. Transfers between Participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Participants
to whose account DTC interests in the Global Notes are credited and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such Participant or Participants has or have given direction. However,
if there is an Event of Default under the Indenture, DTC reserves the right to
exchange the Global Notes for legended Notes in certificated form, and to
distribute such Notes to its Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Initial
Purchasers or the Trustee will have any responsibility for the performance by
DTC or their Participants or Indirect Participants of their obligations under
the rules and procedures governing their operations.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Notes may, upon request to the Trustee, exchange such beneficial
interest for Notes in certificated form ("Certificated Securities"). Upon any
such issuance, the Trustee is required to register such Certificated
Securities in the name of, and cause the same to be delivered to, such person
or persons (or the nominee of any thereof). All such certificated Notes would
be subject to the legend requirements described herein under "Transfer
Restrictions." In addition, if (i) the Company notifies the Trustee in writing
that the Depositary is no longer willing or able to act as a depositary and
the Company is unable to locate a qualified successor within 90 days or (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Notes in the form of Certificated Securities under the
Indenture, then, upon surrender by the Global Note Holder of its Global Note,
Notes in such form will be issued to each person that the Global Note Holder
and the Depositary identify as being the beneficial owner of the related
Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal of, interest and premium, if any, on the
Global Notes) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Securities, the Issuers will make all payments of principal of, interest and
premium, if any, on the Notes, by wire transfer of immediately available funds
to the accounts specified by the Holders thereof or, if no such account is
specified,
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by mailing a check to each such Holder's registered address. Secondary trading
in long-term notes and debentures of corporate issuers is generally settled in
clearing-house or next-day funds. In contrast, the Notes represented by the
Global Notes are expected to be eligible to trade in the PORTAL market and to
trade in DTC's Same-Day Funds Settlement System, and any permitted secondary
market trading in such Senior Subordinated Notes will, therefore, be required
by DTC to be settled in immediately available funds. The Company expects that
secondary trading in the Certificated Securities will also be settled in
immediately available funds.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material federal income tax
consequences expected to result to holders whose Private Notes are exchanged
for Exchange Notes in the Exchange Offer. The following discussion is based
upon current provisions of the Internal Revenue Code of 1986, as amended,
applicable Treasury regulations, judicial authority and administrative rulings
and practice. There can be no assurance that the Internal Revenue service
("the Service") will not take a contrary view, and no ruling from the Service
has been or will be sought with respect to the Exchange Offer. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any
such changes or interpretations may or may not be retroactive and could affect
the tax consequences to holders. Certain holders (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations, and persons who are not citizens or residents of the
United States) may be subject to special rules not discussed below. EACH
HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
The exchange of Private Notes for Exchange Notes pursuant to the Exchange
Offer will not be considered a taxable exchange for U.S. federal income tax
purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Private Notes. Exchange Notes received
by a holder of Private Notes will be treated as a continuation of the Private
Notes. Accordingly, there will not be any U.S. federal income tax consequences
to holders exchanging Private Notes for Exchange Notes in the Exchange Offer.
PLAN OF DISTRIBUTION
Except as provided herein, this Prospectus may not be used for an offer to
resell, resale or other transfer of Exchange Notes. There is no existing
market for the Private Notes. No assurance can be given as to the liquidity
of, or trading markets for, the Exchange Notes.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and
subject to the immediately following sentence, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by the holders thereof without
further compliance with the registration and prospectus delivery provisions of
the Securities Act. However, any holder of Private Notes who is an "affiliate"
of the Company or who intends to participate in the Exchange Offer for the
purpose of distributing the Exchange Notes (i) will not be able to rely on the
interpretation by the staff of the Commission set forth in the above-mentioned
no-action letters, (ii) will not be able to tender its Private Notes in the
Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Private Notes unless such sale or transfer is made pursuant to
an exemption from such requirements.
Each holder of the Private Notes (other than certain specified holders) who
wishes to exchange Private Notes for Exchange Notes in the Exchange Offer will
be required to represent to the Company, among other things, (i) that any
Exchange Notes to be received by it will be acquired in the ordinary course of
its business, (ii) that at the time of the commencement of the Exchange Offer,
it has no arrangement or understanding with
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any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes in violation of the Securities Act,
(iii) that it is not an "affiliate" (as defined in Rule 405 promulgated under
the Securities Act) of the Company, (iv) if such holder is not a Participating
Broker-Dealer, that is not engaged in, and does not intend to engage in, the
distribution of the Exchange Notes and (v) is such holder is a Participating
Broker-Dealer that will receive Exchange Notes for its own account in exchange
for Private Notes that were acquired as a result of market-making or other
trading activities, that it will deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of Transmittal also states that by
acknowledging that it will deliver a prospectus, and by delivering such a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other
than a resale of an unsold allotment from the original sale of the Private
Notes) with the Prospectus contained in the Exchange Offer Registration
Statement. The Company and the Subsidiary Guarantors have agreed to make
available, during the period required by the Securities Act, a prospectus
meeting the requirements of the Securities Act for use by Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements for use in connection with any resale of such Exchange Notes. In
addition, until March 8, 1998 (90 days after the date of this Prospectus), all
dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver
this Prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer who hold Private Notes acquired for its
own account as a result of market-making activities or other trading
activities in connection with resales of Exchange Notes received in exchange
of Private Notes.
The Company will not receive any proceeds from the exchange of Private Notes
for Exchange Notes, including those exchanged by Participating Broker-Dealers.
Exchange Notes received by broker-dealers for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the
writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, or 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 broker-dealers who
may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any Exchange Notes. Any broker-
dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any person that participates in the
distribution of such Exchange Notes may be deemed an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such broker-dealers
may be deemed to be underwriting compensation under the Securities Act.
For a period of 90 days after the Expiration Date, the Company will send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any Participating Broker-Dealer that requests such documents in
the Letter of Transmittal. The Company has agreed to pay all expenses
incidental to the Exchange Offer other than discounts or commissions of any
broker-dealers and will indemnify the holders of the Private Notes (including
Participating Broker-Dealers) participating in the Exchange Offer against
certain liabilities, including liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for Private Notes pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in this Prospectus untrue in any material respect or which
requires the making of any changes in this Prospectus in order to make any
statement herein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend the use of
this Prospectus until the Company has amended or supplemented this Prospectus
to correct such misstatement or omission and has furnished copies of the
amended and supplemented Prospectus to such broker-dealer. If the Company
gives any such notice to suspend the use of the Prospectus, it will extend the
90-day period referred to
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above by the number of days during the period from and including the date of
the giving of such notice up to and including when broker-dealers shall have
received copies of the supplemented or amended Prospectus necessary to permit
resales of Exchange Notes.
The Company has agreed, pursuant to the Registration Rights Agreement, to
pay all expenses incident to the Exchange Offer (other than any underwriting
discounts or commissions), including reasonable fees and disbursements of one
special counsel for all of the Holders of the Notes. In addition, the Company
and the Subsidiary Guarantors agreed to indemnify the holders of the Notes
against certain liabilities.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in this registration statement have been audited by Arthur Andersen
LLP, independent certified public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said reports.
The consolidated financial statements of GSMS for the year ended December
31, 1996 included in the Company's Current Report on Form 8-K dated December
23, 1997, and incorporated by reference in this registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon incorporated by reference therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Exchange Notes being offered hereby are being passed
upon for the Company by Alston & Bird LLP, Atlanta, Georgia.
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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS COR-
RECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 16
Use of Proceeds............................................................ 25
Capitalization............................................................. 26
Selected Consolidated Financial Data....................................... 27
Business................................................................... 28
Management................................................................. 39
Certain Transactions....................................................... 41
Security Ownership by Certain Beneficial Owners and Management............. 42
Description of Credit Facility............................................. 43
Description of Exchange Notes.............................................. 44
The Exchange Offer......................................................... 76
Book-Entry; Delivery and Form.............................................. 85
Certain Federal Income Tax Considerations.................................. 88
Plan of Distribution....................................................... 88
Experts.................................................................... 90
Legal Matters.............................................................. 90
</TABLE>
UNTIL APRIL 2, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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PHYSICIAN SALES & SERVICE, INC.
OFFER FOR ALL OUTSTANDING 8 1/2% SENIOR SUBORDINATED NOTES DUE 2007 IN
EXCHANGE FOR 8 1/2% SENIOR SUBORDINATED NOTES DUE 2007, REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
---------------
PROSPECTUS
---------------
The Exchange Agent for the Exchange
Offer is:
SUNTRUST BANK, CENTRAL
FLORIDA, NA
By Facsimile:
(407) 237-5299
Confirm by Telephone:
(407) 237-4791
Attention: Theresa Hawkins
By Overnight Courier:
SUNTRUST BANK, CENTRAL
FLORIDA, NA
c/o First Chicago Trust Company of New York
Corporate Trust
8th Floor
14 Wall Street
New York, NY 10005
By Hand/Mail:
SUNTRUST BANK, CENTRAL
FLORIDA, NA
c/o First Chicago Trust Company of New York
Corporate Trust
8th Floor
14 Wall Street
New York, NY 10005
December 29, 1997
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended and Restated Articles of Incorporation, as amended, and the
Amended and Restated Bylaws of the Registrant set forth the extent to which
the Registrant's directors and officers may be indemnified against liabilities
they may incur while serving in such capacities. Such indemnification will be
provided to the fullest extent allowed by the Florida Business Corporation
Act, as amended from time to time, and judicial or administrative decisions.
Under these indemnification provisions, the Registrant is required to
indemnify any of its directors and officers against any reasonable expenses
(including attorneys' fees) incurred by him in the defense of any action, suit
or proceeding, whether civil, criminal, administrative or investigative, to
which he was made a party, or in defense of any claim, issue or matter
therein, by reason of the fact that he is or was a director or officer of the
Registrant or who, while a director or officer of the Registrant, is or was
serving at the Registrant's request as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise to the extent that such director or
officer has been successful, on the merits or otherwise, in such defense. The
Registrant also may indemnify any of its directors or officers against any
liability incurred in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Registrant, in
which event, additional determinations must be made before indemnification is
provided) by reason of the fact that he is or was a director or officer of the
Registrant who, while a director or officer of the Registrant, is or was
serving at the Registrant's request as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, if such director or officer acted
in good faith and in a manner he believed to be in, or not opposed to, the
best interests of the Registrant, and with respect to any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. The Registrant
may also provide advancement of expenses incurred by a director or officer in
defending any such action, suit or proceeding upon receipt of a written
affirmation of such officer or director that he has met certain standards of
conduct and an understanding by or on behalf of such officer or director to
repay such advances unless it is ultimately determined that he is entitled to
indemnification by the Registrant. Notwithstanding the foregoing, the Amended
and Restated Bylaws of the Registrant provide that the Registrant shall not be
required to indemnify any of its directors or officers in connection with a
proceeding initiated by such person unless such authorization for such
proceeding was not denied by the Board of Directors of the Registrant prior to
sixty (60) days after receipt of notice thereof from such person stating his
or her intent to initiate such proceeding and only upon such terms and
conditions as the Board of Directors may deem appropriate.
The Florida Business Corporation Act contains a provision which limits the
personal liability for monetary damages to the corporation or any other person
for any statement, vote, decision, or failure to act, regarding corporate
management or policy, by a director, unless the director breached or failed to
perform his duties as a director and such breach constitutes (i) a violation
of criminal law, unless the director has reasonable cause to believe his
conduct was unlawful; (ii) a transaction from which the director received an
improper personal benefit; (iii) an unlawful distribution under Florida law,
(iv) in a proceeding by or in the right of a corporation to procure a judgment
in its favor or by or in the right of a shareholder, conscious disregard for
the best interest of the corporation, or willful misconduct; or (v) in a
proceeding by or in the right of someone other that the corporation or a
shareholder, recklessness or an act or omission which was committed in bad
faith or with malicious purpose or in a manner exhibiting wanton or willful
disregard of human rights, safety or property. The Registrant maintains an
insurance policy insuring the Registrant and directors and officers of the
Registrant against certain liabilities, including liabilities under the
Securities Act of 1933.
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of December 14, 1997 by and
among Physician Sales & Service, Inc., PSS Merger Corp. and Gulf
South Medical Supply, Inc. (incorporated by reference from
Registrant's Current Report on Form 8-K filed with the Commission
on December 16, 1997)
3.1 Amended and Restated Articles of Incorporation, as amended, of
Physician Sales & Service, Inc. (incorporated by reference from
Registrant's Registration Statement on Form S-3, effective
November 13, 1995, Registration No. 33-97524)
3.2 Amended and Restated Bylaws of Physician Sales & Service, Inc.
(incorporated by reference from Registrant's Registration
Statement on Form S-1, Registration No. 33-76580)
3.3 Restated Articles of Incorporation of Diagnostic Imaging, Inc.*
3.4 Amended and Restated Bylaws of Diagnostic Imaging, Inc.*
3.5 Certificate of Incorporation of PSS Delaware, Inc.*
3.6 Amended and Restated Bylaws of PSS Delaware, Inc.*
3.7 Articles of Incorporation of PSS Holding, Inc.*
3.8 Amended and Restated Bylaws of PSS Holding, Inc.*
3.9 Articles of Incorporation of PSS Physician Services, Inc.*
3.10 Amended and Restated Bylaws of PSS Physician Services, Inc.*
3.11 Articles of Incorporation of PSS Rhode Island, Inc.*
3.12 Amended and Restated Bylaws of PSS Rhode Island, Inc.*
3.13 Articles of Incorporation of PSS Service, Inc.*
3.14 Amended and Restated Bylaws of PSS Service, Inc.*
3.15 Articles of Incorporation of PSS Texas, Inc.*
3.16 Amended and Restated Bylaws of PSS Texas, Inc.*
3.17 Certificate of Limited Partnership of Physician Sales & Service
Limited Partnership*
3.18 Limited Partnership Agreement of Physician Sales & Service Limited
Partnership*
3.19 Articles of Incorporation, as amended, of Standard/Crescent City
Surgical Supplies, Inc.*
3.20 Amended and Restated Bylaws of Standard/Crescent City Surgical
Supplies, Inc.*
3.21 Certificate of Incorporation, as amended, of S&W X-Ray, Inc.*
3.22 Amended and Restated Bylaws of S&W X-Ray, Inc.*
4.1 Form of Indenture, dated as of October 7, 1997, by and among the
Company, the Subsidiary Guarantors named therein, and SunTrust
Bank, Central Florida, National Association, as Trustee*
4.2 Registration Rights Agreement, dated as of October 7, 1997, by and
among the Company, the Subsidiary Guarantors named therein, BT
Alex. Brown Incorporated, Salomon Brothers Inc. and NationsBanc
Montgomery Securities, Inc.*
4.3 Form of 8 1/2% Senior Subordinated Note due 2007, including Form
of Guarantee (Private Notes)*
4.4 Form of 8 1/2% Senior Subordinated Note due 2007, including Form
of Guarantee (Exchange Notes)*
5.1 Opinion of Alston & Bird LLP*
12.1 Statement re. computation of ratios*
21.1 Subsidiaries of Physician Sales & Service, Inc.*
23.1 Consent of Alston & Bird LLP (included in the opinion filed as
Exhibit 5.1)*
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ernst & Young LLP
24.1 Power of Attorney of officers and directors of the Company*
24.2 Power of Attorney of officers and directors of the Subsidiary
Guarantors*
25.1 Statement of Eligibility of Trustee*
99.1 Form of Letter of Transmittal with respect to the Exchange Offer*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
other Nominees*
99.4 Letter to Clients*
99.5 Instruction to Registered Holder and/or Book Entry Transfer
Participant from Beneficial Owner*
99.6 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9*
</TABLE>
- --------
* Previously filed.
(b) Financial Statement Schedules.
None
II-2
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The Undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 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 the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on December 23,
1997.
PHYSICIAN SALES & SERVICE, INC.
/s/ Patrick C. Kelly
By: _________________________________
Name: Patrick C. Kelly
Title: Chairman and Chief
Executive Officer
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1997.
SIGNATURE TITLE
/s/ Patrick C. Kelly Chairman of the Board and Chief
- ------------------------------------- Executive Officer (principal
PATRICK C. KELLY executive officer)
* Executive Vice President, Chief
- ------------------------------------- Financial Officer and Director
DAVID A. SMITH (principal financial and accounting
officer)
* Director
- -------------------------------------
JOHN F. SASEN, SR.
* Director
- -------------------------------------
DELMER W. DALLAS
* Director
- -------------------------------------
WILLIAM C. MASON
* Director
- -------------------------------------
T. O'NEAL DOUGLAS
* Director
- -------------------------------------
FRED ELEFANT
* Director
- -------------------------------------
DELORES KESLER
* Director
- -------------------------------------
JAMES L.L. TULLIS
* By: /s/ Patrick C. Kelly
---------------------------------
PATRICK C. KELLY, ATTORNEY-IN-
FACT
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on December 23,
1997.
DIAGNOSTIC IMAGING, INC.
/s/ Frederick E. Dell
By: _________________________________
Name: Frederick E. Dell
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1997.
SIGNATURE TITLE
* Chief Executive Officer and Director
- ------------------------------------- (principal executive officer)
FREDERICK E. DELL
* Chief Financial Officer (principal
- ------------------------------------- financial and accounting officer)
/s/ Patrick C. Kelly Chairman of the Board and Director
- -------------------------------------
PATRICK C. KELLY
* Director
- -------------------------------------
DAVID A. SMITH
*By: /s/ Patrick C. Kelly
----------------------------------
PATRICK C. KELLY, ATTORNEY-IN-
FACT
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on December 23,
1997.
PSS DELEWARE, INC.
/s/ Patrick C. Kelly
By: _________________________________
Name: Patrick C. Kelly
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1997.
SIGNATURE TITLE
/s/ Patrick C. Kelly President and Director (principal
- ------------------------------------- executive officer)
PATRICK C. KELLY
* Treasurer and Director (principal
- ------------------------------------- financial and accounting officer)
DAVID A. SMITH
* By: /s/ Patrick C. Kelly
--------------------------------
PATRICK C. KELLY, ATTORNEY-IN-FACT
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on December 23,
1997.
PSS HOLDING, INC.
/s/ Fred Elefant
By: _________________________________
Name: Fred Elefant
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1997.
SIGNATURE TITLE
* President, Treasurer and Director
- ------------------------------------- (principal executive and financial
FRED ELEFANT officer)
* By: /s/ Patrick C. Kelly
---------------------------------
PATRICK C. KELLY, ATTORNEY-IN-
FACT
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on December 23,
1997.
PSS PHYSICIAN SERVICES, INC.
/s/ Patrick C. Kelly
By: _________________________________
Name: Patrick C. Kelly
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1997.
SIGNATURE TITLE
/s/ Patrick C. Kelly President and Director (principal
- ------------------------------------- executive officer)
PATRICK C. KELLY
* Treasurer and Director (principal
- ------------------------------------- financial and accounting officer)
DAVID A. SMITH
* By: /s/ Patrick C. Kelly
---------------------------------
PATRICK C. KELLY, ATTORNEY-IN-
FACT
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on December 23,
1997.
PSS RHODE ISLAND, INC.
/s/ Patrick C. Kelly
By: _________________________________
Name: Patrick C. Kelly
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1997.
SIGNATURE TITLE
/s/ Patrick C. Kelly President and Director (principal
- ------------------------------------- executive officer)
PATRICK C. KELLY
* Treasurer and Director (principal
- ------------------------------------- financial and accounting officer)
DAVID A. SMITH
*By: /s/ Patrick C. Kelly
----------------------------------
PATRICK C. KELLY, ATTORNEY-IN-
FACT
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on December 23,
1997.
PSS SERVICE, INC.
/s/ Patrick C. Kelly
By: _________________________________
Name: Patrick C. Kelly
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1997.
SIGNATURE TITLE
/s/ Patrick C. Kelly President and Director (principal
- ------------------------------------- executive officer)
PATRICK C. KELLY
* Treasurer and Director (principal
- ------------------------------------- financial and accounting officer)
DAVID A. SMITH
*By: /s/ Patrick C. Kelly
----------------------------------
PATRICK C. KELLY, ATTORNEY-IN-
FACT
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on December 23,
1997.
PSS TEXAS, INC.
/s/ Patrick C. Kelly
By: _________________________________
Name: Patrick C. Kelly
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1997.
SIGNATURE TITLE
/s/ Patrick C. Kelly President and Director (principal
- ------------------------------------- executive officer)
PATRICK C. KELLY
* Treasurer and Director (principal
- ------------------------------------- financial and accounting officer)
DAVID A. SMITH
*By: /s/ Patrick C. Kelly
----------------------------------
PATRICK C. KELLY, ATTORNEY-IN-
FACT
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on December 23,
1997.
PHYSICIAN SALES & SERVICE LIMITED
PARTNERSHIP
PHYSICIAN SALES & SERVICE, INC.,
its general partner
/s/ Patrick C. Kelly
By: _________________________________
Name: Patrick C. Kelly
Title: Chief Executive Officer
II-13
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1997.
SIGNATURE TITLE
/s/ Patrick C. Kelly Chairman of the Board and Chief
- ------------------------------------- Executive Officer (principal
PATRICK C. KELLY executive officer)
* Executive Vice President, Chief
- ------------------------------------- Financial Officer and Director
DAVID A. SMITH (principal financial and accounting
officer)
* Director
- -------------------------------------
JOHN F. SASEN, SR.
* Director
- -------------------------------------
DELMER W. DALLAS
* Director
- -------------------------------------
WILLIAM C. MASON
* Director
- -------------------------------------
T. O'NEAL DOUGLAS
* Director
- -------------------------------------
FRED ELEFANT
* Director
- -------------------------------------
DELORES KESLER
* Director
- -------------------------------------
JAMES L.L. TULLIS
* By: /s/ Patrick C. Kelly
---------------------------------
PATRICK C. KELLY, ATTORNEY-IN-
FACT
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on December 23,
1997.
STANDARD/CRESCENT CITY SURGICAL
SUPPLIES, INC.
/s/ Patrick C. Kelly
By: _________________________________
Name: Patrick C. Kelly
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1997.
SIGNATURE TITLE
/s/ Patrick C. Kelly President and Director (principal
- ------------------------------------- executive officer)
PATRICK C. KELLY
* Treasurer and Director (principal
- ------------------------------------- financial and accounting officer)
DAVID A. SMITH
* By: /s/ Patrick C. Kelly
---------------------------------
PATRICK C. KELLY, ATTORNEY-IN-
FACT
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on December 23,
1997.
S&W X-RAY, INC.
/s/ Frederick E. Dell
By: _________________________________
Name: Frederick E. Dell
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1997.
SIGNATURE TITLE
* President and Director(principal
- ------------------------------------- executive officer)
FREDERICK E. DELL
* Treasurer and Director(principal
- ------------------------------------- financial andaccounting officer)
DAVID A. SMITH
/s/ Patrick C. Kelly Chairman of the Board
- -------------------------------------
PATRICK C. KELLY
* By: /s/ Patrick C. Kelly
---------------------------------
PATRICK C. KELLY, ATTORNEY-IN-
FACT
II-16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of December 14,
1997 by and among Physician Sales & Service, Inc., PSS
Merger Corp. and Gulf South Medical Supply, Inc.
(incorporated by reference from Registrant's Current
Report on Form 8-K filed with the Commission on
December 16, 1997)
3.1 Amended and Restated Articles of Incorporation, as
amended, of Physician Sales & Service, Inc.
(incorporated by reference from Registrant's
Registration Statement on Form S-3, effective November
13, 1995, Registration No. 33-97524)
3.2 Amended and Restated Bylaws of Physician Sales &
Service, Inc. (incorporated by reference from
Registrant's Registration Statement on Form S-1,
Registration No. 33-76580)
3.3 Restated Articles of Incorporation of Diagnostic
Imaging, Inc.*
3.4 Amended and Restated Bylaws of Diagnostic Imaging,
Inc.*
3.5 Certificate of Incorporation of PSS Delaware, Inc.*
3.6 Amended and Restated Bylaws of PSS Delaware, Inc.*
3.7 Articles of Incorporation of PSS Holding, Inc.*
3.8 Amended and Restated Bylaws of PSS Holding, Inc.*
3.9 Articles of Incorporation of PSS Physician Services,
Inc.*
3.10 Amended and Restated Bylaws of PSS Physician Services,
Inc.*
3.11 Articles of Incorporation of PSS Rhode Island, Inc.*
3.12 Amended and Restated Bylaws of PSS Rhode Island, Inc.*
3.13 Articles of Incorporation of PSS Service, Inc.*
3.14 Amended and Restated Bylaws of PSS Service, Inc.*
3.15 Articles of Incorporation of PSS Texas, Inc.*
3.16 Amended and Restated Bylaws of PSS Texas, Inc.*
3.17 Certificate of Limited Partnership of Physician Sales
& Service Limited Partnership*
3.18 Limited Partnership Agreement of Physician Sales &
Service Limited Partnership*
3.19 Articles of Incorporation, as amended, of
Standard/Crescent City Surgical Supplies, Inc.*
3.20 Amended and Restated Bylaws of Standard/Crescent City
Surgical Supplies, Inc.*
3.21 Certificate of Incorporation, as amended, of S&W X-
Ray, Inc.*
3.22 Amended and Restated Bylaws of S&W X-Ray, Inc.*
4.1 Form of Indenture, dated as of October 7, 1997, by and
among the Company, the Subsidiary Guarantors named
therein, and SunTrust Bank, Central Florida, National
Association, as Trustee*
4.2 Registration Rights Agreement, dated as of October 7,
1997, by and among the Company, the Subsidiary
Guarantors named therein, BT Alex. Brown Incorporated,
Salomon Brothers Inc. and NationsBanc Montgomery
Securities, Inc.*
4.3 Form of 8 1/2% Senior Subordinated Note due 2007,
including Form of Guarantee (Private Notes)*
4.4 Form of 8 1/2% Senior Subordinated Note due 2007,
including Form of Guarantee (Exchange Notes)*
5.1 Opinion of Alston & Bird LLP*
12.1 Statement re. computation of ratios*
21.1 Subsidiaries of Physician Sales & Service, Inc.*
23.1 Consent of Alston & Bird LLP (included in the opinion
filed as Exhibit 5.1)*
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ernst & Young LLP
24.1 Power of Attorney of officers and directors of the
Company*
24.2 Power of Attorney of officers and directors of the
Subsidiary Guarantors*
25.1 Statement of Eligibility of Trustee*
99.1 Form of Letter of Transmittal with respect to the
Exchange Offer*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and other Nominees*
99.4 Letter to Clients*
99.5 Instruction to Registered Holder and/or Book Entry
Transfer Participant from Beneficial Owner*
99.6 Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9*
</TABLE>
- --------
* Previously filed.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
December 18, 1997 included in Physician Sales & Service, Inc.'s Current Report
on Form 8-K filed on December 23, 1997, and to all references to our Firm
included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Jacksonville, Florida
December 22, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Amendment No. 1 to Form S-4, No. 333-39679) and related
Prospectus of Physician Sales & Service, Inc. for the registration of
$125,000,000 of its 8.5% Senior Subordinated Notes due 2007 and to the
incorporation by reference therein of our report dated February 7, 1997 (except
for Note 8, as to which the date is December 14, 1997), with respect to the
consolidated financial statements and schedule of Gulf South Medical Supply,
Inc. for the year ended December 31, 1996, included in Physician Sales &
Service, Inc.'s Current Report on Form 8-K dated December 23, 1997.
/s/ Ernst & Young
Jackson, Mississippi
December 23, 1997
