FILED PURSUANT TO RULE 424(b)(3)
FILE NUMBER 333-91508
PROSPECTUS
[GRAPHIC OMITTED]
OFFER TO EXCHANGE UP TO $998,000,000 AGGREGATE PRINCIPAL AMOUNT OF OUR
7 5/8% SENIOR NOTES DUE 2012,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF OUR OUTSTANDING
7 5/8% SENIOR NOTES DUE 2012
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MATERIAL TERMS OF THE EXCHANGE OFFER
o The exchange offer expires at 5:00 p.m., New York City time, on September
25, 2002, unless extended.
o We will exchange any and all outstanding notes that are validly tendered
and not validly withdrawn for an equal principal amount of a new series of
notes which are registered under the Securities Act.
o You may withdraw tenders of outstanding notes at any time before the
exchange offer expires.
o The exchange of notes will not be a taxable event for U.S. federal income
tax purposes.
o We will not receive any proceeds from the exchange offer.
o The terms of the new series of notes are substantially identical to those
of the outstanding notes, except that the new series of notes do not
contain terms with respect to transfer restrictions, registration rights or
additional interest.
o You may tender outstanding notes only in denominations of $1,000 and
multiples of $1,000.
o Our affiliates may not participate in the exchange offer.
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PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DESCRIPTION OF
THE RISKS YOU SHOULD CONSIDER WHEN EVALUATING THIS INVESTMENT.
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WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS AUGUST 26, 2002.
TABLE OF CONTENTS
PAGE
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WHERE YOU CAN FIND MORE INFORMATION ...................................................... 1
INCORPORATION BY REFERENCE OF SOME OF THE DOCUMENTS FILED BY US
WITH THE SEC ............................................................................ 2
FORWARD-LOOKING INFORMATION .............................................................. 2
SUMMARY OF PROSPECTUS .................................................................... 3
The Company ............................................................................. 3
The Exchange Offer ...................................................................... 4
The Exchange Notes ...................................................................... 6
RISK FACTORS ............................................................................. 9
You Must Follow Certain Procedures to Tender Your Private Notes ......................... 9
You Will Be Subject to Transfer Restrictions if You Fail to Exchange Your Private Notes . 9
A Public Market for the Exchange Notes May Not Develop .................................. 9
We Depend Upon Reimbursement by Third-Party Payors ...................................... 9
Our Operations Are Subject to Extensive Regulation ...................................... 10
Healthcare Reform Legislation May Affect Our Business ................................... 10
We Face National, Regional and Local Competition ........................................ 11
Our Results of Operations May Be Affected by Future Increases in Technology, Personnel and
Other Costs ........................................................................... 11
We Are Subject to Material Litigation ................................................... 11
You Should Take Into Account Certain Considerations ..................................... 11
RATIO OF EARNINGS TO FIXED CHARGES ....................................................... 13
THE EXCHANGE OFFER ....................................................................... 13
Purpose of the Exchange Offer ........................................................... 13
Resale of the Exchange Notes ............................................................ 13
Terms of the Exchange Offer ............................................................. 14
Expiration Date; Extensions; Amendments ................................................. 15
Interest on the Exchange Notes .......................................................... 15
Procedures for Tendering ................................................................ 15
Return of Private Notes ................................................................. 17
Book-Entry Transfer ..................................................................... 17
Guaranteed Delivery Procedures .......................................................... 18
Withdrawal of Tenders ................................................................... 18
Conditions .............................................................................. 19
Termination of Rights ................................................................... 19
Shelf Registration ...................................................................... 19
Liquidated Damages ...................................................................... 20
Exchange Agent .......................................................................... 21
Fees and Expenses ....................................................................... 21
Consequence of Failure to Exchange ...................................................... 21
USE OF PROCEEDS .......................................................................... 22
CAPITALIZATION ........................................................................... 23
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PAGE
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DESCRIPTION OF EXCHANGE NOTES ................................................ 24
General ..................................................................... 24
Optional Redemption of the Notes ............................................ 24
Fall-Away Event ............................................................. 25
Change of Control ........................................................... 26
Certain Covenants of the Company Before the Fall-Away Event ................. 27
Certain Covenants of the Company After the Fall-Away Event .................. 33
Events of Default ........................................................... 34
Satisfaction and Discharge of Indenture; Defeasance ......................... 35
Transfer and Exchange ....................................................... 36
Amendment, Supplement and Waiver ............................................ 37
Concerning the Trustee ...................................................... 38
Governing Law ............................................................... 38
Book-Entry; Delivery and Form ............................................... 38
Certain Definitions ......................................................... 40
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE ................ 51
Consequences of the Exchange Offer to Exchanging and Nonexchanging Holders .. 51
Tax Considerations Applicable to United States Persons ...................... 51
Tax Considerations Applicable to Non-U.S. Holders ........................... 52
Information Reporting and Backup Withholding ................................ 53
PLAN OF DISTRIBUTION ......................................................... 54
EXPERTS ...................................................................... 55
LEGAL MATTERS ................................................................ 55
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We have not authorized any dealer, salesperson or other person to give any
information or to make any representations to you other than the information
contained in this prospectus. You must not rely on any information or
representations not contained in this prospectus as if we had authorized it.
This prospectus does not offer to sell or solicit any offer to buy any
securities other than the registered notes to which it relates, nor does it
offer to buy any of these notes in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
The information contained in this prospectus is current only as of the
date on the cover page of this prospectus, and may change after that date. We
do not imply that there has been no change in the information contained in this
prospectus or in our affairs since that date by delivering this prospectus.
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this prospectus. This
information is available without charge to you upon written or oral request. If
you would like a copy of any of this information, please submit your request to
HEALTHSOUTH Corporation, One HealthSouth Parkway, Birmingham, Alabama 35243,
Attention: Legal Department, or call (205) 967-7116, and ask to speak to someone
in our Legal Department. In addition, to obtain timely delivery of any
information you request, you must submit your request no later than September
18, 2002, which is five business days before the date the exchange offer
expires.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 (SEC File No. 1-10315), and file reports, proxy statements and other
information with the SEC. These reports, proxy statements and other information
may be inspected and copied at the Public Reference Room maintained by the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Information
regarding the operation of the Public Reference Room may be obtained by calling
the SEC at 1-800-SEC-0330. The SEC also maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants (including us) that file electronically with the SEC (at
http://www.sec.gov). Our common stock is listed on the New York Stock Exchange.
Reports, proxy statements and other information relating to us can be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
Some of the documents we have filed with the SEC have been incorporated in
this prospectus by reference. See "Incorporation by Reference of Some of the
Documents Filed by Us with the SEC". Statements contained herein concerning the
provisions of any document do not purport to be complete and, in each instance,
are qualified in all respects by reference to the copy of such document filed
with the SEC. Each such statement is subject to and qualified in its entirety by
such reference.
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INCORPORATION BY REFERENCE
OF SOME OF THE DOCUMENTS FILED
BY US WITH THE SEC
There are hereby incorporated by reference in this prospectus the following
documents previously filed or to be filed by us with the SEC pursuant to the
Exchange Act (SEC File No. 1-10315):
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
2001.
2. Our Quarterly Reports on Form 10-Q for the periods ended March 31,
2002 and June 30, 2002.
3. Our Proxy Statement on Schedule 14A filed April 12, 2002, in
connection with our 2002 Annual Meeting of Stockholders.
4. Our Current Report on Form 8-K filed May 28, 2002.
All documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this prospectus and before the termination of the
exchange offer, other than any portion of a Current Report on Form 8-K reporting
information under Item 9 (and any related exhibits), shall be deemed to be
incorporated by reference in this prospectus and to be made a part hereof from
the date of the filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for the purpose of this prospectus to the
extent that a statement contained herein (with respect to a previously filed
document) or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statements so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
FORWARD-LOOKING INFORMATION
Some of the matters discussed in this prospectus or in the information
incorporated by reference herein may constitute forward-looking statements. Some
of these forward-looking statements can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should", "seeks", "approximately", "intends", "plans", "estimates" or
"anticipates" or the negative thereof or other comparable terminology, or by
discussions of strategy, plans or intentions. Statements contained in this
prospectus which are not historical facts are forward-looking statements.
Without limiting the generality of the preceding statement, all statements in
this prospectus concerning or relating to estimated and projected earnings,
margins, costs, expenditures, cash flows, growth rates and financial results are
forward-looking statements. In addition, we, through our senior management, from
time to time make forward-looking public statements concerning our expected
future operations and performance and other developments. These forward-looking
statements are necessarily estimates which we believe are reasonable based upon
current information, involve a number of risks and uncertainties and are made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. There can be no assurance that our actual results will not
differ materially from the results anticipated in such forward-looking
statements. While it is impossible to identify all such factors, factors which
could cause actual results to differ materially from those estimated by us
include, but are not limited to, those factors identified under "Risk Factors"
beginning on page 9 and other factors which may be identified from time to time
in our SEC filings and other public announcements.
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SUMMARY OF PROSPECTUS
This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all the information that you should
consider before tendering your Private Notes in the exchange offer. You should
read the entire prospectus carefully, including the "Risk Factors" section
beginning on page 9 and the documents incorporated by reference in this
prospectus. As used in this prospectus: (1) the terms "HEALTHSOUTH", "Company",
"we", "our" and "us" refer to HEALTHSOUTH Corporation and, in some cases, its
subsidiaries; (2) the term "Private Notes" refers to our 7 5/8% senior notes due
2012 which were issued in a transaction exempt from registration under the
Securities Act; (3) the term "Exchange Notes" refers to our 7 5/8% senior notes
due 2012 which have been registered under the Securities Act pursuant to a
registration statement of which this prospectus is a part; (4) the term "Notes"
refers to the Private Notes and the Exchange Notes, collectively; and (5) the
term "EBITDA" refers to income from continuing operations before depreciation
and amortization, net interest expense, impairment of long-lived assets,
minority interests in earnings of consolidated entities and income taxes and
excludes unusual and nonrecurring expenses. EBITDA is commonly used as an
analytical indicator within the healthcare industry, and also serves as a
measure of leverage capacity and debt service ability. EBITDA should not be
considered as a measure of financial performance under generally accepted
accounting principles, and the items excluded from EBITDA are significant
components in understanding and assessing financial performance. EBITDA should
not be considered in isolation or as an alternative to net income, cash flows
generated by operating, investing or financing activities or other financial
statement data presented in our consolidated financial statements as an
indicator of financial performance or liquidity. Because EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles and is thus susceptible to varying calculations, EBITDA as presented
may not be comparable to other similarly titled measures of other companies.
THE COMPANY
We are the largest provider of outpatient surgery, outpatient diagnostic
and rehabilitative healthcare services in the United States, with a national
network of approximately 1,900 locations in all 50 states, Puerto Rico, the
United Kingdom, Canada and Australia. We believe that we provide patients,
physicians and payors with high-quality healthcare services on a more
cost-effective basis than traditional acute-care hospitals. We provide these
services through our national network of modern, well-maintained healthcare
facilities. We enjoy a relatively favorable payor mix compared to other publicly
traded healthcare companies, in that most of our revenues (approximately 66.3%
for the year ended December 31, 2001) are derived from non-governmental sources.
For the year ended December 31, 2001, we had revenues of $4,380,477,000 and
EBITDA of $1,218,905,000. For the six months ended June 30, 2002, we had
revenues of $2,293,458,000 and EBITDA of $726,388,000.
We were incorporated under the laws of the State of Delaware in 1984. Our
principal executive offices are located at One HealthSouth Parkway, Birmingham,
Alabama 35243, and our telephone number is (205) 967-7116.
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THE EXCHANGE OFFER
The Exchange Offer ....................... We are offering to exchange our Exchange Notes for our
outstanding Private Notes that are properly tendered and
accepted. You may tender outstanding Private Notes only
in denominations of $1,000 and multiples of $1,000. We
will issue the Exchange Notes on or promptly after the
expiration date of the exchange offer. As of the date of
this prospectus, $998,000,000 aggregate principal amount
of the Private Notes is outstanding.
Expiration Date .......................... The exchange offer will expire at 5:00 p.m., New York
City time, on September 25, 2002, unless extended, in
which case the expiration date will mean the latest date
and time to which we extend the exchange offer.
Conditions to the Exchange Offer ......... The exchange offer is not subject to conditions other than
that:
o it shall not violate applicable law or any applicable
interpretation of the staff of the SEC;
o no action or proceeding shall have been instituted or
threatened in any court or by any governmental agency
which might materially impair our ability to proceed
with the exchange offer, and no material adverse
development shall have occurred in any existing action
or proceeding with respect to us; and
o all governmental approvals deemed necessary by us for
the completion of the exchange offer shall have been
obtained.
The exchange offer is not conditioned upon any minimum
principal amount of Private Notes being tendered for
exchange.
Procedures for Tendering
Private Notes .......................... If you wish to tender your Private Notes for Exchange
Notes pursuant to the exchange offer, you must transmit
to The Bank of Nova Scotia Trust Company of New
York, as exchange agent, on or before the expiration date,
either:
o a computer-generated message transmitted through The
Depository Trust Company's Automated Tender Offer
Program and received by the exchange agent and
forming a part of a confirmation of book-entry transfer,
in which you acknowledge and agree to be bound by
the terms of the letter of transmittal; or
o a properly completed and duly executed letter of
transmittal, which accompanies this prospectus, or a
facsimile of the letter of transmittal, together with your
Private Notes and any other required documentation, to
the exchange agent at its address listed in this
prospectus and on the front cover of the letter of
transmittal.
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If you cannot satisfy either of these procedures on a
timely basis, then you should comply with the guaranteed
delivery procedures described below. By executing the
letter of transmittal, you will make the representations to
us described under "The Exchange Offer-Procedures for
Tendering".
Special Procedures for
Beneficial Owners .................... If you are a beneficial owner whose Private Notes are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to
tender your Private Notes in the exchange offer, you
should contact the registered holder promptly and instruct
the registered holder to tender on your behalf. If you wish
to tender on your own behalf, before completing and
executing the letter of transmittal and delivering your
Private Notes, you must either:
o make appropriate arrangements to register ownership
of the Private Notes in your name; or
o obtain a properly completed bond power from the
registered holder.
Guaranteed Delivery Procedures ......... If you wish to tender your Private Notes and time will not
permit the documents required by the letter of transmittal
to reach the exchange agent before the expiration date, or
the procedure for book-entry transfer cannot be
completed on a timely basis, you must tender your Private
Notes according to the guaranteed delivery procedures
described in this prospectus under "The Exchange
Offer-Guaranteed Delivery Procedures".
Acceptance of Private Notes and
Delivery of Exchange Notes ........... Subject to the satisfaction or waiver of the conditions to
the exchange offer, we will accept for exchange any and
all Private Notes which are validly tendered in the
exchange offer and not withdrawn before 5:00 p.m., New
York City time, on the expiration date.
Withdrawal Rights ...................... You may withdraw the tender of your Private Notes at
any time before 5:00 p.m., New York City time, on the
expiration date, by complying with the procedures for
withdrawal described in this prospectus under "The
Exchange Offer-Withdrawal of Tenders".
Material U.S. Federal Income Tax
Consequences ......................... The exchange of Private Notes for Exchange Notes will
not be a taxable event for United States federal income
tax purposes. For a discussion of the material federal
income tax considerations generally applicable to the
exchange offer that are relevant to holders of Private
Notes, see "Material U.S. Federal Income Tax
Consequences of the Exchange".
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Exchange Agent ........................ The Bank of Nova Scotia Trust Company of New York,
the trustee under the indenture governing the Private
Notes and the Exchange Notes, is serving as the exchange
agent.
Consequence of Failure to
Exchange Notes ...................... If you do not exchange your Private Notes for Exchange
Notes, you will continue to be subject to the restrictions
on transfer provided for in the Private Notes and in the
indenture governing the Private Notes. In general, the
Private Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and
applicable state securities laws. We do not currently plan
to register the Private Notes under the Securities Act.
Registration Rights Agreement ......... The registration rights agreement by and among us and
the initial purchasers of the Private Notes entitles you to
exchange your Private Notes for Exchange Notes with
substantially identical terms. The exchange offer satisfies
this right. After the exchange offer is completed, you will
no longer be entitled to any exchange or registration
rights with respect to your Private Notes. However, under
the circumstances described in the registration rights
agreement, you may require us to file a shelf registration
statement under the Securities Act.
We explain the exchange offer in greater detail beginning on page 13.
THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same in all material
respects as the form and terms of the Private Notes, except that the Exchange
Notes will have been registered under the Securities Act and, therefore, the
Exchange Notes will not be subject to the transfer restrictions, registration
rights or provisions providing for an increase in the interest rate applicable
to the Private Notes. The Exchange Notes will evidence the same debt as the
Private Notes, and both the Private Notes and the Exchange Notes are governed by
the same indenture.
Securities Offered ......... Up to $998,000,000 aggregrate principal amount of
our 7 5/8% senior notes due 2012.
Issuer ..................... HEALTHSOUTH Corporation.
Maturity Date .............. June 1, 2012.
Interest ................... Interest on the Exchange Notes will accrue from
May 22, 2002 at the per annum rate of 7 5/8%,
payable semi-annually in arrears on June 1 and
December 1 of each year, commencing December 1,
2002. The payment of interest on Exchange Notes
will be in lieu of payment of any accrued but unpaid
interest on Private Notes tendered for exchange.
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Optional Redemption ......... We may redeem the Exchange Notes, in whole or in
part, at any time at a redemption price equal to the
principal amount thereof plus a make-whole
premium described in this prospectus and accrued
interest.
For more details, see "Description of Exchange
Notes-Optional Redemption of the Notes".
Ranking ..................... The Exchange Notes:
o are part of our general unsecured obligations;
o will rank equally in right of payment with all of
our existing and future senior unsecured
obligations;
o will rank senior to all of our existing and future
subordinated indebtedness; and
o will be effectively subordinated to all existing and
future liabilities of our subsidiaries.
Future Guaranties ........... None of our subsidiaries are required to guarantee
the Exchange Notes.
Change of Control ........... If we go through a Change of Control at any time
before the Exchange Notes receive an investment
grade rating from both Standard & Poor's Ratings
Service (at least BBB-) and Moody's Investors
Service, Inc. (at least Baa3) and certain other
conditions are satisfied (the "Fall-Away Event"),
you as a holder of the Exchange Notes have the
right to require that we purchase your Exchange
Notes, in whole or in part, at a purchase price in
cash in an amount equal to 101% of their principal
amount, plus accrued interest to the date of
purchase.
For more details, see "Risk Factors-You Should
Take Into Account Certain Considerations" and
"Description of Exchange Notes-Change of
Control".
The term "Change of Control" is defined on page
41.
Certain Covenants ........... The indenture contains covenants that, before the
occurrence of the Fall-Away Event, limit our ability
and the ability of our subsidiaries to:
o incur additional indebtedness and issue preferred
stock;
o make restricted payments, including dividends,
other distributions and investments;
o in the case of our subsidiaries, create or permit
to exist dividend or payment restrictions with
respect to us;
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o engage in transactions with our affiliates; and
o sell assets and subsidiary stock.
After the occurrence of the Fall-Away Event, the
above limitations will not apply to the Exchange
Notes.
The Indenture also contains covenants that,
among other things, limit, before and after the
occurrence of the Fall-Away Event, our ability
and the ability of our subsidiaries to:
o incur or permit to exist certain liens;
o enter into sale and leaseback transactions; and
o sell all or substantially all of our assets or
merge with or into other companies.
The Indenture also, among other things, requires
us to provide reports to holders of the Exchange
Notes.
For more details, see "Description of Exchange
Notes".
Use of Proceeds ......... We will not receive any cash proceeds from the
exchange offer.
We explain the Exchange Notes in greater detail beginning on page 24.
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RISK FACTORS
Our business, operations and financial condition are subject to various
risks. Some of these risks are described below, and you should take these risks
into account in evaluating us or any investment decision involving us or in
deciding whether to tender your Private Notes in the exchange offer. This
section does not describe all risks applicable to us, our industry or our
business, and it is intended only as a summary of certain material factors. You
should also consider information included elsewhere or incorporated by reference
in this prospectus.
YOU MUST FOLLOW CERTAIN PROCEDURES TO TENDER YOUR PRIVATE NOTES
The Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the exchange agent of the Private Notes, a properly completed
and duly executed letter of transmittal and all other required documents.
Therefore, if you desire to tender your Private Notes in exchange for Exchange
Notes, you should allow sufficient time to ensure timely delivery. Your failure
to follow these procedures may result in a delay in receiving Exchange Notes on
a timely basis or in your loss of the right to receive Exchange Notes. Neither
we nor the exchange agent is under any duty to give notification of defects or
irregularities with respect to tenders of Private Notes for exchange. If you
tender Private Notes in the exchange offer for the purpose of participating in a
distribution of the Exchange Notes, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Private Notes, where the
Private Notes were acquired by the broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of the Exchange Notes. See
"The Exchange Offer-Procedures for Tendering" and "Plan of Distribution".
YOU WILL BE SUBJECT TO TRANSFER RESTRICTIONS IF YOU FAIL TO EXCHANGE YOUR
PRIVATE NOTES
If you do not exchange your Private Notes for Exchange Notes pursuant to
the exchange offer, you will continue to be subject to the restrictions on
transfer of the Private Notes as set forth in the legend on the Private Notes
and you will not be entitled to an increased interest rate on the Private Notes.
In general, the Private Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
and applicable state securities laws. We do not currently intend to register the
Private Notes under the Securities Act. 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. In
addition, if a large amount of Private Notes are not tendered or are tendered
but not accepted, the limited amount of Exchange Notes that would be issued and
outstanding after we consummate the exchange offer could lower the price of the
Exchange Notes.
A PUBLIC MARKET FOR THE EXCHANGE NOTES MAY NOT DEVELOP
There can be no assurance that a public market for the Exchange Notes will
develop or, if such a market develops, as to the liquidity of the market. If a
market were to develop, the Exchange Notes could trade at prices that may be
higher or lower than their principal amount. We do not intend to apply for
listing of the Exchange Notes on any securities exchange or for quotation of the
Exchange Notes on any automated quotation system. The initial purchasers of the
Private Notes have previously made a market in the Private Notes, and we have
been advised that the initial purchasers currently intend to make a market in
the Exchange Notes, as permitted by applicable laws and regulations, after
consummation of the exchange offer. The initial purchasers are not obligated,
however, to make a market in the Private Notes or the Exchange Notes, and any
market-making activity may be discontinued at any time without notice at the
sole discretion of the initial purchasers. If an active public market does not
develop or continue, the market price and liquidity of the Exchange Notes may be
adversely affected.
WE DEPEND UPON REIMBURSEMENT BY THIRD-PARTY PAYORS
Substantially all of our revenues are derived from private and governmental
third-party payors. In 2001, approximately 31.1% of our revenues were derived
from Medicare, approximately 2.6% from Medicaid and approximately 66.3% from
commercial insurers, managed care plans, workers'
9
compensation payors and other private pay revenue sources. There are increasing
pressures from many payors to control healthcare costs and to reduce or limit
increases in reimbursement rates for medical services. In the recent past, we
have experienced a decrease in revenues primarily attributable to declines in
government reimbursement as a result of the Balanced Budget Act of 1997. There
can be no assurances that payments from government or private payors will remain
at levels comparable to present levels. In attempts to limit federal spending,
there have been, and we expect that there will continue to be, a number of
proposals to limit Medicare reimbursement for various services. We cannot now
predict whether any of these pending proposals will be adopted or what effect
the adoption of such proposals would have on our business.
Further, Medicare reimbursement for inpatient rehabilitation services is
changing from a cost-based reimbursement system to a prospective payment system
("PPS"), with the phase-in of the PPS having begun January 1, 2002. While we
believe we are well-positioned and well-prepared for the transition, we cannot
be certain what effect the implementation of inpatient rehabilitation PPS will
have on us. In addition, future changes in PPS reimbursement rates or our
failure to successfully execute our response to this change could have a
material adverse effect on our financial condition or results of operations.
OUR OPERATIONS ARE SUBJECT TO EXTENSIVE REGULATION
Our operations are subject to various other types of regulation by federal
and state governments, including licensure and certification laws, Certificate
of Need laws and laws relating to financial relationships among providers of
healthcare services, Medicare fraud and abuse and physician self-referral.
The operation of our facilities and the provision of healthcare services
are subject to federal, state and local licensure and certification laws. These
facilities and services are subject to periodic inspection by governmental and
other authorities to ensure compliance with the various standards established
for continued licensure under state law, certification under the Medicare and
Medicaid programs and participation in other government programs. Additionally,
in many states, Certificates of Need or other similar approvals are required for
expansion of our operations. We could be adversely affected if we cannot obtain
such approvals, by changes in the standards applicable to approvals and by
possible delays and expenses associated with obtaining approvals. Our failure to
obtain, retain or renew any required regulatory approvals, licenses or
certificates could prevent us from being reimbursed for our services or from
offering some of our services, or could materially adversely affect our results
of operations.
Our business is subject to extensive federal and state regulation with
respect to financial relationships among healthcare providers, physician
self-referral arrangements and other fraud and abuse issues. Penalties for
violation of federal and state laws and regulations include exclusion from
participation in the Medicare and Medicaid programs, asset forfeiture, civil
penalties and criminal penalties, any of which could have a material adverse
effect on our business, results of operations or financial condition. The Office
of Inspector General of the Department of Health and Human Services, the
Department of Justice and other federal agencies interpret healthcare fraud and
abuse provisions liberally and enforce them aggressively. In 2001, we settled
certain litigation involving alleged violations of Medicare regulations, and we
remain subject to other such litigation. See "Business -- Regulation" and "Legal
Proceedings" in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, "Legal Proceedings" in our Quarterly Reports on Form 10-Q for
the periods ended March 31, 2002 and June 30, 2002, and our Current Report on
Form 8-K filed May 28, 2002.
HEALTHCARE REFORM LEGISLATION MAY AFFECT OUR BUSINESS
In recent years, many legislative proposals have been introduced or
proposed in Congress and in some state legislatures that would effect major
changes in the healthcare system, either nationally or at the state level. Among
the proposals which are currently being, or which recently have been, considered
are cost controls on hospitals, insurance market reforms to increase the
availability of group health insurance to small businesses, requirements that
all businesses offer health insurance coverage to their employees and the
creation of a single government health insurance plan that would cover all
citizens. The costs of certain proposals would be funded in significant part by
reductions in payment by
10
governmental programs, including Medicare and Medicaid, to healthcare providers.
There continue to be federal and state proposals that would, and actions that
do, impose more limitations on government and private payments to healthcare
providers such as us and proposals to increase copayments and deductibles from
patients. At the federal level, Congress has continued to propose or consider
healthcare budgets that substantially reduce payments under the Medicare and
Medicaid programs. In addition, many states are considering the enactment of
initiatives designed to reduce their Medicaid expenditures, to provide universal
coverage or additional levels of care and/or to impose additional taxes on
healthcare providers to help finance or expand the states' Medicaid systems.
There can be no assurance as to the ultimate content, timing or effect of any
healthcare reform legislation, nor is it possible at this time to estimate the
impact of potential legislation on us. That impact may be material to our
financial condition or our results of operations.
WE FACE NATIONAL, REGIONAL AND LOCAL COMPETITION
We operate in a highly competitive industry. Although we are the largest
provider of outpatient surgery, outpatient diagnostic and rehabilitative
healthcare services in the United States, in any particular market we may
encounter competition from local or national entities with longer operating
histories or other superior competitive advantages. There can be no assurance
that this competition, or other competition which we may encounter in the
future, will not adversely affect our business, financial condition or our
results of operations.
OUR RESULTS OF OPERATIONS MAY BE AFFECTED BY FUTURE INCREASES IN TECHNOLOGY,
PERSONNEL AND OTHER COSTS
Changes in medical technology, the labor market for nurses and other
clinical personnel and changes imposed by the requirements of payor contracts
and government reimbursement programs may require significant investments in
facilities, equipment, personnel and services. Although we believe that cash
generated from operations, amounts available under our bank credit facilities
and our ability to access capital markets will be sufficient to allow us to make
such investments, we cannot assure you that we will be able to obtain the funds
necessary to make such investments.
WE ARE SUBJECT TO MATERIAL LITIGATION
We are, and may in the future be, subject to litigation which, if
determined adversely to us, could have a material adverse effect on our
business, financial condition or results of operations. In addition, some of the
companies and businesses we have acquired have been subject to similar
litigation. There can be no assurance that pending or future litigation, whether
or not described in this prospectus, will not have such a material adverse
effect. See "Legal Proceedings" in each of our Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 and our Quarterly Reports on Form 10-Q
for the periods ended March 31, 2002 and June 30, 2002, as well as our Current
Report on Form 8-K filed May 28, 2002.
YOU SHOULD TAKE INTO ACCOUNT CERTAIN CONSIDERATIONS
Amount of Leverage; Structural Subordination
As of June 30, 2002, we had approximately $3,479,525,000 of outstanding
indebtedness (including the current portion of long-term debt and excluding
obligations to trade creditors) and approximately $3,933,206,000 of
stockholders' equity. Outstanding indebtedness was approximately 46.9% of our
total capitalization (including the current portion of long-term debt), which
was approximately $7,412,731,000 (including the current portion of long-term
debt). Approximately $2,475,000,000 of such total indebtedness (including the
Exchange Notes) consisted of senior unsecured obligations ranking pari passu in
right of payment. See "Capitalization". The Exchange Notes will be effectively
subordinated to all existing and future liabilities of our subsidiaries. A
substantial portion of our operations are conducted through these subsidiaries.
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Restrictive Covenants
Our $1,250,000,000 revolving credit facility with JPMorgan Chase Bank and
other participating banks contains various covenants that limit our ability to
engage in certain transactions. Those covenants, among other things:
o limit our and our subsidiaries' ability to borrow and to place liens on
our and their assets;
o limit our and our subsidiaries' investments and the sale of all or
substantially all of our and their assets;
o limit our and our subsidiaries' ability to enter into consolidations or
mergers or to acquire other entities; and
o require us to comply with coverage ratio tests.
The indentures governing our debt securities, including the Exchange Notes
at any time before the occurrence of the Fall-Away Event, include covenants of a
similar nature. Our failure to comply with any of these covenants could result
in an event of default under our indebtedness, including the Exchange Notes.
That in turn could cause an event of default to occur under all or substantially
all of our other then-outstanding indebtedness. See "Description of Exchange
Notes -- Certain Covenants of the Company Before the Fall-Away Event".
Our Ability to Repurchase the Exchange Notes Upon a Change of Control May Be
Limited
In the event of a Change of Control (as defined on page 41) at any time
before the occurrence of the Fall-Away Event, you as a holder of Exchange Notes
will have the right, at your option, to require us to repurchase all or a
portion of the Exchange Notes you hold at a purchase price equal to 101% of the
aggregate principal amount of your Exchange Notes plus accrued interest thereon
to the repurchase date. See "Description of Exchange Notes -- Change of
Control". Our ability to repurchase the Exchange Notes upon a Change of Control
will be dependent on the availability of sufficient funds and our ability to
comply with applicable securities laws. Accordingly, there can be no assurance
that we will be in a position to repurchase the Exchange Notes upon a Change of
Control. The term "Change of Control" is limited to certain specified
transactions and may not include other events that might adversely affect our
financial condition or result in a downgrade of the credit rating (if any) of
the Exchange Notes, nor would the requirement that we offer to repurchase the
Exchange Notes upon a Change of Control necessarily afford you as a holder of
Exchange Notes protection in the event of a highly leveraged reorganization.
Holders of Our Debentures Have a Repurchase Right in Certain Circumstances In
Which You as a Holder of Exchange Notes Do Not
In March 1998, we issued $567,750,000 of 3.25% Convertible Subordinated
Debentures due 2003 (the "Debentures"). In general, the Debentures are
subordinated to the Exchange Notes. However, the holders of the Debentures have
a right to require us to repurchase the Debentures at a price equal to 100% of
the principal amount thereof, plus accrued and unpaid interest, in the event
that our common stock is neither listed for trading on a United States national
securities exchange nor approved for trading on an established automated
over-the-counter trading market in the United States. The Exchange Notes do not
have similar repurchase rights. Therefore, in the event that our common stock
were not listed for trading as described above, the holders of the Debentures
might be able to exercise a right to require repurchase of the Debentures by us
ahead of you as a holder of Exchange Notes, even though the Debentures are
subordinate to the Exchange Notes. Our common stock has been listed for trading
on the New York Stock Exchange since 1989, and we anticipate that this will
continue to be the case.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratio of earnings to fixed
charges for the periods shown.
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------------------- JUNE 30,
1997 1998 1999 2000 2001 2002
--------- --------- --------- --------- --------- -----------
Ratio of earnings to fixed charges ......... 4.7x 2.2x 1.9x 2.8x 2.4x 3.4x
The ratio of earnings to fixed charges was calculated by dividing (i)
earnings before minority interests, income taxes, cumulative effect of
accounting change and fixed charges by (ii) fixed charges, which consist of
interest expense incurred, including amortization of debt expense and discount,
and the portion of rental expense under operating leases estimated to be
representative of the interest factor.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We issued the Private Notes in the original aggregate principal amount of
$1,000,000,000 on May 22, 2002, to UBS Warburg LLC, Deutsche Bank Securities
Inc., Banc of America Securities LLC, Scotia Capital (USA) Inc., First Union
Securities, Inc., J.P. Morgan Securities Inc., Fleet Securities, Inc., Salomon
Smith Barney Inc., NatCity Investments, Inc. and Jefferies & Company, Inc., the
initial purchasers, pursuant to a purchase agreement. The initial purchasers
subsequently sold the Private Notes to persons whom they reasonably believed to
be "qualified institutional buyers", as defined in Rule 144A under the
Securities Act, in reliance on Rule 144A, and outside the United States to
persons other than U.S. persons in transactions meeting the requirements of
Regulation S under the Securities Act. As a condition to the sale of the Private
Notes, we entered into a registration rights agreement with the initial
purchasers on May 22, 2002. Pursuant to the registration rights agreement, we
agreed that we would:
(1) file a registration statement with the SEC with respect to the
Exchange Notes within 60 days after the date of initial issuance of the
Private Notes;
(2) use our reasonable best efforts to cause the registration statement
to be declared effective by the SEC on or prior to 150 days after the date
of initial issuance of the Private Notes;
(3) use our reasonable best efforts to consummate the exchange offer on
or prior to 180 days after the date of initial issuance of the Private
Notes; and
(4) keep the exchange offer open for not less than 20 business days.
In July 2002, we repurchased and cancelled $2,000,000 aggregate principal amount
of the Private Notes. Upon the effectiveness of the registration statement, we
will offer the Exchange Notes in exchange for the remaining Private Notes.
RESALE OF THE EXCHANGE NOTES
Based upon an interpretation by the staff of the SEC contained in no-action
letters issued to third parties, we believe that you may exchange Private Notes
for Exchange Notes in the ordinary course of business. For further information
on the SEC's position, see Exxon Capital Holdings Corporation, available May 13,
1988, Morgan Stanley & Co. Incorporated, available June 5, 1991 and Shearman &
Sterling, available July 2, 1993, and other interpretive letters to similar
effect. You will be allowed to resell Exchange Notes to the public without
further registration under the Securities Act and without delivering to
purchasers of the Exchange Notes a prospectus that satisfies the
13
requirements of Section 10 of the Securities Act so long as you do not
participate, do not intend to participate, and have no arrangement with any
person to participate, in a distribution of the Exchange Notes. However, the
foregoing does not apply to you if you are:
o a broker-dealer who purchases the Private Notes directly from us to
resell pursuant to Rule 144A or any other available exemption under
the Securities Act; or
o an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act.
In addition, if:
o you are a broker-dealer; or
o you acquire Exchange Notes in the exchange offer for the purpose of
distributing or participating in the distribution of the Exchange
Notes,
you cannot rely on the position of the staff of the SEC contained in the
no-action letters mentioned above 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.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, which the broker-dealer acquired as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the Exchange Notes.
The letter of transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. A broker-dealer may use
this prospectus, as it may be amended or supplemented from time to time, in
connection with resales of Exchange Notes received in exchange for Private Notes
which the broker-dealer acquired as a result of market-making or other trading
activities.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this prospectus
and in the letter of transmittal, we will accept any and all Private Notes
validly tendered and not withdrawn before the expiration date. We will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000 principal
amount of outstanding Private Notes surrendered pursuant to the exchange offer.
You may tender Private Notes 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:
o we have registered the Exchange Notes under the Securities Act and,
therefore, the Exchange Notes will not bear legends restricting their
transfer; and
o holders of the Exchange Notes will not be entitled to any of the
rights of holders of Private Notes under the registration rights
agreement, which rights will terminate upon the completion of the
exchange offer.
The Exchange Notes will evidence the same debt as the Private Notes and
will be issued under the same indenture, so the Exchange Notes and the Private
Notes will be treated as a single class of debt securities under the indenture.
As of the date of this prospectus, $998,000,000 aggregate principal amount
of the Private Notes is outstanding and registered in the name of Cede & Co.,
as nominee for The Depository Trust Company. Only registered holders of the
Private Notes, or their legal representative or attorney-in-fact, as reflected
on the records of the trustee under the indenture, may participate in the
exchange offer. We will not set a fixed record date for determining registered
holders of the Private Notes entitled to participate in the exchange offer.
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You do not have any appraisal or dissenters' rights under the indenture in
connection with the exchange offer. We intend to conduct the exchange offer in
accordance with the provisions of the registration rights agreement and the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations of the SEC.
We will be deemed to have accepted validly tendered Private Notes when, as
and if we have given oral or written notice of acceptance to the exchange agent.
The exchange agent will act as your agent for the purposes of receiving the
Exchange Notes from us.
If you tender Private Notes in the exchange offer, you 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. We will pay all charges and expenses,
other than the applicable taxes described below, in connection with the exchange
offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" will mean 5:00 p.m., New York City time, on
September 25, 2002, unless we, in our sole discretion, extend the exchange
offer, in which case the term "expiration date" will mean the latest date and
time to which we extend the exchange offer.
To extend the exchange offer, we will:
o notify the exchange agent of any extension orally or in writing; and
o notify the registered holders of the Private Notes by means of a press
release or other public announcement,
each before 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
We reserve the right, in our reasonable discretion:
o to delay accepting any Private Notes;
o to extend the exchange offer; or
o if any conditions listed below under "-Conditions" are not satisfied,
to terminate the exchange offer by giving oral or written notice of
the delay, extension or termination to the exchange agent.
We will follow any delay in acceptance, extension or termination as
promptly as practicable by oral or written notice to the registered holders. If
we amend the exchange offer in a manner we determine constitutes a material
change, we will promptly disclose the amendment in a prospectus supplement that
we will distribute to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will accrue interest from May 22, 2002 at the per annum
rate of 7 5/8%. Such interest will be payable semi-annually in arrears on each
June 1 and December 1, commencing December 1, 2002. The payment of interest on
Exchange Notes will be in lieu of payment of any accrued but unpaid interest on
Private Notes tendered for exchange.
PROCEDURES FOR TENDERING
You may tender Private Notes in the exchange offer only if you are a
registered holder of Private Notes. To tender in the exchange offer, you must:
o complete, sign and date the letter of transmittal or a facsimile of
the letter of transmittal;
o have the signatures guaranteed if required by the letter of
transmittal; and
o mail or otherwise deliver the letter of transmittal or the facsimile
of the letter of transmittal to the exchange agent at the address
listed below under "-Exchange Agent" for receipt before the expiration
date.
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In addition, either:
o the exchange agent must receive certificates for the Private Notes
along with the letter of transmittal into its account at the
depositary pursuant to the procedure for book-entry transfer described
below before the expiration date;
o the exchange agent must receive a timely confirmation of a book-entry
transfer of the Private Notes, if the procedure is available, into its
account at the depositary pursuant to the procedure for book-entry
transfer described below before the expiration date; or
o you must comply with the guaranteed delivery procedures described
below.
Your tender, if not withdrawn before the expiration date, will constitute
an agreement between you and us in accordance with the terms and subject to the
conditions described in this prospectus 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 your election and risk.
We recommend that instead of delivery by mail, you use an overnight or hand
delivery service, properly insured. In all cases, you should allow sufficient
time to assure delivery to the exchange agent before the expiration date. You
should not send letters of transmittal or Private Notes to us. You may request
your respective brokers, dealers, commercial banks, trust companies or nominees
to effect the transactions described above for you.
If you are a beneficial owner of Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your Private Notes, you should contact the
registered holder promptly and instruct the registered holder to tender on your
behalf. If you wish to tender on your own behalf, before completing and
executing the letter of transmittal and delivering the Private Notes you must
either:
o make appropriate arrangements to register ownership of the Private
Notes in your name; or
o obtain a properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable time. Unless the
Private Notes are tendered:
(1) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on the letter of transmittal; or
(2) for the account of:
o a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
o a commercial bank or trust company located or having an office or
correspondent in the United States; or
o an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act that is a member of one of the recognized
signature guarantee programs identified in the letter of transmittal,
an eligible guarantor institution must guarantee the signatures on a letter
of transmittal or a notice of withdrawal described below under "-Withdrawal
of Tenders".
If the letter of transmittal is signed by a person other than the
registered holder, the Private Notes must be endorsed or accompanied by a
properly completed bond power, signed by the registered holder as the registered
holder's name appears on the Private Notes.
If the letter of transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, they
should so indicate when signing, and unless waived by us, they must submit
evidence satisfactory to us of their authority to so act with the letter of
transmittal.
16
The exchange agent and the depositary have confirmed that any financial
institution that is a participant in the depositary's system may utilize the
depositary's Automated Tender Offer Program to tender Private Notes.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered Private Notes, which determination will be final and binding. We
reserve the absolute right to reject any and all Private Notes not properly
tendered or any Private Notes our acceptance of which would, in the opinion of
our counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular Private Notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, you must cure any defects or irregularities in
connection with tenders of Private Notes within the time we determine. Although
we intend to notify you of defects or irregularities with respect to tenders of
Private Notes, neither we, the exchange agent nor any other person will incur
any liability for failure to give you that notification. Unless waived, we will
not deem tenders of Private Notes to have been made until you cure the defects
or irregularities.
While we have no present plan to acquire any Private Notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any Private Notes that are not tendered in the exchange offer, we
reserve the right in our sole discretion to purchase or make offers for any
Private Notes that remain outstanding after the expiration date. We also
reserve the right to terminate the exchange offer, as described below under
"-Conditions", and, to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any of those purchases or offers could differ from the terms of
the exchange offer.
If you wish to tender Private Notes in exchange for Exchange Notes in the
exchange offer, we will require you to represent that:
o you are not an affiliate of ours;
o you will acquire any Exchange Notes in the ordinary course of your
business; and
o at the time of completion of the exchange offer, you have no
arrangement with any person to participate in the distribution of the
Exchange Notes.
In addition, in connection with the resale of Exchange Notes, any participating
broker-dealer who acquired the Private Notes for its own account as a result of
market-making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The SEC 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 registration statement.
RETURN OF PRIVATE NOTES
If we do not accept any tendered Private Notes for any reason described in
the terms and conditions of the exchange offer or if you withdraw any tendered
Private Notes or submit Private Notes for a greater principal amount than you
desire to exchange, we will return the unaccepted, withdrawn or non-exchanged
Private Notes without expense to you as promptly as practicable. In the case of
Private Notes tendered by book-entry transfer into the exchange agent's account
at the depositary pursuant to the book-entry transfer procedures described
below, we will credit the Private Notes to an account maintained with the
depositary as promptly as practicable.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the Private Notes at the depositary for purposes of the exchange offer within
two business days after the date of this prospectus, and any financial
institution that is a participant in the depositary's systems may make
book-entry delivery of Private Notes by causing the depositary to transfer the
Private Notes into the exchange agent's account at the depositary in accordance
with the depositary's procedures for
17
transfer. However, although delivery of Private Notes may be effected through
book-entry transfer at the depositary, you must transmit and the exchange agent
must receive, the letter of transmittal or a facsimile of the letter of
transmittal, with any required signature guarantees and any other required
documents, at the address below under "-Exchange Agent" on or before the
expiration date or pursuant to the guaranteed delivery procedures described
below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your Private Notes, but time will not permit a letter
of transmittal, certificates representing the Private Notes to be tendered or
other required documents to reach the exchange agent before the expiration date,
you may effect a tender if:
(a) the tender is made by or through an eligible guarantor
institution;
(b) before the expiration date, the exchange agent receives from the
eligible guarantor institution a properly completed and duly executed
notice of guaranteed delivery, substantially in the form provided by us,
that:
o states the name and address of the holder of the Private Notes, the
name(s) in which the Private Notes are registered and the principal
amount of Private Notes tendered;
o states that the tender is being made by that notice of guaranteed
delivery; and
o guarantees that, within three New York Stock Exchange trading days
after the expiration date, the eligible guarantor institution will
deposit with the exchange agent the letter of transmittal, together
with the certificates representing the Private Notes in proper form
for transfer or a confirmation of a book-entry transfer, as the case
may be, and any other documents required by the letter of transmittal;
and
(c) within three New York Stock Exchange trading days after the
expiration date, the exchange agent receives a properly executed letter of
transmittal, as well as the certificates representing all tendered Private
Notes in proper form for transfer and all other documents required by the
letter of transmittal.
Upon request, the exchange agent will send to you a notice of guaranteed
delivery if you wish to tender your Private Notes according to the guaranteed
delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders
of Private Notes at any time before 5:00 p.m., New York City time, on the
expiration date.
To withdraw a tender of Private Notes in the exchange offer, the exchange
agent must receive a written or facsimile transmission notice of withdrawal at
its address listed in this prospectus before the expiration date. Any notice of
withdrawal must:
o specify the name of the person who deposited the Private Notes to be
withdrawn;
o identify the Private Notes to be withdrawn, including the principal
amount of the Private Notes; and
o be signed in the same manner as the original signature on the letter
of transmittal by which the Private Notes were tendered, including any
required signature guarantees.
We will determine in our sole discretion all questions as to the validity,
form and eligibility of the notices, and our determination will be final and
binding on all parties. We will not deem any properly withdrawn Private Notes to
have been validly tendered for purposes of the exchange offer, and we will not
issue Exchange Notes with respect to those Private Notes, unless you validly
re-tender the withdrawn Private Notes. You may re-tender properly withdrawn
Private Notes by following one of the procedures described above under
"-Procedures for Tendering" at any time before the expiration date.
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CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange the Exchange Notes for, any Private
Notes, and may terminate the exchange offer as provided in this prospectus
before the acceptance of the Private Notes, if:
(1) the exchange offer violates applicable law, rules or regulations or
an applicable interpretation of the staff of the SEC;
(2) an action or proceeding has been instituted or threatened in any
court or by any governmental agency which might materially impair our
ability to proceed with the exchange offer;
(3) a material adverse development shall have occurred in any existing
action or proceeding with respect to us; or
(4) all governmental approvals which we deem necessary for the
completion of the exchange offer have not been obtained.
If we determine in our reasonable discretion that any of these conditions
are not satisfied, we may:
o refuse to accept any Private Notes and return all tendered Private
Notes to you;
o extend the exchange offer and retain all Private Notes tendered before
the exchange offer expires, subject, however, to your rights to
withdraw the Private Notes; or
o waive the unsatisfied conditions with respect to the exchange offer
and accept all properly tendered Private Notes that have not been
withdrawn.
If the waiver constitutes a material change to the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement that we will
distribute to the registered holders of the Private Notes.
TERMINATION OF RIGHTS
All of your rights under the registration rights agreement will terminate
upon consummation of the exchange offer, except with respect to our continuing
obligations:
o to indemnify you and parties related to you against liabilities,
including liabilities under the Securities Act; and
o to provide, upon your request, the information required by Rule
144A(d)(4) under the Securities Act to permit resales of the Private
Notes pursuant to Rule 144A.
SHELF REGISTRATION
In the event that:
(1) any changes in law or the applicable interpretations of the staff
of the SEC do not permit us to effect the exchange offer;
(2) the exchange offer is not consummated within 180 days of the date
of initial issuance of the Private Notes;
(3) any holder of Private Exchange Notes (as defined in the
registration rights agreement) so requests; or
(4) a holder participating in the exchange offer does not receive
Exchange Notes on the date of the exchange that may be sold without
restriction under the federal securities laws (other than due solely to the
status of the holder as our affiliate within the meaning of that term under
the Securities Act),
we will file with the SEC a shelf registration statement to register for public
resale the transfer-restricted securities held by you if you provide us with the
necessary information for inclusion in the shelf registration statement.
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LIQUIDATED DAMAGES
If:
(1) we do not file the registration statement with the SEC on or prior
to the 60th day following the date of initial issuance of the Private
Notes;
(2) we do not cause the registration statement to become effective on
or prior to the 150th day following the date of initial issuance of the
Private Notes;
(3) we do not complete the exchange offer on or prior to the 180th day
following the date of initial issuance of the Private Notes;
(4) we are obligated to file a shelf registration statement and we do
not file the shelf registration statement with the SEC on or prior to the
45th day following the date on which we have notice of the filing
obligation;
(5) we are obligated to file a shelf registration statement and the
SEC does not declare the shelf registration statement effective on or prior
to the later of the 60th day following the date on which we have notice of
the filing obligation or the 180th day following the date of initial
issuance of the Private Notes; or
(6) the registration statement or the shelf registration statement, as
the case may be, is declared effective but thereafter ceases to be
effective or useable in connection with resales of the Registrable Notes
(as defined in the registration rights agreement) for the time of
non-effectiveness or nonusability,
with each of items (1) through (6) constituting a "registration default", we
agree to pay you, as liquidated damages, additional interest on the Registrable
Notes in cash on each June 1 and December 1 in an amount equal to 0.25% per
annum of the aggregate principal amount of the Registrable Notes, with respect
to the first 90-day period immediately following the occurrence of the
registration default. The amount of the additional interest will increase by an
additional 0.25% to a maximum of 1.0% per annum of the aggregate principal
amount of the Registrable Notes for each subsequent 90-day period until the
registration default has been cured. We will not be required to pay additional
interest for more than one registration default at any given time. Following the
cure of all registration defaults, the accrual of additional interest will
cease.
20
EXCHANGE AGENT
We have appointed The Bank of Nova Scotia Trust Company of New York as
exchange agent for the exchange offer. You should direct questions and requests
for assistance, requests for additional copies of this prospectus or the letter
of transmittal and requests for a notice of guaranteed delivery to the exchange
agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT DELIVERY:
(Eligible Institutions Only)
The Bank of Nova Scotia Trust (212) 225-5436 The Bank of Nova Scotia Trust
Company of New York Company of New York
One Liberty Plaza, 23rd Floor One Liberty Plaza, 23rd Floor
New York, New York 10006 New York, New York 10006
Attention: Exchanges Attention: Exchanges
FOR INFORMATION CALL:
Pat Keane
(212) 225-5427
Delivery to an address other than the one stated above or transmission via
facsimile to a number other than the one stated above will not constitute a
valid delivery.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We are making the
principal solicitation by mail; however, our officers and regular employees may
make additional solicitations by facsimile, telephone or in person.
We have not retained any dealer manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the exchange
offer, which we estimate to be approximately $200,000. These expenses include
registration fees, fees and expenses of the exchange agent and the trustee,
accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of
Private Notes pursuant to the exchange offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the exchange offer, then you must pay the amount of the transfer taxes. If you
do not submit satisfactory evidence of payment of the taxes or exemption from
payment with the letter of transmittal, we will bill the amount of the transfer
taxes directly to you.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. We urge you to consult
your financial and tax advisors in making your decisions on what action to take.
Private Notes that are not exchanged for Exchange Notes pursuant to the exchange
offer will remain restricted securities. Accordingly, those Private Notes may be
resold only:
o to a person whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of Rule
144A under the Securities Act;
o in a transaction meeting the requirements of Rule 144 under the
Securities Act;
o outside the United States to a person who is not a U.S. person in a
transaction meeting the requirements of Rule 904 of Regulation S under
the Securities Act;
21
o in accordance with another exemption from the registration
requirements of the Securities Act, subject to the receipt by the
exchange agent (and us, if we so request) of a certification of the
transferor and an opinion of counsel;
o to us or our affiliates; or
o pursuant to an effective registration statement.
In each case, the Private Notes may be resold only in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction.
USE OF PROCEEDS
There will be no cash proceeds payable to us from the issuance of the
Exchange Notes pursuant to the exchange offer. The net proceeds from the sale of
the Private Notes were used to repay our outstanding indebtedness under our
revolving credit facility with Bank of America, N.A., and other participating
banks, which we terminated on June 14, 2002, and for general corporate purposes,
including the reduction of other outstanding indebtedness and similar
obligations. In consideration for issuing the Exchange Notes as contemplated in
this prospectus, we will receive in exchange the Private Notes in like principal
amount, the terms of which are identical in all material respects to the
Exchange Notes, except that the Exchange Notes do not contain terms with respect
to transfer restrictions, registration rights or additional interest. The
Private Notes surrendered in exchange for the Exchange Notes will be retired and
cancelled and cannot be reissued. Accordingly, the issuance of the Exchange
Notes will not result in any increase in our indebtedness.
22
CAPITALIZATION
The following table sets forth, as of June 30, 2002, our capitalization,
which reflects the sale of the Private Notes on May 22, 2002 and the application
of the net proceeds therefrom to the repayment of our outstanding indebtedness
under our revolving credit facility with Bank of America, N.A., and other
participating banks, and for general corporate purposes, including the reduction
of other outstanding indebtedness and similar obligations. See "Use of
Proceeds".
JUNE 30, 2002
(IN THOUSANDS)
Cash and cash equivalents ............................................... $ 544,991
==========
Current portion of long-term debt ....................................... $ 589,662
----------
Long-term debt (net of current maturities):
Advances under the $1,750,000,000 revolving credit facility............. --
6.875% Senior Notes due 2005 ........................................... $ 250,000
7 3/8% Senior Notes due 2006 ........................................... 200,000
7.0% Senior Notes due 2008 ............................................. 250,000
10- 3/4% Senior Subordinated Notes due 2008 ............................ 350,000
8 1/2% Senior Notes due 2008 ........................................... 375,000
8 3/8% Senior Notes due 2011 ........................................... 400,000
7 5/8% Senior Notes due 2012 ........................................... 1,000,000
Other long-term debt ................................................... 64,863
----------
Total long-term debt ................................................. 2,889,863
----------
Stockholders' equity:
Preferred Stock, $.10 par value--1,500,000 shares authorized; no shares
outstanding .......................................................... --
Common Stock, $.01 par value--600,000,000 shares authorized; 436,837,000
shares outstanding (1) ............................................... 4,368
Additional paid-in capital ............................................. 2,707,728
Accumulated other comprehensive income ................................. 21,470
Retained earnings ...................................................... 1,512,936
Treasury stock ......................................................... (282,528)
Receivable from Employee Stock Ownership Plan .......................... (1,405)
Notes receivable from stockholders, officers and management employees .. (29,363)
----------
Total stockholders' equity ........................................... 3,933,206
----------
Total capitalization ................................................ $7,412,731
==========
----------
(1) Outstanding shares at June 30, 2002 do not include a total of 33,230,516
shares of Common Stock subject to options outstanding under our stock
option plans. An additional 6,943,998 shares of Common Stock are reserved
for future option grants under such plans. Outstanding shares also do not
include 65,457 shares of Common Stock reserved for issuance pursuant to
outstanding warrants, 2,350,000 shares of Common Stock reserved for
issuance under our 1998 Restricted Stock Plan, and 15,501,707 shares of
Common Stock initially reserved for issuance upon conversion of our 3.25%
convertible subordinated debentures due 2003.
23
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will evidence the same debt as the Private Notes. The
Private Notes were issued, and the Exchange Notes offered hereby will be issued,
pursuant to an indenture, dated as of May 22, 2002 (the "Indenture"), between us
and The Bank of Nova Scotia Trust Company of New York, as Trustee (the
"Trustee"). The following summary does not purport to be complete and is subject
to the detailed provisions of the Indenture, to which reference is hereby made
for a full description of such provisions, including the definition of certain
terms used herein, and for other information regarding the Exchange Notes.
Wherever particular sections or defined terms of the Indenture are referred to,
such sections or defined terms are incorporated herein by reference as part of
the statement made, and the statement is qualified in its entirety by such
reference.
GENERAL
The form and terms of the Exchange Notes are the same in all material
respects as the form and terms of the Private Notes, except that the Exchange
Notes will have been registered under the Securities Act and, therefore, the
Exchange Notes will not be subject to the transfer restrictions, registration
rights or provisions providing for an increase in the interest rate applicable
to the Private Notes. The Exchange Notes will be general unsecured obligations
of the Company, pari passu in right of payment to all existing and future senior
Indebtedness of the Company (including the Company's obligations under the
Credit Agreements) and senior to the Company's existing and future Subordinated
Indebtedness. The Company issued $1,000,000,000 aggregate principal amount of
the Private Notes. The Indenture permits the Company to issue additional Private
Notes, without the consent of the holders of the Notes. Accordingly, the
principal amount of Private Notes issued may be increased on the same terms and
conditions, except for the issue price and the issue date, and with the same
CUSIP numbers as the Private Notes initially issued. In July 2002, the Company
repurchased and cancelled $2,000,000 aggregate principal amount of the Private
Notes.
The Exchange Notes will bear interest from May 22, 2002 at the per annum
rate of 7 5/8%, payable semi-annually in arrears on June 1 and December 1 of
each year, commencing on December 1, 2002, to holders of record at the close of
business on May 15 or November 15, as the case may be, immediately preceding the
relevant interest payment date. The payment of interest on Exchange Notes will
be in lieu of payment of any accrued but unpaid interest on Private Notes
tendered for exchange. Interest on the Exchange Notes will be calculated on the
basis of a 360-day year of twelve 30-day months. The Exchange Notes will mature
on June 1, 2012 and will be issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof. The Exchange Notes will
be payable as to principal, premium, if any, and interest at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, by wire transfer of immediately
available funds or, in the case of certificated securities only, by mailing a
check to the registered address of the holders of the Exchange Notes. See "--
Book-Entry; Delivery and Form". Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose.
Whether or not required by the rules and regulations of the Commission, so
long as any Exchange Notes are outstanding, the Company will file with the
Commission, to the extent such filings are accepted by the Commission, and will
furnish (within 15 days after such filing) to the Trustee and to the Holders all
quarterly and annual reports and other information, documents and reports that
would be required to be filed with the Commission pursuant to Section 13 of the
Exchange Act if the Company were required to file under such section. In
addition, the Company will make such information available to prospective
purchasers of the Exchange Notes, securities analysts and broker-dealers who
request it in writing.
OPTIONAL REDEMPTION OF THE NOTES
The Notes will be redeemable, in whole or in part, at the option of the
Company at any time at a redemption price equal to 100% of the principal amount
of the Notes to be redeemed plus any applicable Make-Whole Premium (as defined
below) and accrued interest thereon to the date of redemption. In the event of a
partial redemption, the Company shall specify the principal amount of the Notes
to be redeemed.
24
For purposes of determining the optional redemption price, the following
definitions are applicable:
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of the principal amount) equal to the Comparable
Treasury Price for such redemption date, plus .50%.
"Comparable Treasury Issue" means the United States Treasury security
selected by a Quotation Agent as having a maturity comparable to the remaining
term of the Notes to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of such Notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or (ii) if the Trustee obtains three or fewer such Reference
Treasury Dealer Quotations, the average of all such quotations.
"Make-Whole Premium" means, for any Note to be redeemed, a premium equal to
the excess (if any) of (i) as determined by a Quotation Agent, the sum of the
present values of the remaining scheduled payments of principal and interest on
such Note discounted to the redemption date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate
over (ii) 100% of the unpaid principal amount of such Note. If a redemption date
does not fall on an interest payment date, then, with respect to the interest
payment immediately succeeding the redemption date, only the unaccrued portion
of such interest payment as of the redemption date shall be included in the
calculation pursuant to clause (i) above.
"Quotation Agent" means one of the Reference Treasury Dealers appointed by
the Company.
"Reference Treasury Dealer" means each of UBS Warburg LLC, Deutsche Bank
Securities Inc. and Banc of America Securities LLC and their respective
successors; provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York, New York (a "Primary
Treasury Dealer"), the Company shall substitute therefor another Primary
Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
such Reference Treasury Dealer, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing by such Reference Treasury Dealer at 5:00 p.m. on the third
business day preceding such redemption date.
If less than all of the Notes are to be redeemed at any time, selection of
the Notes to be redeemed will be made by the Trustee from among the outstanding
Notes on a pro rata basis, by lot or by any other method permitted in the
Indenture. Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder whose Notes are to be
redeemed at the registered address of such Holder. On and after the redemption
date, interest will cease to accrue on the Notes or portions thereof called for
redemption.
The Notes will not be entitled to any sinking fund.
FALL-AWAY EVENT
In the event (i) the Notes are rated Investment Grade (as defined below)
and (ii) no Event of Default or Default shall have occurred and be continuing,
and upon delivery by the Company to the Trustee of an Officers' Certificate
certifying as to the foregoing events (the occurrence thereof being collectively
referred to as the "Fall-Away Event"), the covenants described under "-- Certain
Covenants of the Company Before the Fall-Away Event" and the provisions of the
Indenture described under "-- Change of Control" will no longer be applicable to
the Company and its Subsidiaries. After the occurrence of the Fall-Away Event,
the Company and its Subsidiaries will be subject to the covenants described
under "-- Certain Covenants of the Company After the Fall-Away Event". As a
result, upon
25
the occurrence of the Fall-Away Event, the Notes will be entitled to
substantially less covenant protection. If the Notes are subsequently downgraded
to, or otherwise become, non-Investment Grade, the Indenture covenants
previously released will not be reinstated.
CHANGE OF CONTROL
If a Change of Control shall occur, then each Holder will have the right to
require that the Company purchase such Holder's Notes, in whole or in part in
integral multiples of $1,000, at a purchase price (the "Change of Control
Purchase Price") in cash in an amount equal to 101% of the principal amount
thereof, plus accrued interest, if any, to the date of purchase (the "Change of
Control Purchase Date"), pursuant to the offer described below (the "Change of
Control Offer") and the other procedures set forth in the Indenture; provided,
however, that if the Fall-Away Event shall have occurred prior to the time the
Company shall otherwise be required to make such Change of Control Offer, then
the Company shall not be required to make such Change of Control Offer.
Within 30 days following any Change of Control, the Company shall notify
the Trustee thereof and give written notice of such Change of Control to each
Holder by first-class mail, postage prepaid, at the address of such Holder
appearing in the security register, stating, among other things:
(i) the offer to repurchase Notes at the Change of Control Purchase
Price and on the Change of Control Purchase Date, which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed;
(ii) that any Note not tendered will continue to accrue interest;
(iii) that, unless the Company defaults in the payment of the Change
of Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date; and
(iv) certain other procedures that a Holder must follow to accept a
Change of Control Offer or to withdraw such acceptance.
The occurrence of certain of the events constituting a Change of Control
under the Indenture may result in an event of default in respect of the Credit
Agreements and other Indebtedness of the Company and its Subsidiaries and,
consequently, the lenders thereof will have the right to require repayment of
such Indebtedness in full. 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 of the Notes that might be delivered by
Holders seeking to accept the Change of Control Offer and other amounts that
might become due and payable in respect of other Indebtedness of the Company.
The failure of the Company to make or consummate the Change of Control Offer or
pay the Change of Control Purchase Price when due would result in an Event of
Default and would give the Trustee and the Holders the rights described under
"-- Events of Default".
One of the events which constitutes a Change of Control under the Indenture
is the sale of "all or substantially all" of the Company's assets. This term has
not been interpreted under New York law (which is the governing law of the
Indenture) to represent a specific quantitative test. As a consequence, in the
event that the Holders believe that the Company is obligated to make a Change of
Control Offer as a result of a sale of all or substantially all of the Company's
assets and the Company does not believe it is so obligated, there can be no
assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a Holder's right to require the Company to purchase such
Holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope
and applies only to the occurrence of events before the Fall-Away Event. The
provisions of the Indenture may not afford Holders the right to require the
Company to purchase such Notes in the event of a highly leveraged transaction or
a reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect Holders, if such transaction is not a
transaction defined as a Change of Control.
26
The Company will comply with any applicable securities laws and regulations
in connection with a Change of Control Offer.
This provision will not apply to the Notes after the occurrence of the
Fall-Away Event.
CERTAIN COVENANTS OF THE COMPANY BEFORE THE FALL-AWAY EVENT
Set forth below are summaries of certain covenants contained in the
Indenture that, as is the case with the "Change of Control" provision of the
Indenture, will apply to the Notes only before the occurrence of the Fall-Away
Event.
Limitations on Additional Indebtedness and Subsidiary Preferred Stock. (a)
After the Issue Date,
(i) the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee, extend the Stated Maturity of, or otherwise become liable
with respect to (collectively, "incur"), any Indebtedness (including,
without limitation, Acquired Indebtedness) and
(ii) the Company will not permit any of its Subsidiaries to issue
(except to the Company or any of its Wholly Owned Subsidiaries) or
create any Preferred Stock or permit any Person (other than the Company
or a Wholly Owned Subsidiary) to own or hold any interest in any
Preferred Stock of any such Subsidiary;
provided, however, that the Company may incur Indebtedness and the Company may
permit its Subsidiaries to issue or create Preferred Stock if, after giving
effect thereto, the Company's EBITDA Coverage Ratio on the date thereof would be
at least 2.5 to 1, determined on a pro forma basis as if the incurrence of such
additional Indebtedness or the issuance of such Preferred Stock (declared to
have an aggregate principal amount equal to the aggregate liquidation value of
such Preferred Stock), as the case may be, and the application of the net
proceeds therefrom, had occurred at the beginning of the four-quarter period
used to calculate the Company's EBITDA Coverage Ratio.
(b) Notwithstanding the foregoing, and irrespective of the EBITDA
Coverage Ratio, in addition to Existing Indebtedness:
(i) the Company may incur Indebtedness pursuant to the Private Notes
issued on the Issue Date and the Exchange Notes issued in exchange for
Private Notes;
(ii) the Company and its Subsidiaries may incur Refinancing
Indebtedness in exchange for, or the net proceeds of which are applied to
refund, refinance or extend, Existing Indebtedness or other Indebtedness
that was permitted by the Indenture to be incurred under this
"Limitations on Additional Indebtedness and Subsidiary Preferred Stock"
covenant except for Indebtedness incurred under clause (iii) or (iv) of
this paragraph (b);
(iii) the Company may incur any Indebtedness to any Subsidiary or any
Subsidiary may incur any Indebtedness to the Company or to any
Subsidiary;
(iv) the Company and its Subsidiaries may incur any Indebtedness
evidenced by letters of credit which are used in the ordinary course of
business of the Company and its Subsidiaries to secure workers'
compensation and other insurance coverages;
(v) the Company and its Subsidiaries may incur Capitalized Lease
Obligations and Attributable Indebtedness, in each case excluding
Existing Indebtedness, but including all Refinancing Indebtedness
incurred in exchange for, or the net proceeds of which are applied to
refund, refinance or extend, any Indebtedness incurred pursuant to this
clause (v), in an aggregate principal amount at any one time outstanding
not to exceed 10% of Consolidated Tangible Assets at such time; and
(vi) the Subsidiaries of the Company may incur Indebtedness,
including all Refinancing Indebtedness incurred in exchange for, or the
net proceeds of which are applied to refund, refinance or extend, any
Indebtedness incurred pursuant to this clause (vi), in an aggregate
27
principal amount at any time outstanding not to exceed $250,000,000, in
addition to Existing Indebtedness and other Indebtedness permitted to be
incurred by Subsidiaries of the Company pursuant to the foregoing clauses
(ii)-(v).
(c) Notwithstanding the foregoing, the Company may permit any Subsidiary
which is a partnership formed to operate a single healthcare facility to
issue or create Preferred Stock, provided that the aggregate amount of all
such Preferred Stock outstanding after giving effect to such issuance or
creation shall not exceed 1% of Consolidated Tangible Assets as of the date
of such issuance or creation.
This covenant will not apply to the Notes after the occurrence of the
Fall-Away Event.
Limitations on Restricted Payments. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, make any Restricted
Payment if at the time of such Restricted Payment:
(i) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(ii) after giving effect to the proposed Restricted Payment, the
amount of such Restricted Payment, when added to the aggregate amount of
all Restricted Payments made after September 25, 2000, exceeds the sum
of:
(a) 50% of the Company's Consolidated Net Income accrued during the
period (taken as a single period) commencing on July 1, 1997 to and
including the fiscal quarter ended immediately prior to the date of such
Restricted Payment (or, if such aggregate Consolidated Net Income shall be a
deficit, minus 100% of such aggregate deficit),
(b) the net cash proceeds from the issuance and sale of the Company's
Capital Stock (other than to a Subsidiary of the Company) that is not
Disqualified Stock during the period (taken as a single period) commencing
with the Issue Date, and
(c) $50,000,000; or
(iii) the Company would not be able to incur an additional $1.00 of
Indebtedness under the EBITDA Coverage Ratio in the "-- Limitations on
Additional Indebtedness and Subsidiary Preferred Stock" covenant.
Notwithstanding the foregoing, the Company may:
(w) pay any dividend within 60 days after the date of declaration thereof
if the payment thereof would have complied with the limitations of this
"Limitations on Restricted Payments" covenant on the date of declaration;
(x) retire shares of the Company's Capital Stock or the Company's or a
Subsidiary of the Company's Indebtedness out of the proceeds of a
substantially concurrent sale (other than to a Subsidiary of the Company) of
shares of the Company's Capital Stock (other than Disqualified Stock);
(y) make Investments in Joint Ventures which, when added to the aggregate
amount of all such other Investments made pursuant to this clause (y) (or
such other Investments as would have been made pursuant to this clause (y)
had such clause been in effect) after September 25, 2000, do not exceed 5%
of Consolidated Tangible Assets at such time (with each such Investment
being valued as of the date made and without regard to subsequent changes in
value); and
(z) make Investments which, when added to the aggregate amount of all
such other Investments made pursuant to this clause (z) (or such other
Investments as would have been made pursuant to this clause (z) had such
clause been in effect) after September 25, 2000, do not exceed 2.5% of
Consolidated Tangible Assets at such time (with each such Investment being
valued as of the date made and without regard to subsequent changes in
value);
28
provided, however, that each Restricted Payment described in clause (w) or (x)
above shall be taken into account for purposes of computing the aggregate amount
of all Restricted Payments pursuant to clause (ii) of the immediately preceding
paragraph.
This covenant will not apply to the Notes after the occurrence of the
Fall-Away Event.
Limitations on Restrictions on Distributions from Subsidiaries. The Company
will not, and will not permit any of its Subsidiaries to, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction (other than encumbrances or restrictions imposed by law or by
judicial or regulatory action or by provisions in leases or other agreements
that restrict the assignability thereof) on the ability of any Subsidiary of the
Company to
(i) pay dividends or make any other distributions on its Capital Stock
or any other interest or participation in, or measured by, its profits,
owned by the Company or any of its other Subsidiaries, or pay interest on
or principal of any Indebtedness owed to the Company or any of its other
Subsidiaries,
(ii) make loans or advances to the Company or any of its other
Subsidiaries or
(iii) transfer any of its properties or assets to the Company or any
of its other Subsidiaries,
in each case except for encumbrances or restrictions existing under or by reason
of
(a) applicable law,
(b) the Credit Agreements,
(c) Existing Indebtedness,
(d) any restrictions under any agreement evidencing any Acquired
Indebtedness that was permitted to be incurred pursuant to the Indenture
and which was not incurred in anticipation or contemplation of the related
acquisition, provided that such restrictions and encumbrances only apply to
assets that were subject to such restrictions and encumbrances prior to the
acquisition of such assets by the Company or its Subsidiaries,
(e) restrictions or encumbrances replacing those permitted by clause
(b), (c) or (d) above which, taken as a whole, are not materially more
restrictive,
(f) the Indenture,
(g) any restrictions and encumbrances arising in connection with
Refinancing Indebtedness; provided, however, that any restrictions or
encumbrances of the type described in this clause that arise under such
Refinancing Indebtedness are not, taken as a whole, materially more
restrictive than those under the agreement creating or evidencing the
Indebtedness being refunded or refinanced,
(h) any restrictions with respect to a Subsidiary of the Company
imposed pursuant to an agreement that has been entered into for the sale or
other disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary,
(i) any agreement restricting the sale or other disposition of
property securing Indebtedness if such agreement does not expressly
restrict the ability of a Subsidiary of the Company to pay dividends or
make loans or advances and
(j) customary restrictions in purchase money debt or leases relating
to the property covered thereby.
This covenant will not apply to the Notes after the occurrence of the
Fall-Away Event.
29
Limitations on Layering Indebtedness. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, incur any
Indebtedness that purports to be by its terms subordinated to any other
Indebtedness of the Company or such Subsidiary, as the case may be, unless such
Indebtedness is also expressly subordinated to the Notes to the same extent and
in the same manner as such Indebtedness is subordinated to such other
Indebtedness.
This covenant will not apply to the Notes after the occurrence of the
Fall-Away Event.
Limitations on Transactions with Affiliates. Neither the Company nor any of
its Subsidiaries will, directly or indirectly, in one transaction or a series of
transactions, make any loan, advance, guarantee or capital contribution to, or
for the benefit of, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into or amend any contract, agreement or
understanding with, or for the benefit of, any Affiliate of the Company or any
of its Subsidiaries or any Person (or any Affiliate of such Person) holding 10%
or more of the Common Equity of the Company or any of its Subsidiaries, other
than transactions in the ordinary course between the Company and its
Subsidiaries or among Subsidiaries of the Company (an "Affiliate Transaction"),
unless
(i) the terms of such Affiliate Transaction are fair and
reasonable to the Company or such Subsidiary, as the case may be, and
are at least as favorable as the terms which could be obtained by the
Company or such Subsidiary, as the case may be, in a comparable
transaction made on an arm's-length basis between unaffiliated
parties;
(ii) with respect to any such Affiliate Transaction involving
aggregate payments in excess of $5,000,000, the Company delivers an
Officers' Certificate to the Trustee certifying that such Affiliate
Transaction complies with clause (i) above and a Secretary's
Certificate which sets forth and authenticates a resolution that has
been adopted by a vote of a majority of the disinterested members of
the Board of Directors approving such Affiliate Transaction; and
(iii) with respect to any such Affiliate Transaction involving
aggregate payments in excess of $25,000,000, the Company delivers to
the Trustee the certificates specified in clause (ii) above and an
opinion of an independent investment banking firm of national standing
in the United States, stating that such Affiliate Transaction is fair
from a financial point of view to the Company or such Subsidiary, as
the case may be;
provided, however, that the foregoing clauses (ii) and (iii) shall not apply to
transactions between the Company or any of its Subsidiaries and MedCenterDirect,
Inc. or Source Medical Solutions, Inc.
This covenant will not apply to the Notes after the occurrence of the
Fall-Away Event.
Limitations on Liens. The Company will not create or suffer to exist any
Lien (other than Permitted Liens) on any of its assets, unless contemporaneously
therewith:
(i) in the case of any Lien securing an obligation that ranks
pari passu with the Notes, effective provision is made to secure the
Notes at least equally and ratably with or prior to such obligation
with a Lien on the same collateral; and
(ii) in the case of any Lien securing an obligation that is
subordinated in right of payment to the Notes, effective provision is
made to secure the Notes with a Lien on the same collateral that is
prior to the Lien securing such subordinated obligation.
Notwithstanding the above, the Company may, without securing the Notes,
create or assume any Indebtedness which is secured by a Lien which would
otherwise be subject to the foregoing restrictions, provided, that after giving
effect thereto, the Exempted Debt then outstanding does not exceed 10% of the
total Consolidated Tangible Assets at such time.
This covenant will not apply to the Notes after the occurrence of the
Fall-Away Event.
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Limitations on Asset Sales. (a) The Company will not, and will not permit
any of its Subsidiaries to, consummate any Asset Sale unless
(i) the Company or such Subsidiary receives consideration at the time
of such Asset Sale at least equal to the Fair Market Value of the assets
included in such Asset Sale,
(ii) immediately before and immediately after giving effect to such
Asset Sale, no Default or Event of Default shall have occurred and be
continuing and
(iii) at least 75% of the consideration received by the Company or
such Subsidiary therefor is in the form of cash paid at the closing
thereof; provided, however, that this clause (iii) shall not apply if,
after giving effect to such Asset Sale, the aggregate principal amount of
all notes or similar debt obligations and Fair Market Value of all equity
securities received by the Company from all Asset Sales since September 25,
2000 (other than such notes or similar debt obligations and such equity
securities converted into or otherwise disposed of for cash and applied in
accordance with the second succeeding sentence) would not exceed 2.5% of
Consolidated Tangible Assets at such time.
The amount (without duplication) of any (x) Indebtedness (other than
Subordinated Indebtedness) of the Company or such Subsidiary that is expressly
assumed by the transferee in such Asset Sale and with respect to which the
Company or such Subsidiary, as the case may be, is unconditionally released by
the holder of such Indebtedness and (y) any notes, securities or similar
obligations or items of property received from such transferee that are
immediately converted, sold or exchanged by the Company or such Subsidiary for
cash (to the extent of the cash actually so received), shall be deemed to be
cash for purposes of this "Limitations on Asset Sales" covenant. If at any time
any non-cash consideration received by the Company or such Subsidiary, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to any
such non-cash consideration), then the date of such conversion or disposition
shall be deemed to constitute the date of an Asset Sale hereunder and the Net
Proceeds thereof shall be applied in accordance with this "Limitations on Asset
Sales" covenant. A transfer of assets by the Company to a Wholly Owned
Subsidiary or by a Wholly Owned Subsidiary to the Company or to another Wholly
Owned Subsidiary will not be deemed to be an Asset Sale and a transfer of assets
that constitutes a Restricted Payment and that is permitted under the covenant
described under "--Limitations on Restricted Payments" will not be deemed to be
an Asset Sale.
(b) If the Company or any Subsidiary engages in an Asset Sale, the
Company or such Subsidiary shall, no later than 360 days after such Asset
Sale,
(i) apply all or any of the Net Proceeds therefrom to repay
Indebtedness that ranks pari passu with the Notes and is secured by
the assets disposed of in the Asset Sale or to repay Bank Debt in
accordance with the applicable provisions thereof,
(ii) invest all or any part of the Net Proceeds therefrom in the
lines of business of the Company or any of its Subsidiaries
immediately prior to such investment or
(iii) any combination of clauses (i) and (ii) above.
The amount of such Net Proceeds not applied or invested as provided in this
paragraph will constitute "Excess Proceeds".
(c) When the aggregate amount of Excess Proceeds equals or
exceeds $5,000,000, the Company will be required to make an offer to
purchase (an "Asset Sale Offer") from all Holders, an aggregate
principal amount of Notes equal to the amount of such Excess Proceeds
as follows:
(i) The Company will make an Asset Sale Offer to all Holders
in accordance with the procedures set forth in the Indenture to
purchase the maximum principal amount (expressed as a multiple of
$1,000) of Notes that may be purchased out of the amount (the
"Asset Sale Payment Amount") of such Excess Proceeds.
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(ii) The offer price for the Notes will be payable in cash
in an amount equal to 100% of the principal amount of the Notes
tendered pursuant to such Asset Sale Offer, plus accrued and
unpaid interest and Additional Interest, if any, to the date such
Asset Sale Offer is consummated (the "Asset Sale Purchase
Price"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate Asset Sale Purchase
Price of Notes tendered pursuant to an Asset Sale Offer is less
than the Asset Sale Payment Amount relating thereto (such
shortfall constituting a "Net Proceeds Deficiency"), the Company
may use such Net Proceeds Deficiency, or a portion thereof, for
general corporate purposes.
(iii) If the aggregate Asset Sale Purchase Price of Notes
validly tendered and not withdrawn by holders thereof exceeds the
Asset Sale Payment Amount, Notes to be purchased will be selected
on a pro rata basis.
(iv) Upon completion of such Asset Sale Offer in accordance
with the foregoing provisions, the amount of Excess Proceeds with
respect to which such Asset Sale Offer was made shall be deemed
to be zero.
In the event that any other Indebtedness of the Company which ranks pari
passu with the Notes ("Other Debt") requires an offer to purchase to be made to
repurchase such Other Debt upon the consummation of an Asset Sale, the Company
may apply the Excess Proceeds to both purchase such Other Debt and to make an
Asset Sale Offer, provided, that the purchase price of such other debt does not
exceed 100% of the aggregate principal amount or accreted value thereof plus
interest thereon. With respect to any Excess Proceeds, the Company shall make
the Asset Sale Offer in respect thereof at the same time as the analogous offer
to purchase is made pursuant to any Other Debt and the purchase date in respect
thereof shall be the same as the purchase date in respect thereof pursuant to
any Other Debt.
With respect to any Asset Sale Offer effected pursuant to this "Limitations
on Asset Sales" covenant, to the extent the aggregate principal amount of Notes
and Other Debt, if any, tendered pursuant to such Asset Sale Offer and the
concurrent offer to purchase with respect to such Other Debt, exceeds the Excess
Proceeds, such Notes and Other Debt, if any, shall be purchased pro rata based
on the aggregate principal amount of such Notes and such Other Debt tendered by
each holder thereof.
The Company will comply with any applicable securities laws and regulations
in connection with an Asset Sale Offer.
This covenant will not apply to the Notes after the occurrence of the
Fall-Away Event.
Limitations on Mergers and Consolidations. The Company will not
consolidate or merge with or into, or sell, lease, convey or otherwise dispose
of all or substantially all of its assets, or assign any of its obligations
under the Notes or the Indenture, to any Person unless:
(i) the Person formed by or surviving such consolidation or
merger (if other than the Company), or to which such sale, lease,
conveyance or other disposition or assignment shall be made
(collectively, the "Successor"), is a corporation organized and
existing under the laws of the United States or any State thereof or
the District of Columbia, and the Successor assumes by supplemental
indenture in a form satisfactory to the Trustee all of the obligations
of the Company under the Notes and the Indenture;
(ii) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a pro forma basis, no Default or
Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction and the use
of any net proceeds therefrom on a pro forma basis, the Consolidated
Net Worth of the Company or the Successor, as the case may be, would be
at least equal to the Consolidated Net Worth of the Company immediately
prior to such transaction;
32
(iv) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a pro forma basis, the EBITDA
Coverage Ratio of the Company or the Successor, as the case may be,
would be such that the Company or the Successor, as the case may be,
would be entitled to incur at least $1.00 of additional Indebtedness
under the EBITDA Coverage Ratio test in the "-- Limitations on
Additional Indebtedness and Subsidiary Preferred Stock" covenant; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, lease, conveyance or other disposition or
assignment complies with the provisions of the Indenture.
This covenant will not apply to the Notes after the occurrence of the
Fall-Away Event.
CERTAIN COVENANTS OF THE COMPANY AFTER THE FALL-AWAY EVENT
Set forth below are summaries of certain covenants contained in the
Indenture that will apply to the Notes only after the occurrence of the
Fall-Away Event.
Limitations on Liens. The Company will not, nor will it permit any
Subsidiary to, directly or indirectly, create or incur any Lien of any kind
securing Indebtedness for money borrowed upon any assets, whether now owned or
hereafter acquired, of the Company or any such Subsidiary without equally and
ratably securing the Notes by a Lien ranking ratably with and equally to such
secured Indebtedness, except that the foregoing restriction shall not apply to:
(i) Liens on assets of any corporation existing at the time such corporation
becomes a Subsidiary; (ii) Liens on assets existing at the time of acquisition
thereof, or to secure the payment of the purchase price of such assets, or to
secure Indebtedness incurred or guaranteed by the Company or a Subsidiary for
the purpose of financing the purchase price of such assets or improvements or
construction thereon, which Indebtedness is incurred or guaranteed prior to, at
the time of or within 360 days after such acquisition (or in the case of real
property, completion of such improvement or construction or commencement of full
operation of such property, whichever is later); (iii) Liens on any assets of a
corporation existing at the time such corporation is merged into or consolidated
with the Company or a Subsidiary or at the time of a purchase, lease or other
acquisition of the assets of a corporation or firm as an entirety or
substantially as an entirety by the Company or a Subsidiary; (iv) Liens on any
assets of the Company or a Subsidiary in favor of the United States of America
or any state thereof, or in favor of any other country, or in favor of any
political subdivision of any of the foregoing, to secure certain payments
pursuant to any contract or statute or to secure any Indebtedness incurred or
guaranteed for the purpose of financing all or any part of the purchase price
(or, in the case of real property, the cost of construction) of the assets
subject to such Liens (including, but not limited to, Liens incurred in
connection with industrial revenue or similar financing involving a political
subdivision, agency or authority thereof); (v) Liens relating to accounts
receivable of the Company or any of its Subsidiaries which have been sold,
assigned or otherwise transferred to another Person in a transaction classified
as a sale of accounts receivable in accordance with GAAP (to the extent the sale
by the Company or the applicable Subsidiary is deemed to give rise to a Lien in
favor of the purchaser thereof in such accounts receivable or the proceeds
thereof); or (vi) any other Permitted Lien. Notwithstanding the above, the
Company or any Subsidiary may, without securing the Notes, create or assume any
Indebtedness which is secured by a Lien that would otherwise be subject to the
foregoing restrictions, provided, that after giving effect thereto the Exempted
Debt (other than Attributable Indebtedness in respect of Sale and Leaseback
Transactions involving leases not exceeding five years) then outstanding does
not exceed 10% of the total Consolidated Tangible Assets at such time.
Limitation on Sale and Leaseback Transactions. Sale and Leaseback
Transactions (except such transactions involving leases not exceeding five
years) by the Company or any Subsidiary of any assets are prohibited unless (i)
the Company or such Subsidiary would be entitled pursuant to clauses (i) through
(vi) contained in the covenant described under "-- Certain Covenants of the
Company After the Fall-Away Event -- Limitations on Liens", to create, incur or
permit to exist a lien on the assets to be leased in an amount at least equal to
the Attributable Debt in respect of such transaction without equally and ratably
securing the Notes, or (ii) the proceeds from the sale of the assets to be
leased are at least equal to their fair market value and the proceeds are
applied to the purchase or acquisition (or, in the case of real property, the
construction) of assets or to the retirement of indebtedness.
33
Limitations on Mergers and Consolidations. The Company will not consolidate
with or merge into any other Person, or convey, transfer or lease its properties
and assets substantially as an entirety to any other Person, and the Company
shall not permit any other Person to consolidate with or merge into the Company
or convey, transfer or lease its properties and assets substantially as an
entirety to the Company, unless (a) either the Company shall be the continuing
corporation, or the successor entity (if other than the Company) formed by such
consolidation or merger or into which the properties and assets of the Company
substantially as an entirety are transferred or leased shall be a corporation,
partnership, limited liability company or trust organized and existing under the
laws of the United States of America, any State thereof or the District of
Columbia and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, in a form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture, and (b)
immediately after giving effect to such transaction and treating any
Indebtedness that becomes an obligation of the Company or a Subsidiary as a
result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Default or Event of Default shall
have occurred and be continuing. Upon assumption of the Company's obligations by
an entity to whom such assets are transferred or leased, subject to certain
exceptions, the Company shall be discharged from all obligations under the Notes
and the Indenture.
There are no covenants or other provisions in the Indenture providing for a
put at the option of the holders of the Notes or an increase in the rate of
interest borne by the respective Notes or that would otherwise afford holders of
any of the Notes protection in the event of a recapitalization transaction or a
highly leveraged transaction.
EVENTS OF DEFAULT
An "Event of Default" means any one of the following events which shall
have occurred and be continuing (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(i) default in the payment of any installment of interest upon
any of the Notes as and when the same shall become due and payable,
and continuance of such default for a period of 30 days;
(ii) default in the payment of all or any part of the principal,
or premium, if any, on any of the Notes as and when the same shall
become due and payable either at its Stated Maturity, upon any
redemption, by declaration or otherwise;
(iii) failure by the Company to comply with its then applicable
obligations or covenants described under the captions "-- Change of
Control", "-- Certain Covenants of the Company Before the Fall-Away
Event -- Limitations on Asset Sales" or "-- Limitations on Mergers and
Consolidations";
(iv) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the
Company in the Notes or the Indenture (other than the covenants
referred to in clauses (i), (ii) and (iii) above) for a period of 60
days after the date on which written notice specifying such failure,
stating that such notice is a "Notice of Default" under the Indenture
and demanding that the Company remedy the same, shall have been given
by registered or certified mail, return receipt requested, to the
Company by the Trustee, or to the Company and the Trustee by the
holders of at least 25% in aggregate principal amount of the
outstanding Notes;
(v) default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company or any Subsidiary of
the Company or under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or any Subsidiary of
the Company, whether such Indebtedness now exists or shall hereafter
be created, if (i) such default results in such Indebtedness becoming
or being declared due and payable prior to the date on which it would
otherwise become due and payable, (ii) the
34
principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness which has been so accelerated,
aggregates $25,000,000 or more at any one time outstanding and (iii)
such Indebtedness is not discharged, or such acceleration is not
rescinded or annulled, within a period of 10 days after there shall
have been given to the Company by the Trustee or to the Company and
the Trustee by the holders of at least 25% in aggregate principal
amount of the outstanding Notes a written notice specifying such
default and requiring the Company to cause such Indebtedness to be
discharged or cause such acceleration to be rescinded or annulled; or
(vi) certain events of bankruptcy, insolvency or reorganization
involving the Company or any Significant Subsidiary of the Company.
If an Event of Default (other than an Event of Default specified in clause
(vi) above relating to the Company) shall have occurred and be continuing under
the Indenture, the Trustee, by written notice to the Company, or the Holders of
at least 25% in aggregate principal amount of the Notes then outstanding by
written notice to the Company and the Trustee, may declare all amounts owing
under the Notes to be due and payable. Upon effectiveness of such acceleration,
the aggregate principal of, premium, if any, and interest on the outstanding
Notes shall immediately become due and payable. If an Event of Default specified
in clause (vi) above relating to the Company occurs, all outstanding Notes shall
become due and payable without any further action or notice.
In certain cases, the Holders of a majority in aggregate principal amount
of the Notes then outstanding may waive an existing Default or Event of Default
and its consequences, except a default in the payment of principal of, premium,
if any, and interest on the Notes.
The Holders may not enforce the provisions of the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power; provided, however, that such
direction does not conflict with the terms of the Indenture. The Trustee may
withhold from the Holders notice of any continuing Default or Event of Default
(except any Default or Event of Default in payment of principal of or premium,
if any, or interest on the Notes or failure to comply with the then applicable
"Limitations on Mergers and Consolidations" covenant) if the Trustee determines
that withholding such notice is in the Holders' interest.
The Company is required to deliver to the Trustee annually, within 90 days
after the end of each fiscal year, a statement regarding compliance with the
Indenture and, upon any Officer of the Company becoming aware of any Default or
Event of Default, a statement specifying such Default or Event of Default and
what action the Company is taking or proposes to take with respect thereto.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may, at its option by a resolution of the Board of Directors,
at any time, elect to have the obligations of the Company discharged with
respect to the outstanding Notes ("Legal Defeasance") under the Indenture. Such
defeasance means that the Company will be deemed to have paid and discharged the
entire Indebtedness represented by the outstanding Notes and to have satisfied
all its other obligations under the Notes and the Indenture insofar as the Notes
are concerned except for
(i) the rights of Holders of the outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due on the Stated Maturity thereof
(or, upon redemption, if applicable) from the trust fund established
to effect such defeasance,
(ii) the Company's obligations to issue temporary Notes, register
the transfer or exchange of any such Notes, replace mutilated,
destroyed, lost or stolen Notes, maintain an office or agency for
payments in respect of such Notes and segregate and hold such payments
in trust,
(iii) the rights, powers, trusts, duties and immunities of the
Trustee and
35
(iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option by a resolution of the Board of
Directors, at any time, elect to have the obligations of the Company released
with respect to certain covenants set forth in the Indenture, and any omission
to comply with such obligations will not constitute a Default or an Event of
Default, with respect to the Notes ("Covenant Defeasance").
In order to exercise either Legal Defeasance or Covenant Defeasance under
the Indenture:
(i) the Company must irrevocably deposit or cause to be deposited
with the Trustee, as trust funds in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders,
cash in U.S. dollars, or U.S. government obligations, or, in the case
of Covenant Defeasance, corporate obligations rated at least "A" by
S&P or at least "A" by Moody's 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 and
discharge the principal of, premium, if any, and interest on the
outstanding Notes on the Stated Maturity thereof (or upon redemption,
if applicable) of such principal, premium, if any, or installment of
interest;
(ii) no Default or Event of Default with respect to the Notes
will have occurred and be continuing on the date of such deposit or,
insofar as an event of bankruptcy under clause (vi) of "-- Events of
Default" above is concerned, at any time during the period ending on
the 91st day after the date of such deposit;
(iii) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under, the
Indenture or any material agreement or instrument to which the Company
is a party or by which it is bound;
(iv) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that the
Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or since the Issue Date there has
been a change in applicable federal income tax law, in either case to
the effect that, and based thereon such opinion shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
defeasance had not occurred;
(v) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
defeasance had not occurred; and
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
TRANSFER AND EXCHANGE
A Holder will be able to register the transfer of or exchange Notes only in
accordance with the provisions of the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. Without the prior consent of the Company, the Registrar is not
required
(i) to register the transfer of or exchange any Note selected for
redemption,
(ii) to register the transfer of or exchange any Note for a
period of 15 days before the mailing of a notice of redemption and
ending on the date of such mailing or
36
(iii) to register the transfer or exchange of a Note between a
record date and the next succeeding interest payment date.
The registered Holder will be treated as the owner of such Note for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent (which may include consents obtained in connection
with a tender offer or exchange offer for the Notes) of the Holders of a
majority in principal amount of the Notes then outstanding, and any existing
Default under, or compliance with any provision of, the Indenture may be waived
(other than any continuing Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes) with the consent (which
may include consents obtained in connection with a tender offer or exchange
offer for the Notes) of the Holders of a majority in principal amount of the
Notes then outstanding; provided that without the consent of each Holder
affected, the Company and the Trustee may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, such Note or alter the optional redemption
provisions thereof;
(ii) reduce the principal amount of, or premium, if any, or
interest on, such Note or extend the time of payments under the Notes;
(iii) modify the ranking of the Notes in a manner adverse to the
Holder;
(iv) change the place or currency of payment of principal of, or
premium, if any, or interest on, such Note;
(v) alter the provisions with respect to the obligation of the
Company to make a Change of Control Offer in accordance with "--
Change of Control" above or to make an Asset Sale Offer in accordance
with "-- Certain Covenants of the Company Before the Fall-Away Event
-- Limitations on Asset Sales" above;
(vi) impair the right to institute suit for the enforcement of
any payment on or with respect to such Note; or
(vii) reduce the percentage in principal amount of outstanding
Notes, the consent of whose Holders is required for modification or
amendment of the Indenture or for waiver of compliance with certain
provisions of the Indenture or for waiver of certain Defaults or
Events of Default.
Without the consent of any Holder, the Company and the Trustee may amend or
supplement the Indenture or the Notes:
(i) to cure any ambiguity, or to correct or supplement any
provision in the Indenture or the Notes or make any other provisions
with respect to matters or questions arising under the Indenture or
the Notes; provided that, in each case, such provisions shall not
adversely affect the interest of the Holders;
(ii) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(iii) to provide for the assumption by a successor corporation of
the Company's obligations under the Indenture;
(iv) to add guarantees with respect to the Notes;
(v) to secure the Notes;
(vi) to add to the covenants of the Company or the Events of
Default for the benefit of Holders;
(vii) to surrender any right or power conferred on the Company;
or
37
(viii) to make any other change that does not adversely affect
the rights of any Holder or to comply with any requirement of the
Commission in connection with the qualification of the Indenture under
the Trust Indenture Act.
It will not be necessary under the Indenture for the consent of Holders to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment. The Company may, but
shall not be obligated to, fix a record date for the purpose of determining the
Holders entitled to consent to any amendment, supplement or waiver. If a record
date is fixed, then those Persons who were Holders at such record date (or their
duly designated proxies), and only those Persons, shall be entitled to revoke
any consent previously given, whether or not such Persons shall continue to be
Holders after such record date.
CONCERNING THE TRUSTEE
The Bank of Nova Scotia Trust Company of New York is the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes. The Indenture provides that if the Trustee acquires a
"conflicting interest" within the meaning of the Trust Indenture Act, it must
eliminate such conflict or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee with respect to
the Notes, subject to certain exceptions. The Indenture provides that, in case
an Event of Default occurs and is not cured, the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent person in
similar circumstances in the conduct of his or her own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder, unless such
Holder shall have offered to the Trustee security and indemnity satisfactory to
the Trustee.
GOVERNING LAW
The Indenture and the Notes provide that they will be governed by, and
construed in accordance with, the laws of the State of New York.
BOOK-ENTRY; DELIVERY AND FORM
The Private Notes are, and the Exchange Notes will be, represented by one
or more global notes (the "Global Notes") in definitive form. The Global Notes
representing Exchange Notes will be deposited upon issuance with, or on behalf
of, DTC and registered in the name of Cede & Co., as nominee of DTC (such
nominee being referred to herein as the "Global Note Holder"). DTC will maintain
the Notes in denominations of $1,000 and integral multiples of $1,000 through
its book-entry facilities.
DTC has advised the Company as follows:
DTC is a limited-purpose trust company organized under the laws of the
State of New York and is a "banking organization" within the meaning of the New
York Banking Law. DTC is a member of the Federal Reserve System and is both a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, as amended, and a "clearing agency" registered pursuant to Section 17A of
the Exchange Act. DTC was created to hold securities for its participating
organizations, including Euroclear Bank as operator of The Euroclear System
("Euroclear") and Clearstream Banking, societe anonyme ("Clearstream")
(collectively, the "Participants" or the "Depositary's Participants"), and to
facilitate the clearance and settlement of transactions in these securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the initial purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
38
(collectively, the "Indirect Participants" or the "Depositary's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Depositary's Participants or the Depositary's Indirect Participants. Pursuant to
procedures established by DTC, ownership of the Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the interests of the Depositary's Participants) and the
records of the Depositary's Participants (with respect to the interests of the
Depositary's Indirect Participants).
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 the Notes will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole holder of outstanding Notes
represented by such Global Notes under the Indenture. Except as provided below,
owners of Notes will not be entitled to have Notes registered in their names and
will not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instructions,
or approvals to the Trustee thereunder. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of Notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of a Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of such Global
Note Holder in its capacity as the registered holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names any 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 nor the Trustee has or
will have any responsibility or liability for the payment of such amounts to
beneficial owners of Notes (including principal, premium, if any, and interest).
The Company believes, however, that it is currently the policy of DTC to
immediately credit the accounts of the relevant Participants with such payments,
in amounts proportionate to their respective beneficial interests in the
relevant security as shown on the records of DTC. Payments by the Depositary's
Participants and the Depositary's Indirect Participants to the beneficial owners
of Notes will be governed by standing instructions and customary practice and
will be the responsibility of the Depositary's Participants or the Depositary's
Indirect Participants.
Certificated Notes will not generally be issued in exchange for beneficial
interests in the Global Notes. Subject to certain conditions, however, any
person having a beneficial interest in the Global Notes may, upon request to the
Trustee and confirmation of such beneficial interest by the Depositary or its
Participants or Indirect Participants, exchange such beneficial interest for
Certificated Notes. Upon any such issuance, the Trustee is required to register
Certificated Notes in the name of and cause the same to be delivered to, such
person or persons (or the nominee of any thereof). Certificated Notes would be
issued in fully registered form and would be subject to certain legal
requirements. In addition, if (1) the Company notifies the Trustee in writing
that DTC 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 (2) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Notes in definitive form under the Indenture, then, upon surrender by the
relevant Global Note Holder of its Global Note, Notes in such form will be
issued to each person that such Global Note Holder and DTC identifies 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 DTC 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 DTC for all purposes.
39
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 used in the Indenture.
"Acquired Indebtedness" means (i) with respect to any Person that becomes a
Subsidiary of the Company after the Issue Date, Indebtedness of such Person and
its Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company and (ii) with respect to the Company or any of its Subsidiaries, any
Indebtedness assumed by the Company or any of its Subsidiaries in connection
with the acquisition of an asset from another Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such specified Person. For the purposes of this definition, "control" when
used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Sale" for any Person means the sale, lease, conveyance or other
disposition (including, without limitation, by merger or consolidation, and
whether by operation of law or otherwise) of any of that Person's assets
(including, without limitation, the sale or other disposition of Capital Stock
of any Subsidiary of such Person, whether by such Person or by such Subsidiary),
whether owned on the Issue Date or subsequently acquired, in one transaction or
a series of related transactions, in which such Person and/or its Subsidiaries
sell, lease, convey or otherwise dispose of:
(i) all or substantially all of the Capital Stock of any of such
Person's Subsidiaries,
(ii) assets which constitute all or substantially all of any division
or line of business of such Person or any of its Subsidiaries, or
(iii) any other assets of such Person or any of its Subsidiaries,
other than in the ordinary course of business, provided, that the Fair
Market Value thereof shall be at least 1% of Consolidated Tangible
Assets at such time;
provided, however, that the following shall not constitute Asset Sales:
(a) transactions between the Company and any of its Wholly Owned
Subsidiaries or among such Wholly Owned Subsidiaries;
(b) any transaction not prohibited by the covenant described under "--
Certain Covenants of the Company Before the Fall-Away Event -- Limitations
on Restricted Payments" or that constitutes a Permitted Investment;
(c) any transfer of assets (including Capital Stock) that is governed by
and in accordance with the provisions described under "-- Certain Covenants
of the Company Before the Fall-Away Event -- Limitations on Mergers and
Consolidations" or the creation of any Lien not prohibited by the covenant
described under "-- Certain Covenants of the Company Before the Fall-Away
Event -- Limitations on Liens"; or
(d) sales of damaged, worn-out or obsolete equipment or assets that, in
the Company's reasonable judgment, are no longer either used or useful in
the business of the Company or its Subsidiaries.
"Attributable Indebtedness" when used with respect to any Sale and
Leaseback Transaction means, as at the time of determination, the present value
(discounted at a rate equivalent to the interest rate implicit in the lease,
compounded on a semiannual basis) of the total obligations of the lessee for
rental payments, after excluding all amounts required to be paid on account of
maintenance and repairs, insurance, taxes, utilities and other similar expenses
payable by the lessee pursuant to the terms of the lease, during the remaining
term of the lease included in any such Sale and Leaseback Transaction or until
the earliest date on which the lessee may terminate such lease without penalty
or
40
upon payment of a penalty (in which case the rental payments shall include such
penalty); provided, that the Attributable Indebtedness with respect to a Sale
and Leaseback Transaction shall be no less than the fair market value of the
property subject to such Sale and Leaseback Transaction.
"Bank Debt" means all obligations of the Company and its Subsidiaries, now
or hereafter existing under (i) the Credit Agreements, whether for principal,
interest, reimbursement of amounts drawn under letters of credit issued pursuant
thereto, guarantees in respect thereof, fees, expenses, premiums, indemnities or
otherwise, and (ii) any Indebtedness incurred by the Company to extend, refund,
supplement, refinance or replace, in whole or in part, such Bank Debt, including
any interest and premium on any such Indebtedness.
"Capital Stock" of any Person means any and all shares, rights to purchase,
warrants or options (whether or not currently exercisable), participation or
other equivalents of or interest in (however designated) the equity (including
without limitation common stock, preferred stock and partnership, joint venture
and limited liability company interests) of such Person (excluding any debt
securities that are convertible into, or exchangeable for, such equity).
"Capitalized Lease Obligations" of any Person means the obligation of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"Change of Control" means the occurrence at any time before the Fall-Away
Event of any of the following:
(i) all or substantially all of the Company's assets are sold as an
entirety to any person or related group of persons;
(ii) there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving
corporation (other than a consolidation or merger with a Wholly Owned
Subsidiary of the Company in which all shares of the Company's Common
Equity outstanding immediately prior to the effectiveness thereof are
changed into or exchanged for the same consideration) or (B) pursuant to
which the Company's Common Equity would be converted into cash, securities
or other property, in each case other than a consolidation or merger of the
Company in which the holders of the Company's Common Equity immediately
prior to the consolidation or merger have, directly or indirectly, at least
a majority of the total voting power of all classes of Capital Stock
entitled to vote generally in the election of directors of the continuing
or surviving corporation immediately after such consolidation or merger in
substantially the same proportion as their ownership of the Company's
Common Equity immediately before such transaction;
(iii) any person, or any persons acting together which would
constitute a "group" for purposes of Section 13(d) of the Exchange Act,
together with any affiliates thereof, shall beneficially own (as defined in
Rule 13d-3 under the Exchange Act) at least 50% of the total voting power
of all classes of Capital Stock of the Company entitled to vote generally
in the election of directors of the Company;
(iv) at any time during any consecutive two-year period, individuals
who at the beginning of such period constituted the Board of Directors of
the Company (together with any new directors whose election by such Board
of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of 66-2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the
Company then in office; or
(v) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution.
41
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, the body performing
such duties at the time.
"Common Equity" of any Person means all Capital Stock of such Person that
is generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Amortization Expense" of any Person for any period means the
amortization expense of such Person and its Subsidiaries for such period (to
the extent included in the computation of Consolidated Net Income of such
Person), determined on a consolidated basis in accordance with GAAP.
"Consolidated Depreciation Expense" of any Person means the depreciation
expense of such Person and its Subsidiaries for such period (to the extent
included in the computation of Consolidated Net Income of such Person),
determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" of any Person means, with respect to any
determination date, Consolidated Net Income, plus (i) Consolidated Income Tax
Expense, plus (ii) Consolidated Depreciation Expense, plus (iii) Consolidated
Amortization Expense, plus (iv) Consolidated Interest Expense, plus (v) all
other unusual non-cash items or non-recurring non-cash items reducing
Consolidated Net Income of such Person and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP, and less all non-cash items
increasing Consolidated Net Income of such Person and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, in each case, for
such Person's prior four full fiscal quarters for which financial results have
been reported immediately preceding the determination date.
"Consolidated Income Tax Expense" means, for any Person for any period, the
provision for taxes based on income and profits of such Person and its
Subsidiaries to the extent such provision for income taxes was deducted in
computing Consolidated Net Income of such Person for such period, determined on
a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" of any Person for any four-quarter period
means, without duplication, (i) the Interest Expense of such Person and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP, plus (ii) (to the extent not otherwise included within the definition
of Interest Expense as imputed interest) one-third of the rental expense on
Attributable Indebtedness of such Person for such period determined on a
consolidated basis, plus (iii) the dividend requirements of such Person and its
Subsidiaries with respect to Disqualified Stock and with respect to all other
Preferred Stock of Subsidiaries of such Person (in each case whether in cash or
otherwise (except dividends payable solely in shares of Capital Stock (other
than Disqualified Stock) of such Person or such Subsidiary)) paid, accrued or
accumulated during such period times a fraction the numerator of which is one
and the denominator of which is one minus the then effective consolidated
Federal, state and local tax rate of such Person, expressed as a decimal.
"Consolidated Net Income" of any Person for any period means the net income
(or loss) of such Person and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded from such net income (to the extent otherwise included therein),
without duplication:
(i) the net income (or loss) of any Person (other than a
Subsidiary of the referent Person) in which any Person other than the
referent Person has an ownership interest, except to the extent that
any such income has actually been received by the referent Person or
any of its Wholly Owned Subsidiaries in the form of dividends or
similar distributions during such period;
42
(ii) except to the extent includible in the consolidated net
income of the referent Person pursuant to the foregoing clause (i),
the net income (or loss) of any Person that accrues prior to the date
that (a) such Person becomes a Subsidiary of the referent Person or is
merged into or consolidated with the referent Person or any of its
Subsidiaries or (b) the assets of such Person are acquired by the
referent Person or any of its Subsidiaries;
(iii) the net income of any Subsidiary of the referent Person
(other than a Wholly Owned Subsidiary) to the extent that the
declaration or payment of dividends or similar distributions by such
Subsidiary of that income is not permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary
during such period;
(iv) any gain (or loss), together with any related provisions for
taxes on any such gain, realized during such period by the referent
Person or any of its Subsidiaries upon (a) the acquisition of any
securities, or the extinguishment of any Indebtedness, of the referent
Person or any of its Subsidiaries or (b) any Asset Sale by the
referent Person or any of its Subsidiaries;
(v) any extraordinary gain or extraordinary loss, together with
any related provision for taxes or tax benefit resulting from any such
extraordinary gain or extraordinary loss, realized by the referent
Person or any of its Subsidiaries during such period; and
(vi) in the case of a successor to such Person by consolidation,
merger or transfer of its assets, any earnings of the successor prior
to such merger, consolidation or transfer of assets.
"Consolidated Net Worth" of any Person as of any date means the
stockholders' equity (including any preferred stock that is classified as equity
under GAAP, other than Disqualified Stock) of such Person and its Subsidiaries
(excluding any equity adjustment for foreign currency translation for any period
subsequent to the Issue Date) on a consolidated basis at such date, as
determined in accordance with GAAP, less all write-ups subsequent to the Issue
Date in the book value of any asset owned by such Person or any of its
Subsidiaries.
"Consolidated Tangible Assets" as of any date means the total assets of the
Company and its Subsidiaries (excluding any assets that would be classified as
"intangible assets" under GAAP) on a consolidated basis at such date, as
determined in accordance with GAAP, less all write-ups subsequent to the Issue
Date in the book value of any asset owned by the Company or any of its
Subsidiaries.
"Credit Agreements" means (i) the Credit Agreement dated as of June 14,
2002 by and among the Company, as borrower, JPMorgan Chase Bank, as
Administrative Agent, Wachovia Bank, National Association, as Syndication Agent,
UBS Warburg LLC, Scotiabanc, Inc. and Deutsche Bank AG, as Co-Documentation
Agents, Bank of America, N.A., as Senior Managing Agent, and J.P. Morgan
Securities Inc. and Wachovia Securities, as Joint Lead Arrangers and Joint
Bookrunners, and the other lenders party thereto from time to time, together
with the related documents thereto, including, without limitation, any security
documents, if any, and all exhibits and schedules thereto, and (ii) any other
credit agreement entered into by the Company or any of its Subsidiaries for
money borrowed from or guaranteed to persons, firms or corporations which engage
in the business of lending money, in order to provide funding for the
acquisition and development of healthcare facilities or to provide for working
capital needs and other corporate purposes, including, in the case of clause (i)
or (ii) above, any agreement or agreements relating to any extension, refunding,
refinancing, successor or replacement facility, whether or not with the same
lender, and whether or not the principal amount or amount of letters of credit
outstanding thereunder or the interest rate payable in respect thereof shall be
thereby increased, in each case as amended and in effect from time to time.
"Default" means any event, act or condition that is, or after notice or the
passage of time or both would be, an Event of Default.
43
"Disqualified Stock" means any Capital Stock that, 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 redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
Stated Maturity date of the Notes.
"EBITDA Coverage Ratio" with respect to any four-quarter period means the
ratio of (i) Consolidated EBITDA of the Company to (ii) the aggregate amount of
Consolidated Interest Expense of the Company for such period; provided, however,
that if any calculation of the Company's EBITDA Coverage Ratio requires the use
of any quarter prior to the Issue Date, such calculation shall be made on a pro
forma basis, giving effect to the issuance of the Private Notes and the use of
the net proceeds therefrom as if the same had occurred at the beginning of the
four-quarter period used to make such calculation; and provided further that if
any such calculation requires the use of any quarter prior to the date that any
Asset Sale was consummated, or that any Indebtedness was incurred, or that any
acquisition of a hospital or other healthcare facility or any assets purchased
outside the ordinary course of business was effected, by the Company or any of
its Subsidiaries, such calculation shall be made on a pro forma basis, giving
effect to each such Asset Sale, incurrence of Indebtedness or acquisition, as
the case may be, and the use of any proceeds therefrom, as if the same had
occurred at the beginning of the four-quarter period used to make such
calculation.
"Eligible Investments" of any Person means Investments of such Person in:
(i) direct obligations of, or obligations the payment of which is
guaranteed by, the United States of America or an interest in any
trust or fund that invests solely in such obligations or repurchase
agreements, properly secured, with respect to such obligations;
(ii) direct obligations of agencies or instrumentalities of the
United States of America having a rating of A or higher by S&P or A2
or higher by Moody's;
(iii) a certificate of deposit issued by, or other
interest-bearing deposits with, a bank having its principal place of
business in the United States of America and having equity capital of
not less than $250,000,000;
(iv) a certificate of deposit issued by, or other
interest-bearing deposits with, any other bank organized under the
laws of the United States of America or any state thereof, provided
that such deposit is either (a) insured by the Federal Deposit
Insurance Corporation or (b) properly secured by such bank by pledging
direct obligations of the United States of America having a market
value of not less than the face amount of such deposits;
(v) prime commercial paper maturing within 270 days of the
acquisition thereof and, at the time of acquisition, having a rating
of A-1 or higher by S&P or P-1 or higher by Moody's or
(vi) eligible banker's acceptances, repurchase agreements and
tax-exempt municipal bonds having a maturity of less than one year, in
each case having a rating of, or evidencing the full recourse
obligation of a person whose senior debt is rated, A or higher by S&P
or A2 or higher by Moody's.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exempted Debt" means the sum of the following as of any date of
determination: (i) Indebtedness of the Company and its Subsidiaries incurred
after the Issue Date and secured by Liens not otherwise permitted by the then
applicable "-- Limitations on Liens" covenant and (ii) Attributable Indebtedness
of the Company and its Subsidiaries in respect of every Sale and Leaseback
Transaction entered into after the Issue Date.
"Existing Indebtedness" means all of the Indebtedness of the Company and
its Subsidiaries that is outstanding on the Issue Date.
44
"Fair Market Value" of any asset or items means the fair market value of
such asset or items as determined in good faith by the Board of Directors and
evidenced by a resolution of the Board of Directors.
"Fall-Away Event" means the Notes shall have been rated Investment Grade
and, if no Event of Default or Default shall have occurred and be continuing at
such time, the Company shall have delivered to the Trustee an Officers'
Certificate certifying as to the foregoing.
"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 of America, as from time to time in effect.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement relating to interest rates or foreign exchange
rates.
"Indebtedness" of any Person at any date means, without duplication:
(i) all indebtedness of such Person for borrowed money (whether
or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof);
(ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(iii) all obligations of such Person in respect of letters of
credit or other similar instruments (or reimbursement obligations with
respect thereto);
(iv) all obligations of such Person with respect to Hedging
Obligations (other than those that fix the interest rate on variable
rate indebtedness otherwise permitted by the Indenture or that protect
the Company and/or its Subsidiaries against changes in foreign
exchange rates);
(v) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, except trade payables and
accrued expenses incurred in the ordinary course of business;
(vi) all Capitalized Lease Obligations of such Person;
(vii) all Indebtedness of others secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such
Person;
(viii) all Indebtedness of others guaranteed by such Person to
the extent of such guarantee;
(ix) all Attributable Indebtedness; and
(x) all Disqualified Stock of such Person and its Subsidiaries
and all other Preferred Stock of Subsidiaries of such Person valued at
the greater of (a) the voluntary or involuntary liquidation preference
of such Disqualified Stock or such Preferred Stock, as the case may
be, and (b) the aggregate amount payable upon purchase, redemption,
defeasance or payment of such Disqualified Stock or such Preferred
Stock, as the case may be.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations plus past due interest as
described above, the maximum liability of such Person for any such contingent
obligations at such date and, in the case of clause (vii), the amount of the
Indebtedness secured.
45
"Interest Expense" of any Person for any period means the aggregate amount
of interest which, in accordance with GAAP, would be set opposite the caption
"interest expense" or any like caption on an income statement for such Person
(including, without limitation or duplication, imputed interest included in
Capitalized Lease Obligations, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with Hedging Obligations, amortization of
financing fees and expenses, the interest portion of any deferred payment
obligation, amortization of discount and all other non-cash interest expense
other than interest amortized to cost of sales) plus the aggregate amount, if
any, by which such interest expense was reduced as a result of the amortization
of deferred debt restructuring credits for such period.
"Investment Grade" means (i) a rating of BBB- or above, in the case of S&P
(or its equivalent under any successor Rating Categories of S&P), and Baa3 or
above, in the case of Moody's (or its equivalent under any successor Rating
Categories of Moody's), or (ii) the equivalent in respect of the Rating
Categories of any other Rating Agencies; provided, however, that if such rating
is BBB- in the case of S&P, or Baa3 in the case of Moody's (or the equivalent in
respect of the Rating Categories of any other Rating Agencies), then such rating
also shall not be accompanied by a negative outlook, negative credit watch or
review for possible downgrade (or the equivalent thereof), as the case may be.
"Investments" of any Person means:
(i) all investments by such Person in any other Person in the
form of loans, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made
in the ordinary course of business);
(ii) all guarantees of Indebtedness or other obligations of any
other Person by such Person;
(iii) all purchases (or other acquisitions for consideration) by
such Person of Indebtedness, Capital Stock or other securities of any
other Person; and
(iv) all other items that would be classified as investments
(including, without limitation, purchases of assets outside the
ordinary course of business) on a balance sheet of such Person
prepared in accordance with GAAP.
"Issue Date" means May 22, 2002, the date the Private Notes were initially
issued.
"Joint Venture" means any Person at least a majority of whose revenues
result from healthcare related businesses or facilities.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or other similar encumbrance of any kind in respect of
such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including, without limitation, any conditional sale or other
title retention agreement, and any financing lease in the nature thereof, any
agreement to sell, and any filing of, or agreement to give, any financing
statement (other than notice filings not perfecting a security interest) under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Proceeds" with respect to any Asset Sale means (i) cash (in U.S.
dollars or freely convertible into U.S. dollars) received by the Company or any
of its Subsidiaries from such Asset Sale (including, without limitation, cash
received as consideration for the assumption or incurrence of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale or the transfer of the proceeds of such Asset Sale to the Company or any of
its Subsidiaries, (b) payment of all commissions and other fees and expenses
related to such Asset Sale and (c) deduction of an appropriate amount to be
provided by the Company or any of its Subsidiaries as a reserve, in accordance
with GAAP, against any liabilities associated with the assets sold or otherwise
disposed of in such Asset Sale and retained by the Company or any of its
Subsidiaries after such Asset Sale (including, without limitation, pension and
other post-employment benefit liabilities and liabilities related to
environmental matters)
46
or against any indemnification obligations associated with the sale or other
disposition of the assets sold or otherwise disposed of in such Asset Sale and
(ii) all non-cash consideration received by the Company or any of its
Subsidiaries from such Asset Sales upon the liquidation or conversion of such
consideration into cash.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, any Vice Chairman of the Board, the Chief Executive Officer, the
President or any Vice President and by the Treasurer, any Assistant Treasurer,
the Secretary or any Assistant Secretary of the Company in their official (and
not individual) capacities; provided, however, that every Officers' Certificate
with respect to the compliance with a condition precedent to the taking of any
action under the Indenture shall include (i) a statement that the officers
making or giving such Officers' Certificate have read such condition and any
definitions or other provisions contained in the Indenture relating thereto and
(ii) a statement as to whether, in the opinion of the signers, such condition
has been complied with.
"Opinion of Counsel" means a written opinion from legal counsel (such
counsel may be an employee of or counsel to the Company or the Trustee) that
complies with the requirements of the Indenture.
"Permitted Investments" means:
(i) capital contributions, advances or loans to the Company by
any Subsidiary or by the Company or any of its Subsidiaries to a
Subsidiary of the Company;
(ii) the acquisition and holding by the Company and each of its
Subsidiaries of receivables owing to the Company and such Subsidiary,
if created or acquired in the ordinary course of business and payable
or dischargeable in accordance with customary trade terms;
(iii) the acquisition and holding by the Company and its
Subsidiaries of cash and Eligible Investments;
(iv) Investments in any Person as a result of which such other
Person becomes a Subsidiary of the Company or is merged into or
consolidated with or transfers all or substantially all of its assets
to the Company or any of its Subsidiaries; and
(v) the making of an Investment by the Company, directly or
through a Wholly Owned Subsidiary, in a Wholly Owned Subsidiary formed
solely for the purpose of insuring the healthcare business and
facilities owned or operated by the Company or a Subsidiary and any
physician employed by or on the staff of any such business or facility
(the "Insurance Subsidiary"), provided that the amount invested in
such Insurance Subsidiary does not exceed $15,000,000.
"Permitted Liens" means:
(i) Liens for taxes, assessments or governmental charges or
claims that either (a) are not yet delinquent or (b) are being
contested in good faith by appropriate proceedings;
(ii) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts
that either (a) are not yet delinquent or (b) are being contested in
good faith by appropriate proceedings and as to which appropriate
reserves or other provisions have been made in accordance with GAAP;
(iii) Liens (other than any Lien imposed by the Employee
Retirement Income Security Act of 1974, as amended) incurred or
deposits due in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of
social security;
(iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
progress payments, government contracts and other obligations of like
nature (exclusive of obligations for the payment of borrowed money),
in each case, incurred in the ordinary course of business;
47
(v) attachment or judgment Liens not giving rise to a Default or
an Event of Default;
(vi) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering with the ordinary conduct of
the business of the Company or any of its Subsidiaries;
(vii) leases or subleases granted to others not interfering with
the ordinary conduct of the business of the Company or any of its
Subsidiaries;
(viii) Liens with respect to any Acquired Indebtedness; provided
that such Liens only extend to assets that were subject to such Liens
prior to the acquisition of such assets by the Company or its
Subsidiaries and, with respect to Indebtedness other than Indebtedness
ranking pari passu with the Notes, not incurred in anticipation or
contemplation of such acquisition;
(ix) Liens securing Bank Debt or Refinancing Indebtedness;
provided, in the case of Refinancing Indebtedness, that such Liens
only extend to the assets securing the Indebtedness being refinanced
and such refinanced Indebtedness was previously secured by such
assets;
(x) purchase money mortgages (including Capitalized Lease
Obligations);
(xi) Liens existing on the Issue Date;
(xii) Liens on assets of any Subsidiary of the Company securing
Indebtedness of such Subsidiary, provided that such Indebtedness is
permitted to be incurred by the terms of the Indenture;
(xiii) bankers' liens with respect to the right of set-off
arising in the ordinary course of business against amounts maintained
in bank accounts or certificates of deposit in the name of the Company
or any Subsidiary;
(xiv) the interest of any issuer of a letter of credit in any
cash or Eligible Investment deposited with or for the benefit of such
issuer as collateral for such letter of credit; provided that the
Indebtedness so collateralized is permitted to be incurred by the
terms of the Indenture;
(xv) any Lien consisting of a right of first refusal or option to
purchase the Company's ownership interest in any Subsidiary or to
purchase assets of the Company or any Subsidiary of the Company, which
right of first refusal or option is entered into in the ordinary
course of business; and
(xvi) the Lien granted to the Trustee pursuant to the trust
created pursuant to "--Satisfaction and Discharge of Indenture;
Defeasance" above and any substantially equivalent Lien granted to the
respective trustees under the indentures for other debt securities of
the Company.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" means with respect to any Person all Capital Stock of
such Person which has a preference in liquidation or a preference with respect
to the payment of dividends or distributions of operating profit or cash.
"Rating Agencies" means (i) S&P and Moody's or (ii) if S&P or Moody's or
both of them are not making ratings of the Notes publicly available, a
nationally recognized U.S. rating agency or agencies, as the case may be,
selected by the Company, which will be substituted for S&P or Moody's or both,
as the case may be.
48
"Rating Category" means (i) with respect to S&P, any of the following
categories (any of which may include a "+" or "-"): AAA, AA, A, BBB, BB, B,
CCC, CC, C and D (or equivalent successor categories); (ii) with respect to
Moody's, any of the following categories (any of which may include a "1", "2"
or "3"): Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor
categories); and (iii) the equivalent of any such categories of S&P or Moody's
used by another Rating Agency, if applicable.
"Refinancing Indebtedness" means Indebtedness incurred in exchange for, or
the net proceeds of which are applied to refund, refinance or extend, any
Indebtedness, provided that:
(i) the Refinancing Indebtedness is the obligation of the same
Person (or if the Indebtedness being refinanced is an obligation of
one or more Subsidiaries of the Company, such Refinancing Indebtedness
may be incurred by the Company or one or more other Subsidiaries of
the Company) and is subordinated to the Notes, if at all, to the same
extent as the Indebtedness being refunded, refinanced or extended;
(ii) the Refinancing Indebtedness is scheduled to mature no
earlier than the Indebtedness being refunded, refinanced or extended;
(iii) the Refinancing Indebtedness has a Weighted Average Life to
Maturity at the time such Refinancing Indebtedness is incurred that is
equal to or greater than the Weighted Average Life to Maturity of the
portion of the Indebtedness being refunded, refinanced or extended;
(iv) the Refinancing Indebtedness is secured only to the extent,
if at all, and by the assets that the Indebtedness being refunded,
refinanced or extended is secured; and
(v) such Refinancing Indebtedness is in an aggregate principal
amount that is equal to or less than the aggregate principal amount
then outstanding under the Indebtedness being refunded, refinanced or
extended (except for issuance costs and increases in Attributable
Indebtedness due solely to increases in the present value calculations
resulting from renewals or extensions of the terms of the underlying
leases in effect on the Issue Date).
"Restricted Payment" means with respect to any Person:
(i) the declaration of any dividend or the making of any other
payment or distribution of cash, securities or other property or
assets in respect of such Person's Capital Stock (except that a
dividend payable solely in Capital Stock (other than Disqualified
Stock) of such Person shall not constitute a Restricted Payment);
(ii) any payment on account of the purchase, redemption,
retirement or other acquisition for value of such Person's or such
Person's Subsidiaries' Capital Stock or any other payment or
distribution made in respect thereof, either directly or indirectly;
(iii) any payment on account of the purchase, redemption,
retirement, defeasance or other acquisition for value, prior to any
scheduled principal payment, sinking fund payment or Stated Maturity,
of Subordinated Indebtedness of the Company or its Subsidiaries;
(iv) the incurrence, creation or assumption of any guarantee of
Indebtedness of any Affiliate (other than a Subsidiary of the
Company); or
(v) the making of any Investment in any Person (other than
Permitted Investments);
provided, however, that with respect to the Company and its Subsidiaries,
Restricted Payments shall not include any payment described in clause (i), (ii)
or (iii) above made (1) to the Company or any of its Wholly Owned Subsidiaries
by any of the Company's Subsidiaries or (2) by the Company to any of its Wholly
Owned Subsidiaries or (3) by any Subsidiary, provided that the Company or
another Subsidiary receives its proportionate share thereof.
"S&P" means Standard & Poor's Rating Services, a division of McGraw-Hill
Companies, Inc., and its successors.
49
"Sale and Leaseback Transaction" means, with respect to any Person, an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Subsidiaries of any property or asset of such Person or any
of its Subsidiaries which has been or is being sold or transferred by such
Person or such Subsidiary to such lender or investor or to any Person to whom
funds have been or are to be advanced by such lender or investor on the security
of such property or asset.
"Secretary's Certificate" means a certificate signed by the Secretary or
any Assistant Secretary of the Company in his or her official (and not
individual) capacity.
"Securities Act" means the Securities Act of 1933.
"Significant Subsidiary" means a Subsidiary of the Company which at the
time of determination either (i) had tangible assets which, as of the Company's
most recent quarterly consolidated balance sheet, constituted at least 5% of
Consolidated Tangible Assets as of such date, or (ii) had revenues for the
12-month period ending on the date of the Company's most recent quarterly
consolidated statement of income which constituted at least 5% of the Company's
total consolidated revenues for such period.
"Stated Maturity" when used with respect to any security or any installment
of interest thereon, means that date specified in such security as the fixed
date on which the principal of such security or such installment of interest is
due and payable.
"Subordinated Indebtedness" of any Person means any Indebtedness of such
Person that is subordinated in right of payment to the Notes.
"Subsidiary" of any Person means (i) any corporation of which Common Equity
having ordinary voting power to elect a majority of the directors of such
corporation is owned by such Person directly or through one or more other
Subsidiaries of such Person and (ii) any entity other than a corporation in
which such Person, directly or indirectly, owns at least 50% of the Common
Equity of such entity and has the authority to manage such entity on a
day-to-day basis.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness or portion thereof at any date, the number of years obtained by
dividing (i) the then outstanding principal amount of such Indebtedness or
portion thereof (if applicable) into (ii) 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.
"Wholly Owned Subsidiary" of any Person means (i) a Subsidiary of which
100% of the Common Equity (except for director's qualifying shares or certain
minority interests owned by other Persons solely due to local law requirements
that there be more than one stockholder, but which interest is not in excess of
what is required for such purpose) is owned directly by such Person or through
one or more other Wholly Owned Subsidiaries of such Person and (ii) any entity
other than a corporation in which such Person, directly or indirectly, owns all
of the Common Equity of such entity.
50
MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE EXCHANGE
The following is a general discussion of the material United States federal
income tax considerations generally applicable to the exchange offer that are
relevant to holders of Private Notes. This discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal
Revenue Service ("IRS") rulings, and judicial decisions now in effect, all of
which are subject to change (possibly with retroactive effect) or different
interpretations.
This discussion does not deal with all aspects of United States federal
income taxation that may be important to holders of Notes, and does not deal
with tax consequences arising under the laws of any foreign, state or local
jurisdiction. This discussion is for general information only, and does not
purport to address all tax consequences that may be important to particular
holders in light of their personal circumstances, or to certain types of holders
(such as certain financial institutions, insurance companies, tax-exempt
entities, dealers in securities or persons who hold the Exchange Notes in
connection with a straddle, hedge, conversion transaction or constructive sale
transaction or any similar or hybrid financial instrument or United States
persons whose functional currency is not the U.S. dollar) that may be subject to
special rules. This discussion assumes that each holder holds the Notes as a
capital asset within the meaning of section 1221 of the Code.
For the purpose of this discussion, a "Non-U.S. Holder" refers to any
beneficial owner of a Note who is not a United States person. The term "United
States person" means a citizen or resident of the United States, a corporation
or partnership (including any entity taxed as a partnership for United States
federal income tax purposes) organized in the United States or any state
thereof, an estate, the income of which is includible in income for United
States federal income tax purposes regardless of its source, or a trust if (i) a
court within the United States is able to exercise primary supervision over the
administration of the trust and (ii) one or more United States persons have the
authority to control all substantial decisions of the trust. In addition, the
term "Non-U.S. Holder" does not include a trust which has elected under
applicable Treasury Regulations to retain its pre-August 20, 1996 classification
as a United States person.
HOLDERS OF THE PRIVATE NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
PARTICIPATING IN THE EXCHANGE OFFER AND OF OWNING AND DISPOSING OF EXCHANGE
NOTES AND THE EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX
CONSEQUENCES.
CONSEQUENCES OF THE EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of a Private Note for an Exchange Note pursuant to the
exchange offer will not constitute a taxable exchange for United States federal
income tax purposes because the Exchange Note will not be considered to differ
materially in kind or extent from the Private Note exchanged therefor.
Accordingly, the Exchange Note will be treated for United States federal income
tax purposes as a continuation of the Private Note in your hands, with the
result that (i) you will not recognize any gain or loss on the exchange; (ii)
the holding period for the Exchange Note will include the holding period for the
Private Note for which it was exchanged; and (iii) the adjusted tax basis of the
Exchange Note immediately after the exchange will be the same as the adjusted
tax basis of the Private Note for which it was exchanged.
The exchange offer will not have any United States federal income tax
consequences to a nonexchanging holder of Private Notes.
TAX CONSIDERATIONS APPLICABLE TO UNITED STATES PERSONS
Interest on Exchange Notes. Interest paid on the Exchange Notes will be
taxable to a holder as ordinary interest income at the time that such interest
is accrued or (actually or constructively) received in accordance with the
holder's method of tax accounting and in the amount of each payment.
51
Sale or Exchange of Exchange Notes. In general, a holder of the Exchange
Notes will recognize gain or loss upon the sale, redemption, retirement or other
disposition of the Exchange Notes measured by the difference between the amount
of cash and the fair market value of any property received (except to the extent
attributable to the payment of accrued interest, which will be taxable as such)
and the holder's adjusted tax basis in the Exchange Notes. A holder's adjusted
tax basis in the Exchange Notes generally will equal the cost of the Private
Notes to the holder increased by the amount of market discount, if any,
previously taken into income by the holder or decreased by any bond premium
theretofore amortized by the holder with respect to the Notes. Subject to the
market discount rules discussed below, the gain or loss on the disposition of
the Exchange Notes will be capital gain or loss and will be long-term capital
gain or loss if the Exchange Notes have been held for more than one year at the
time of such disposition.
Market Discount. The resale of the Exchange Notes may be affected by the
"market discount" provisions of the Code. For this purpose, but subject to a de
minimis exception, the market discount on an Exchange Note will generally be
equal to the amount, if any, by which the stated redemption price at maturity of
the Private Note exceeds the holder's tax basis in the Private Note immediately
after its acquisition. Unless the election described below is made to include
accrued market discount in income currently, these provisions generally require
a holder of a Private Note acquired at a market discount to treat as ordinary
income any gain recognized on the disposition of the Exchange Note received in
the exchange offer to the extent of the "accrued market discount" on the
Exchange Note at the time of disposition. In general, market discount on a Note
will be treated as accruing on a straight-line basis over the term of the Note,
or, at the election of the holder, under a constant yield method. Holders may
elect to include accrued market discount in income currently with respect to all
market discount bonds acquired on or after the first day of the first taxable
year for which the election is effective and for any such bond on either a
straight-line or constant yield basis. In the absence of such election, a holder
of Notes acquired at a market discount may be required to defer the deduction of
a portion of the interest on any indebtedness incurred or maintained to purchase
or carry the Private Notes or the Exchange Notes until the Exchange Notes are
disposed of in a taxable transaction.
TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on Exchange Notes. Generally, and assuming certain certification
requirements are satisfied (which include identification of the beneficial owner
of Exchange Notes), interest paid on the Exchange Notes to a Non-U.S. Holder
will not be subject to United States federal income tax if: (i) such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-U.S. Holder and (ii) the Non-U.S. Holder does not
actually or constructively own 10% or more of the total voting power of all
classes of stock of the Company entitled to vote, is not a bank receiving
interest pursuant to a loan agreement entered into in the ordinary course of its
trade or business and is not a controlled foreign corporation with respect to
which the Company is a "related person" within the meaning of the Code.
The certification requirements mentioned above generally require that
either (i) the beneficial owner of an Exchange Note certify to us (or our paying
agent) that such beneficial owner is a Non-U.S. Holder and provide such owner's
name, address and taxpayer identification number, if any, or (ii) a securities
clearing organization, bank or other financial institution that holds customer
securities in the ordinary course of its trade or business and holds the
Exchange Note on behalf of the beneficial owner certifies that such certificate
has been received from the beneficial owner and a copy of such certificate is
furnished to us (or our paying agent). Applicable Treasury Regulations also
provide alternative methods for satisfying the certification requirements. These
regulations also require, in the case of Exchange Notes held by a foreign
partnership, that (i) the certification be provided by the partners rather than
by the foreign partnership and (ii) the partnership provide certain information,
including a U.S. taxpayer identification number (if required). A look-through
rule applies in the case of tiered partnerships.
A holder that is not exempt from tax under these rules will be subject to
United States federal income tax withholding at a rate of 30% unless the
interest is effectively connected with the conduct of a United States trade or
business, in which case the interest will be subject to the United States
federal
52
income tax on net income that applies to United States persons generally.
Corporate Non-U.S. Holders that receive interest income that is effectively
connected with the conduct of a trade or business within the United States may
also be subject to an additional "branch profits" tax on such income. Non-U.S.
Holders should consult applicable income tax treaties, which may provide
different rules.
Sale or Exchange of Exchange Notes. A Non-U.S. Holder generally will not be
subject to United States federal income tax on gain recognized upon the sale or
other disposition of the Exchange Notes unless (i) the gain is effectively
connected with the conduct of a trade or business within the United States by
the Non-U.S. Holder; (ii) in the case of a Non-U.S. Holder who is a nonresident
alien individual and holds the Exchange Notes as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year and
certain other circumstances are present; or (iii) the Non-U.S. Holder is subject
to tax pursuant to the provisions of United States federal income tax law
applicable to certain United States expatriates. Corporate Non-U.S. Holders
recognizing effectively connected gain may also be subject to an additional
"branch profits" tax on such gain. Non-U.S. Holders should consult applicable
income tax treaties, which may provide different rules.
Federal Estate Tax. An Exchange Note beneficially owned by an individual
who is not domiciled in the United States for United States federal estate tax
purposes at the time of his or her death generally will not be subject to
United States federal estate tax as a result of such individual's death,
provided that (i) such individual does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of section 871(h)(3) of the Code
and (ii) interest payments with respect to such Exchange Note would not have
been, if received at the time of such individual's death, effectively connected
with the conduct of a United States trade or business by such individual.
INFORMATION REPORTING AND BACKUP WITHHOLDING
United States Persons. Information reporting and backup withholding may
apply to payments of interest on or the proceeds of the sale or other
disposition of the Exchange Notes with respect to certain non-corporate United
States persons. Such United States persons generally will be subject to backup
withholding unless the recipient of the payment supplies a taxpayer
identification number, certified under penalties of perjury, as well as certain
other information, or otherwise establishes, in the manner prescribed by law, an
exemption from backup withholding. Any amount withheld under backup withholding
is allowable as a credit against the United States person's federal income tax,
upon furnishing the required information to the IRS.
Non-U.S. Holders. Generally, information reporting and backup withholding
of United States federal income tax may apply to payments of principal, interest
and premium (if any) to Non-U.S. Holders if the payee fails to certify that the
holder is not a United States person or if the Company or its paying agent has
actual knowledge that the payee is a United States person. The backup
withholding tax generally will not apply to interest paid to Non-U.S. Holders
outside the United States that are subject to 30% withholding as discussed above
(see "Tax Considerations Applicable to Non-U.S. Holders-Interest on Exchange
Notes") or that perfect their eligibility for the benefits of a tax treaty that
reduces or eliminates such withholding.
The payment of the proceeds on the disposition of the Exchange Notes to or
through the United States office of a United States or foreign broker will be
subject to information reporting and backup withholding unless the owner
provides the certification described above or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of the Exchange Notes to or through a foreign office of a broker will not be
subject to backup withholding. However, if such broker is a United States
person, a controlled foreign corporation for United States tax purposes, a
foreign person 50% or more of whose gross income from all sources for certain
periods is from activities that are effectively connected with a United States
trade or business or a foreign partnership in which United States persons hold
more than 50% of the income or capital interests or which is engaged in a United
States trade or business at any time during its tax year, information reporting
will apply unless the broker has documentary evidence of the owner's foreign
status as a
53
Non-U.S. Holder and has no actual knowledge to the contrary or unless the owner
otherwise establishes an exemption. Both backup withholding and information
reporting may apply to the proceeds from the disposition if the broker has
actual knowledge that the payee is a United States person.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the Exchange Notes. Broker-dealers
may use this prospectus, as it may be amended or supplemented from time to time,
in connection with the resale of Exchange Notes received in exchange for Private
Notes where the broker-dealer acquired the Private Notes as a result of
market-making activities or other trading activities. We have agreed that for a
period of up to 180 days after the date on which the registration statement is
declared effective (subject to extension under certain circumstances), we will
make this prospectus, as amended or supplemented from time to time, available to
any broker-dealer that requests it in the letter of transmittal for use in
connection with any such resale.
We will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Broker-dealers may sell Exchange Notes
received by broker-dealers for their own account pursuant to the exchange offer
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to the prevailing market prices or negotiated
prices. Broker-dealers may resell Exchange Notes directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any broker-dealer and/or the purchasers of the
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the exchange offer and any broker or
dealer that participates in a distribution of the Exchange Notes may be deemed
to be "underwriters" within the meaning of the Securities Act, and any profit on
any resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incident to our performance of, or
compliance with, the registration rights agreement by and among us and the
initial purchasers of the Private Notes and will indemnify you against
liabilities under the Securities Act.
By its acceptance of the exchange offer, any broker-dealer that receives
Exchange Notes pursuant to the exchange offer agrees to notify us before using
the prospectus in connection with the sale or transfer of Exchange Notes. The
broker-dealer further acknowledges and agrees that, upon receipt of notice from
us of the happening of any event which makes any statement in the prospectus
untrue in any material respect or which requests the making of any changes in
the prospectus to make the statements in the prospectus not misleading or which
may impose upon us disclosure obligations that may have a material adverse
effect on us, which notice we agree to deliver promptly to the broker-dealer,
the broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.
54
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 2001, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
LEGAL MATTERS
The legality of the Exchange Notes to be issued pursuant to the exchange
offer will be passed upon by Haskell Slaughter Young & Rediker, L.L.C.,
Birmingham, Alabama.
55