Filed pursuant to Rule 424(b)(3)
Registration File No.: 333-82708
PROSPECTUS DATED APRIL 15, 2002
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[RES-CARE LOGO]
OFFER TO EXCHANGE 10 5/8% SENIOR NOTES DUE 2008
THAT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 FOR ANY AND ALL
OUTSTANDING 10 5/8% SENIOR NOTES DUE 2008
$150,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
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+ The exchange offer expires 5:00 p.m., New York City time, on May 13, 2002,
unless extended.
+ We will exchange your validly tendered unregistered notes (the "old notes")
for an equal principal amount of registered exchange notes (the "exchange
notes") with substantially identical terms.
+ The exchange offer is not subject to any condition other than the condition
that the exchange offer not violate applicable law or any applicable
interpretation of the staff of the Securities and Exchange Commission and
certain other customary conditions.
+ You may withdraw your tender of old notes at any time before the expiration of
the exchange offer.
+ The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes.
+ We will not receive any proceeds from the exchange offer.
+ The terms of the exchange notes to be issued are substantially identical to
the old notes, except for certain transfer restrictions and registration
rights relating to the old notes.
+ You may tender outstanding old notes only in denominations of $1,000 and
multiples of $1,000.
+ Affiliates of our company may not participate in the exchange offer.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the
Expiration Date (as defined herein) and ending on the close of business one year
after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution".
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 13 OF THIS DOCUMENT FOR CERTAIN
IMPORTANT INFORMATION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES TO BE ISSUED IN THE EXCHANGE
OFFER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by us with the Commission, including the reports and other information
incorporated by reference into this prospectus, can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its regional office located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at rates prescribed by the Commission or from the Commission's Internet
web site at http://www.sec.gov. Our common stock is quoted on the Nasdaq
National Market. Reports, proxy statements and other information concerning us
can be inspected at the offices of The Nasdaq Stock Market, 1735 K Street,
Washington, D.C. 20006.
We have agreed that, if at any time while the notes are restricted
securities within the meaning of the Securities Act of 1933 or we are not
subject to the information requirements of the Exchange Act, we will furnish to
holders of such notes and to prospective purchasers designated by such holders
the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act to permit compliance with Rule 144A in connection with resales of
such notes.
INCORPORATION BY REFERENCE
The following information filed by us with the Commission (File No.
0-20372) pursuant to the 1934 Act is incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 2001;
2. The information under the headings "Ownership of Equity
Securities," "Committees of the Board of Directors," "Executive Committee
Interlocks and Insider Participation," "Certain Relationships and Related
Transactions," "Indebtedness of Management" and "Executive Compensation" on
pages 2-4, 8-10 and 13-17 of our Proxy Statement on Schedule 14A filed on
July 26, 2001; and
3. Current Reports on Forms 8-K filed on October 31, 2001 (which
includes, among other things, Exhibit 99.5 on "Risk Factors"), March 7,
2002 and April 1, 2002.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, upon the request of any such person, a copy of any or
all of the documents which have been incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests for such documents
should be directed to ResCare, 10140 Linn Station Road, Louisville, Kentucky
40223, Attention: L. Bryan Shaul, telephone: (502) 394-2100.
ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED
BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED FOR PURPOSES OF
THIS PROSPECTUS TO THE EXTENT THAT A STATEMENT CONTAINED HEREIN OR IN ANY OTHER
SUBSEQUENTLY FILED DOCUMENT WHICH ALSO IS OR IS DEEMED TO BE INCORPORATED BY
REFERENCE HEREIN MODIFIES OR SUPERSEDES SUCH STATEMENT. ANY SUCH STATEMENT SO
MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR SUPERSEDED,
TO CONSTITUTE A PART OF THIS PROSPECTUS.
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FORWARD-LOOKING STATEMENTS
This prospectus, and the other information incorporated by reference into
it, contain numerous forward-looking statements about our financial condition,
results of operations, cash flows, dividends, financing plans, business
strategies, capital or other expenditures, competitive positions, growth
opportunities, plans and objectives of management, markets for debt securities
and other matters. The words "estimate," "project," "intend," "expect,"
"believe," "forecast," and similar expressions are intended to identify these
forward-looking statements, but some of these statements may use other phrasing.
In addition, any statement in this prospectus that is not a historical fact is a
"forward-looking statement." Such forward-looking statements are not guarantees
of future performance and are subject to risks, uncertainties and other factors
that may cause our actual results, performance or achievements to differ
materially from historical results or from any results expressed or implied by
such forward-looking statements. In addition to the specific risk factors
described in the section entitled "Risk Factors," important factors that could
cause actual results to differ materially from those suggested by the forward-
looking statements include, but are not limited to:
- changes in reimbursement rates, policies or payment practices by
third-party payors, whether initiated by the payor or legislatively
mandated;
- the loss of major customers or contracts with federal or state government
agencies;
- impairment of our rights in our intellectual property;
- increased or more effective competition;
- changes in laws or regulations applicable to us or failure to comply with
existing laws and regulations;
- future health care or budget legislation or other health reform
initiatives;
- increased exposure to professional negligence liability, workers'
compensation and health insurance claims;
- changes in company-wide or business unit strategies;
- the effectiveness of our advertising, marketing and promotional programs;
and
- increases in interest rates.
Many of these factors are beyond our ability to control or predict, and readers
are cautioned not to put undue reliance on such forward-looking statements.
Except as required by law, we expressly disclaim any obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date of this prospectus or to reflect the occurrence of
unanticipated events.
------------------
ResCare, Res-Care, Inc. and PeopleServe are our or our subsidiaries'
registered or pending trademarks. Best in Class 2000 and the Best in Class
Manual are works, including software, that are our registered or pending
copyrights.
ii
PROSPECTUS SUMMARY
This summary highlights the information contained elsewhere in or
incorporated by reference into this prospectus. Because this is only a summary,
it does not contain all of the information that may be important to you. For a
more complete understanding of this offering, we encourage you to read this
entire prospectus and the documents to which we refer you. You should read the
following summary together with the more detailed information and historical
financial information, including the notes relating to that information,
appearing elsewhere in this prospectus or incorporated into this prospectus by
reference from our periodic reports filed with the Commission. For convenience,
throughout this prospectus, the words "ResCare," "we," "us," "our" or similar
words refer to Res-Care, Inc., and all of its subsidiaries except where the
context otherwise requires.
OUR COMPANY
Founded in 1974, we are the nation's largest private provider of
residential, training, educational and support services to populations with
special needs, including persons with developmental and other disabilities and
at-risk and troubled youths. At December 31, 2001, we provided services to
approximately 27,300 persons with special needs in 32 states, Washington, D.C.,
Canada and Puerto Rico. We believe that we provide high quality services on a
more cost effective basis than traditional state-run programs. We are a leading
provider of services for special needs populations because of our proven
programs, operating procedures, financial resources, economies of scale and
experience working with special needs populations and governmental agencies.
We have two reportable operating segments: our Division for Persons with
Disabilities, or DPD, and our Division for Youth Services, or DYS. In 2002, DYS
was reorganized into two separate divisions: DYS and Division for Training
Services. Therefore, beginning in 2002, we will report three segments. For the
year ended December 31, 2001, we derived approximately 83% of our total revenues
directly from state programs or agencies and approximately 15% directly from the
U.S. Departments of Labor and the Interior. For the year ended December 31,
2001, we had revenues of $895.2 million, net loss of $4.4 million, EBITDAR of
$63.6 million and EBITDA of $33.9 million (as these terms are defined in note 2
of our "Summary Consolidated Financial Information").
OUR INDUSTRY
The markets for services for special needs populations in the United States
are large, growing, highly fragmented and backed by powerful advocacy groups.
Providing services for special needs populations that we serve constitutes a
$65.6 billion market, of which $25.6 billion is funding for mental retardation
or other developmental disabilities, or MR/DD, services according to a July 2000
study by the Department of Disability and Human Development of the University of
Illinois at Chicago ("State of the States Report"), and approximately $40.0
billion is funding for youth services according to data from the National Center
for Education Statistics and the National Association of State Budget Officers.
We believe that we are well positioned to benefit from favorable demographics
and positive current industry trends. We expect our industry to experience
strong growth rates due to the following:
- Pressure to Reduce Waiting Lists: The Arc, a national organization and
advocacy group for persons with MR/DD, estimated that in 1997 individuals
with MR/DD on waiting lists for placements in one or more residential,
day/vocational or other community-based service programs were seeking
approximately 218,000 placements. Many states have received court orders
requiring them to address long waiting lists. As a result, many states
are allocating incremental funding to provide for group home placements
or for new programs like periodic/in-home services.
- Increased Medicaid Funding: MR/DD services are funded mainly by state
Medicaid programs, for which funding has increased at an
inflation-adjusted average annual rate of approximately 11% over the last
two decades, according to the State of the States Report. In 2001,
reimbursement rates in the states in which we provide MR/DD services
increased at an average annualized rate of approximately 3%.
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- Privatization Trend: State and local government agencies have
historically provided MR/DD and youth services. However, in recent years,
there has been a trend throughout the United States toward privatization
of service delivery functions for special needs populations as
governments at all levels face continuing pressure to control costs and
improve the quality of programs. For example, the State of the States
Report indicates that the percentage of individuals with MR/DD receiving
residential services in state-run institutions declined from
approximately 51.5% in 1977 to approximately 12.7% in 1998.
- Strong Potential Demand for Services for Persons with
Disabilities: Estimates of the number of individuals in the United
States with some form of MR/DD range from 3.2 million, according to the
State of the States Report, to 7.5 million, according to The Arc.
However, the State of the States Report estimates that only approximately
416,000 persons with MR/DD live in staffed facilities or supported-living
settings. The report estimates that approximately 1.9 million persons
with MR/DD live with family caregivers, and 25% of these family
caregivers are parents aged 60 or older. When family caregivers are no
longer capable of providing for their dependents with MR/DD, states must
provide these services for them.
- Vocal Advocacy Groups: The rise of advocacy groups, often led by the
parents or guardians of individuals with MR/DD along with social workers
and civil rights lawyers, has resulted in long-term trends toward an
increasing emphasis on training and education as well as an increase in
community-based settings for residential services, all designed to
promote a higher quality of life and greater independence.
- Legislation and Litigation Promoting Increased Community-Based
Living: In June 1999, the U.S. Supreme Court, in Olmstead v. L.C., held
that states must provide individuals with MR/DD the choice to be placed
in community-based settings when deemed appropriate by medical
professionals and placement can be reasonably completed within state
budgets. We believe that this ruling will accelerate the transfer of the
nation's approximately 45,000 people currently residing in state
institutional facilities to community-based settings.
- Expanding Job Corps Program: The federal Job Corps program, which is
currently funded at $1.5 billion per year, has grown significantly since
its inception in 1964. The program provides training for approximately
70,000 students each year at 119 centers throughout the United States and
Puerto Rico and is projected by the U.S. Department of Labor, or DOL, to
increase to 123 centers over the next two years. In addition, federal
funding for this program has never been reduced since its inception. The
U.S. Bureau of the Census forecasts that the juvenile population will
grow by 8% between 1995 and 2015. The U.S. Bureau of the Census estimates
that 20% of the approximately 70 million children under the age of 18 in
the United States currently live in households under the poverty level.
OUR BUSINESS
We provide an array of services in residential and non-residential settings
for adults and youths with MR/DD and disabilities caused by acquired brain
injury and for youths who have special educational or support needs, are from
disadvantaged backgrounds or have severe emotional disorders.
DISABILITIES SERVICES
We are the nation's largest private provider of services for individuals
with MR/DD. At December 31, 2001, we served more than 17,000 individuals in 29
states, Washington, D.C. and Canada. We base our programs predominantly on
individual habilitation plans designed to encourage greater independence and
development of daily living skills through individualized support and training.
We design these programs to offer individuals specialized support not generally
available in larger state institutions and traditional long-term care facilities
such as nursing homes. We provide our services mainly in community-based group
homes and, to a lesser extent, in other facilities run by us and in the homes of
individuals with MR/DD. At December 31, 2001, approximately 94% of our
disabilities services clients resided in community settings, either in our group
homes or in their own family homes. As of that date,
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we served approximately 4,800 clients in their family homes. In each of our
programs, services are administered by our employees and contractors, such as
qualified mental retardation professionals, service coordinators, physicians,
psychologists, therapists, social workers and other direct service staff. We
staff our group homes and other facilities 24 hours a day, seven days per week
and provide social, functional and vocational skills training, supported
employment and emotional and psychological counseling or therapy as needed for
each individual. We also provide respite, therapeutic and other services on an
as-needed or hourly basis through our periodic/in-home services programs.
Because most of our clients with MR/DD require services over their entire lives
and many states have extensive waiting lists of people requiring services, we
have consistently experienced occupancy rates of at least 97% since 1996.
We derive our disabilities services revenues primarily from state
government agencies under the Medicaid reimbursement system and from management
contracts with private operators, generally not-for-profit providers, who
contract with state government agencies and are also reimbursed under the
Medicaid system. Medicaid is a partnership between the federal and state
governments, whereby the federal government matches a percentage of the
expenditures made by a given state. Each state uses some of these Medicaid funds
to provide services to its MR/DD population. For the year ended December 31,
2001, we generated revenues of $699.7 million, segment profit of $35.5 million,
EBITDAR of $77.6 million, and EBITDA of $52.0 million in DPD.
YOUTH SERVICES
JOB CORPS PROGRAM
We are the nation's second largest operator of Job Corps centers with 15
centers serving up to approximately 7,400 students as of December 31, 2001.
Founded in 1964, the federal Job Corps program is funded and administered by the
U.S. Department of Labor and provides educational and vocational skills
training, health care, employment counseling and other support necessary to
enable disadvantaged individuals to obtain employment. These programs operate 24
hours a day, seven days a week at 119 centers throughout the United States and
Puerto Rico and offer vocational training to meet job opportunities in a given
region. Approximately 70% of Job Corps centers are privately operated, and a Job
Corps contract term is generally five years, including renewals. Under our Job
Corps contracts, we are reimbursed for all facility and program costs related to
Job Corps center operations and allowable indirect costs for general and
administrative expenses, plus a prenegotiated management fee, normally a fixed
percentage of facility and program expense. For the year ended December 31,
2001, we generated revenues of $136.7 million, segment profit of $14.2 million,
EBITDAR of $14.7 million and EBITDA of $14.5 million in our Job Corps program,
before general corporate expenses.
OTHER YOUTH SERVICES PROGRAMS
We are among the nation's largest private providers of services to
disadvantaged or at-risk youths, serving approximately 2,100 youths in 11 states
and Washington, D.C. as of December 31, 2001. Our youth programs are designed to
provide consistent, high quality and cost-effective education and treatment to
address the needs of the various segments of the special needs, at-risk and
troubled youth population. Our programs include secure detention centers,
residential treatment programs, emergency shelters, charter schools, alternative
schools and foster care programs designed to address the specific needs of
at-risk and troubled youths. For the year ended December 31, 2001, these
programs generated revenues of $58.9 million, segment profit of $0.7 million,
EBITDAR of $5.2 million and EBITDA of $2.4 million, before general corporate
expenses.
RECENT DEVELOPMENTS
In the fourth quarter of 2001, we recorded a charge of $22.0 million
related to provisions for losses on accounts receivable and reserves for
insurance claims. The component of the charge related to accounts receivable
totaled approximately $15.5 million. We identified the need for this increased
provision, in part, as a result of information obtained from the implementation
of a new accounts receivable information system. The new system provides a
single platform for us to track and analyze receivables and manage our
operations that have grown substantially through acquisitions. We believe this
new system now gives us the
3
information to timely address billing and collection issues and prevent a
recurrence of this type of charge. Also included in the $22.0 million charge is
$6.5 million related to insurance claims for workers' compensation. These claims
arose because of current studies of our experience during the policy years when
we were integrating several significant acquisitions. Additional workers'
compensation reserves were also required because of ineffective handling of
claims by our previous third-party administrator. The basis for the charge of
$22.0 million came principally from current studies and analyses of amounts
originating prior to 2001.
On March 22, 2002, we completed an amendment to our new credit facility.
The amendment takes into account the fourth quarter 2001 charges discussed above
in calculating certain financial covenants and includes other changes in
determining the borrowing base and the definition of eligible accounts
receivable for that determination. As a result of the new amendment, we complied
with all of our debt covenants as of December 31, 2001. Our new credit facility
is described under "Description of Certain Indebtedness -- New Credit Facility"
on page 30.
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THE EXCHANGE OFFER
On November 15, 2001, we issued $150,000,000 aggregate principal amount of
our 10 5/8% Senior Notes due 2008 (the "old notes") in a private offering. The
old notes are guaranteed by our domestic subsidiaries ("Guarantors"). Our one
foreign subsidiary is not a guarantor of the old notes. The assets, revenues and
income of this subsidiary are not significant to our consolidated financial
condition, results of operations or liquidity.
We and the Guarantors entered into a registration rights agreement with the
initial purchasers in the private offering in which we agreed, among other
things, to deliver this prospectus to you and to consummate the exchange offer
on or before May 14, 2002. In the exchange offer, you are entitled to exchange
your old notes for registered exchange notes with substantially identical terms.
If we do not complete various tasks by their deadlines, as we discuss in the
"Registration Rights" section of this prospectus, liquidated damages will accrue
on the old notes at a rate of .25% over the stated interest rate on the old
notes for the first 90 days immediately after such deadlines, and will increase
by an additional .25% with respect to each subsequent 90-day period up to a
maximum of 1.0% in the aggregate, until the exchange offer is completed. You
should also read the discussion under the headings "Summary of Terms of the
Exchange Notes" and "Description of the Notes" for further information regarding
the registered exchange notes.
We believe that the exchange notes issued in the exchange offer may be
resold by you without compliance with the registration and prospectus delivery
requirements of the Securities Act of 1933, subject to certain conditions and
limited exceptions. Following the exchange offer, any old notes held by you that
are not exchanged in the exchange offer will continue to be subject to the
existing restrictions on transfer on the old notes and, except in certain
limited circumstances, we will have no further obligation to register transfers
of outstanding old notes held by you under the Securities Act. You should read
the discussions under the heading "The Exchange Offer" for further information
regarding the exchange offer and the resale of old notes.
Each broker-dealer that receives exchange notes for its own account in
exchange for old notes, where such old notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such exchange notes. See "Plan of Distribution."
Issuer........................ Res-Care, Inc.
The Exchange Offer............ We previously issued $150 million aggregate
principal amount of our 10 5/8% Senior Notes
due 2008 in a private offering. These
securities were not registered under the
Securities Act. At the time we issued the old
notes, we entered into a registration rights
agreement in which we agreed to offer to
exchange your unregistered old notes for new
exchange notes that have been registered under
the Securities Act. This exchange offer is
intended to satisfy that obligation. We are
offering to exchange $1,000 principal amount of
registered exchange notes for each $1,000
principal amount of your unregistered old
notes. After the exchange offer is completed,
except in certain limited circumstances, you
will no longer be entitled to any registration
rights with respect to your old notes. In
certain circumstances, certain holders of
outstanding old notes may require us to file a
shelf registration statement under the
Securities Act.
Required Representations...... To participate in this exchange offer, you will
be required to make certain representations to
us in a letter of transmittal, including that:
- any exchange notes will be acquired by you in
the ordinary course of your business;
5
- you have not engaged in, do not intend to
engage in, and do not have an arrangement or
understanding with any person to participate
in a distribution of the exchange notes; and
- you are not an affiliate of our company.
Resale........................ We believe that, subject to limited exceptions,
the exchange notes issued in the exchange offer
may be freely traded by you without compliance
with the registration and prospectus delivery
provisions of the Securities Act provided that:
- the exchange notes issued in the exchange
offer are being acquired in the ordinary
course of your business;
- you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate
in the distribution of the exchange notes
issued to you in the exchange offer; and
- you are not an "affiliate" of our company.
If our belief is inaccurate and you transfer
any exchange note issued to you in the exchange
offer without delivering a prospectus meeting
the requirements of the Securities Act or
without an exemption from registration of your
exchange notes from such requirements, you may
incur liability under the Securities Act. We do
not assume, or indemnify you against, such
liability.
Each broker-dealer that is issued exchange
notes in the exchange offer for its own account
in exchange for old notes that were acquired by
the broker-dealer as a result of market-making
or other trading activities must also
acknowledge that it has not entered into any
arrangement or understanding with us or any of
our affiliates to distribute the exchange notes
and will deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of the exchange
notes issued in the exchange offer.
We have agreed in the registration rights
agreement that a broker-dealer may use this
prospectus for an offer to resell, resale or
other retransfer of the exchange notes issued
to it in the exchange offer.
Expiration Date............... The exchange offer will expire at 5:00 p.m.,
New York City time, on May 13, 2002, unless
extended, in which case the term "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 subject to certain
customary conditions, which may be waived by
us. The exchange offer is not conditioned upon
any minimum principal amount of old notes being
tendered.
Procedures for Tendering Old
Notes......................... If you wish to tender your old notes for
exchange pursuant to the exchange offer, you
must transmit to Wells Fargo Bank Minnesota,
National Association, as exchange agent, on or
before the expiration date:
Either:
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- a properly completed and duly executed letter
of transmittal, which accompanies this
prospectus, or a facsimile of the letter of
transmittal, together with your old notes and
any other required documentation, to the
exchange agent at the address set forth in
this prospectus under the heading "The
Exchange Offer -- Exchange Agent," and on the
front cover of the letter of transmittal; or
- a computer generated message transmitted by
means of The Depository Trust Company's
automated Tender Offer Program system 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.
If either of these procedures cannot be
satisfied on a timely basis, then you should
comply with the guaranteed delivery procedures
described below. By executing the letter of
transmittal, each holder of old notes will make
certain representations to us described under
"The Exchange Offer -- Procedures for
Tendering."
Special Procedures for
Beneficial Owners............. If you are a beneficial owner whose old notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your old notes in the
exchange offer, you should contact such
registered holder promptly and instruct such
registered holder to tender on your behalf. If
you wish to tender on your own behalf, you
must, before completing and executing the
letter of transmittal and delivering your old
notes, either make appropriate arrangements to
register ownership of the old notes in your
name or obtain a properly completed bond power
from the registered holder. The transfer of
registered ownership may take considerable time
and may not be able to be completed before the
expiration date.
Guaranteed Delivery
Procedures.................... If you wish to tender your old 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 old notes according to the guaranteed
delivery procedures described under "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Acceptance of Old Notes and
Delivery of Exchange Notes.... Subject to the conditions described under "The
Exchange Offer -- Conditions to the Exchange
Offer", we will accept for exchange any and all
old notes that 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 old notes
at any time before 5:00 p.m., New York City
time, on the expiration date, subject to
compliance with the procedures for withdrawal
described in this prospectus under the heading
"The Exchange Offer -- Withdrawal of Tenders."
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Federal Income Tax
Considerations................ For a discussion of the material federal income
tax considerations relating to the exchange of
old notes for the exchange notes, see "United
States Federal Income Tax Considerations."
Exchange Agent................ Wells Fargo Bank Minnesota, National
Association, the trustee under the indenture
governing the old notes, is serving as the
exchange agent. The address, telephone number
and facsimile number of the exchange agent are
set forth in this prospectus under the heading
"The Exchange Offer -- Exchange Agent."
Consequences of Failure to
Exchange Old Notes............ If you do not exchange your old notes for
exchange notes pursuant to the exchange offer,
you will continue to be subject to the
restrictions on transfer provided in the old
notes and in the indenture governing the old
notes. In general, the unregistered old notes
may not be offered or sold, unless they are
registered under the Securities Act, except
pursuant to an exemption from, or in a
transaction not subject to, the Securities Act
and applicable state securities laws. We do not
currently intend to register the old notes
under the Securities Act.
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SUMMARY OF TERMS OF THE EXCHANGE NOTES
This exchange offer relates to the exchange of up to $150,000,000 aggregate
principal amount of exchange notes for up to an equal principal amount of the
unregistered outstanding old notes. The form and terms of the exchange notes are
substantially the same as the form and terms of the outstanding old notes,
except that the exchange notes will be registered under the Securities Act.
Therefore, the exchange notes generally will not be subject to transfer
restrictions or registration rights, and the provisions of the registration
rights agreement relating to liquidated damages on the outstanding old notes
under certain circumstances will be eliminated. The exchange notes issued in the
exchange offer will evidence the same debt as the outstanding old notes, which
they replace, and both the outstanding old notes and the exchange notes are
governed by the same indenture. We sometimes refer to the old notes and the
exchange notes collectively in this prospectus as the notes.
Exchange Agent................ We are offering $150,000,000 aggregate
principal amount of our 10 5/8% Senior Notes
due 2008. The exchange notes will be issued
under an indenture dated as of November 15,
2001.
Interest...................... Interest on the exchange notes will accrue from
the last interest payment date on which
interest was paid on the old notes surrendered
in exchange therefor or, if no interest has
been paid on the old notes, from the issue date
of the old notes. Interest on the exchange
notes will be payable semi-annually on May 15
and November 15 of each year, commencing May
15, 2002.
Maturity Date................. November 15, 2008.
Ranking and Guarantees........ The notes and guarantees will be senior
unsecured obligations. All of our current and
future domestic subsidiaries will guarantee the
notes on a senior unsecured basis.
The notes will rank equally with all of our and
our subsidiary guarantors' existing and future
senior unsecured debt.
The notes and guarantees will rank senior to
all of our and our subsidiary guarantors'
unsecured debt that is expressly subordinated
to the notes, but will be effectively
subordinated to all of our and our subsidiary
guarantors' secured indebtedness, if any, with
respect to the assets securing that
indebtedness and effectively subordinated to
all liabilities of our subsidiaries that are
not guarantors with respect to the assets of
such subsidiaries. See "Risk Factors -- The
notes are effectively subordinated to our
secured indebtedness and structurally
subordinated to the liabilities of our
subsidiaries that do not guarantee the notes."
Optional Redemption........... We may redeem the notes, in whole or in part,
at any time, on or after November 15, 2005 at a
redemption price equal to 100% of the principal
amount thereof plus a premium declining ratably
to par, plus accrued interest.
In addition, before November 15, 2004, we may
redeem up to 35% of the original aggregate
principal amount of the notes with the proceeds
of qualified equity offerings at a redemption
price of 110.625% of the principal amount plus
accrued and unpaid interest, provided that:
- at least 65% of the aggregate principal
amount of the notes issued under the
indenture remains outstanding immediately
after the occurrence of such redemption; and
- such redemption occurs within 90 days of the
date of the closing of any such equity
offering.
9
Change of Control............. If we experience a change of control, we may be
required to offer to repurchase the notes at
101% of the principal amount plus accrued and
unpaid interest. We may not be able to pay you
the required price for notes you present to us
at the time of a change of control because our
other outstanding indebtedness may prohibit
payment or we may not have enough funds at the
time.
Restrictive Covenants......... The indenture governing the notes contains
covenants that, among other things, will limit
our ability and the ability of our restricted
subsidiaries to:
- incur additional indebtedness or liens;
- pay dividends or make other distributions or
repurchase or redeem our stock;
- make investments;
- sell assets;
- engage in business activities unrelated to
our current business;
- enter into agreements restricting our
subsidiaries' ability to pay dividends;
- enter into transactions with affiliates; and
- consolidate, merge, or sell all or
substantially all of our assets.
In addition, under certain circumstances we may
be required to make an offer to purchase some
or all of these notes with proceeds received
from asset sales.
These covenants are subject to important
exceptions and qualifications, which are
described under the heading "Description of
Notes" in this prospectus.
Absence of a Public Market for
the Notes..................... The notes are a new issue of securities, and
there is currently no market for them.
Accordingly, we cannot assure you as to the
development or liquidity of any market for the
notes or, if issued, the exchange notes. The
initial purchasers have advised us that they
currently intend to make a market for the notes
as permitted by applicable laws and
regulations. However, they are not obligated to
do so and may discontinue any such market
making activities at any time without notice.
The notes will be eligible for trading on The
PORTAL Market(SM).
Form of Exchange Notes........ The exchange notes issued in the exchange offer
will be represented by one or more permanent
global certificates, in fully registered form,
deposited with a custodian for, and registered
in the name of a nominee of, The Depository
Trust Company, as depositary. You will not
receive exchange notes in certificated form
unless one of the events set forth under
"Description of Notes -- Book Entry; Delivery
and Form" occurs. Instead, beneficial interests
in the exchange notes will be shown on, and
transfers of these exchange notes will be
effected through, records maintained in
book-entry form by The Depository Trust Company
and its participants.
Use of Proceeds............... We will not receive any proceeds from the
exchange offer.
10
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial information should be read in
conjunction with our historical consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus or incorporated
into this prospectus by reference.
Some of the summary consolidated financial information for and as of each
of the years ended December 31, 1999, 2000 and 2001 set forth below have been
derived from our audited consolidated financial statements. Historical results
are not necessarily indicative of the results to be expected in the future.
In June 1999, we completed a merger with PeopleServe, Inc., which was
accounted for as a pooling-of-interests. Accordingly, the summary consolidated
financial information has been restated for all periods presented to include the
financial condition and results of operations of PeopleServe.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------
1999 2000 2001
-------- -------- --------
(Dollars in thousands)
STATEMENT OF INCOME DATA:
Revenues.................................................... $824,479 $865,796 $895,205
Facility and program expenses............................... 716,469 763,576 827,244
-------- -------- --------
Facility and program contribution........................... 108,010 102,220 67,961
Operating expenses:
Corporate general and administrative.................... 27,726 28,111 33,390
Depreciation and amortization........................... 21,107 22,308 21,079
Special charges (1)..................................... -- 4,149 1,729
Other (income) expenses................................. 40 270 (1,013)
-------- -------- --------
Total operating expenses, net............................... 69,371 54,838 55,185
-------- -------- --------
Operating income............................................ 38,639 47,382 12,776
Interest, net............................................... 18,750 22,559 19,061
-------- -------- --------
Income (loss) from continuing operations before income
tax....................................................... 19,889 24,823 (6,285)
Income tax expense (benefit)................................ 10,153 10,647 (1,916)
-------- -------- --------
Income (loss) from continuing operations.................... 9,736 14,176 (4,369)
Gain from sale of unconsolidated affiliate, net of tax...... 534 -- --
Cumulative effect of accounting change, net of tax.......... (3,932) -- --
Extraordinary loss on extinguishment, net of tax............ -- -- (3)
-------- -------- --------
Net income (loss)........................................... $ 6,338 $ 14,176 $ (4,372)
======== ======== ========
OTHER FINANCIAL DATA:
EBITDAR (2)................................................. $ 85,545 $ 94,826 $ 63,647
EBITDAR margin (2).......................................... 10.4% 11.0% 7.1%
EBITDA (2).................................................. $ 59,746 $ 69,690 $ 33,855
EBITDA margin (2)........................................... 7.2% 8.0% 3.8%
Depreciation and amortization............................... $ 21,107 $ 22,308 $ 21,079
Facility rent (3)........................................... 25,799 25,136 29,792
Maintenance capital expenditures (4)........................ 12,166 9,322 5,497
</Table>
11
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------
1999 2000 2001
-------- -------- --------
(Dollars in thousands)
OPERATING DATA:
Number of facilities........................................ 2,350 2,400 1,980
Disabilities Services Segment:
Total revenue........................................... $654,553 $680,629 $699,677
Persons served.......................................... 15,927 16,561 17,768
Capacity utilized....................................... 98.2% 97.9% 96.8%
Youth Services Segment:
Total revenue........................................... $169,926 $185,167 $195,528
Persons served.......................................... 8,340 9,410 9,547
Capacity utilized....................................... 82.2% 96.4% 99.0%
SELECTED HISTORICAL RATIOS: (2)(5)(6)
Ratio of EBITDAR to interest and facility rent.............. 1.9x 2.0x 1.3x
Ratio of EBITDA to interest expense......................... 3.0x 3.0x 1.6x
Ratio of total adjusted debt to EBITDAR..................... 5.8x 5.0x 8.0x
Ratio of total debt to EBITDA............................... 4.9x 3.9x 8.0x
Percentage of total debt to total capitalization............ 64.1% 60.5% 60.8%
Ratio of earnings to fixed charges.......................... 1.7x 1.8x 0.8x
</Table>
<Table>
<Caption>
DECEMBER 31,
----------------------------------
1999 2000 2001
------------ -------- --------
(Dollars in thousands)
BALANCE SHEET DATA:
Working capital............................................. $102,141 $122,305 $142,877
Total assets................................................ 523,131 536,771 534,936
Total debt, including capital leases........................ 291,713 272,277 269,711
Total adjusted debt (5)..................................... 498,105 473,365 508,047
Shareholders' equity........................................ 163,384 178,123 174,129
Days sales outstanding...................................... 62 59 53
</Table>
- ---------------
(1) Special charges for the year ended December 31, 2001 include a restructuring
charge of approximately $1.6 million ($0.9 million net of tax, or $0.04 per
share) for costs associated with the exit from Tennessee. Special charges
for the year ended December 31, 2000 include the following: (1) a charge of
$1.8 million ($1.1 million net of tax, or $0.04 per share) related to the
write-off of costs associated with the terminated management-led buyout, (2)
a charge of $1.7 million ($1.0 million net of tax, or $0.04 per share)
related to our 2000 restructuring plan and (3) a charge of $0.6 million for
the settlement of a lawsuit. Special charges for 1999 include the charge of
$20.5 million ($13.7 million net of tax, or $0.55 per share) recorded in
connection with the PeopleServe merger.
(2) EBITDA is defined as earnings from continuing operations before depreciation
and amortization, net interest expense and income taxes. EBITDAR is defined
as EBITDA before facility rent. EBITDA margin and EBITDAR margin are defined
as EBITDA and EBITDAR, respectively, divided by total revenues. EBITDA and
EBITDAR are commonly used as analytical indicators within the health care
industry, and also serve as measures of leverage capacity and debt service
ability. EBITDA and EBITDAR should not be considered as measures of
financial performance under accounting principles generally accepted in the
United States, and the items excluded from EBITDA and EBITDAR are
significant components in understanding and assessing financial performance.
EBITDA and EBITDAR should not be considered in isolation or as alternatives
to net income, cash flows generated by operating, investing or financing
activities or other financial statement data presented in the consolidated
financial statements as indicators of financial performance or liquidity.
Because EBITDA and EBITDAR are not measurements determined in accordance
with accounting principles generally accepted in the United States and are
thus susceptible to varying calculations, EBITDA and EBITDAR as presented
may not be comparable to other similarly titled measures of other companies.
(3) Facility rent is defined as land and building lease expense less
amortization of any deferred gain on applicable lease transactions.
(4) Maintenance capital expenditures represent purchases of fixed assets
excluding land, buildings, acquisitions of businesses and strategic project
costs.
(5) Total adjusted debt is defined as total debt plus annual facility rent times
a multiple of eight.
(6) For the purpose of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness and
amortization of capitalized debt issuance costs and an estimate of interest
within rental expense.
12
RISK FACTORS
In addition to the risk factors set forth below, we urge you to refer to
the risk factors included on pages 30 to 32 of our Annual Report on Form 10-K
filed on March 29, 2002 and in Exhibit 99.5 to our Current Report on Form 8-K
filed on October 31, 2001, which are incorporated into this prospectus by
reference. See "Incorporation By Reference" and "Where You Can Find More
Information."
THE NOTES ARE EFFECTIVELY SUBORDINATED TO OUR SECURED INDEBTEDNESS AND
STRUCTURALLY SUBORDINATED TO THE LIABILITIES OF OUR SUBSIDIARIES THAT DO NOT
GUARANTEE THE NOTES.
The notes are unsecured obligations of ours and are effectively
subordinated to our secured indebtedness. The effect of this subordination is
that if we or a subsidiary guarantor are involved in a bankruptcy, liquidation,
dissolution, reorganization or similar proceeding or upon a default in payment
on, or the acceleration of, any indebtedness under our existing credit agreement
or other secured indebtedness, our assets and those of the subsidiary guarantors
that secure indebtedness will be available to pay obligations on the notes only
after all indebtedness under the credit agreement and other secured indebtedness
have been paid in full from those assets. We may not have sufficient assets
remaining to pay amounts due on any or all of the notes then outstanding. The
notes are also structurally subordinated to all existing and future obligations,
including indebtedness, of our subsidiaries that do not guarantee the notes, and
the claims of creditors of these subsidiaries, including trade creditors, will
have priority as to the assets of these subsidiaries. See "Description of
Notes."
THE RESTRICTIONS IMPOSED BY OUR EXISTING INDEBTEDNESS MAY LIMIT OUR ABILITY TO
OPERATE OUR BUSINESS.
Our existing credit facility prohibits us from prepaying certain of our
other indebtedness, requires us to comply with specified financial ratios and
tests, and restricts our ability to:
- incur additional indebtedness or issue preferred or redeemable stock;
- pay dividends and make other distributions;
- enter into certain mergers or consolidations;
- enter into sale and leaseback transactions;
- create liens; and
- sell and otherwise dispose of assets.
We cannot assure you that these restrictions will not adversely affect our
ability to finance our future operations or capital needs or engage in other
business activities that may be in our interest. We also cannot assure you that
we will be able to continue to comply with these covenants and ratios. If we
commit a breach of any of these covenants, ratios or tests, we could be in
default under one or more of the agreements governing our indebtedness, which
could require us to immediately pay all amounts outstanding under those
agreements or prohibit us from making draws on our existing credit facility. If
payments of our outstanding indebtedness were to be accelerated, we cannot
assure you that our assets would be sufficient to repay our indebtedness. See
"Description of Notes -- Certain Covenants" and "Description of Certain
Indebtedness."
THERE IS NO PUBLIC MARKET FOR THE NOTES, AND THERE ARE RESTRICTIONS ON THE
RESALE OF THE NOTES.
The exchange notes will be new securities for which there is no existing
market and, although the notes are expected to be eligible for trading on The
PORTAL Market(SM), we cannot assure the liquidity of any markets that may
develop for the notes, the ability of holders of the notes to sell their notes
or the prices at which holders would be able to sell their notes. Future trading
prices of the notes will depend on many factors, including, among others,
prevailing interest rates, our operating results and the market for similar
securities. The initial purchasers have advised us that they currently intend to
make a market in the exchange notes offered by this prospectus. However, they
are not obligated to do so and any market making may be discontinued at any time
without notice. We do not intend to apply for listing of the notes on any
securities exchange.
13
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We originally sold the old notes to UBS Warburg LLC, Lehman Brothers Inc.,
Banc One Capital Markets, Inc., U.S. Bancorp Piper Jaffrey, Inc., Jefferies &
Company, Inc. and First Analysis Securities Corporation as initial purchasers in
a private offering that closed on November 15, 2001. In connection with the
private offering of the old notes, we, the Guarantors and the initial purchasers
entered into a registration rights agreement in which we and the Guarantors
agreed to:
- file a registration statement no later than 90 days after the closing
date of the private offering of the old notes;
- use commercially reasonable efforts to cause the registration statement
to become effective no later than 150 days after the closing date of the
private offering of the old notes; and
- upon the effectiveness of the registration statement, offer to the
holders of the old notes the opportunity to exchange their old notes for
a like principal amount of exchange notes, and to hold the exchange offer
open for at least 20 business days after the date notice of the exchange
offer is mailed to holders.
The exchange notes will be issued without a restrictive legend and may be
reoffered and resold by the holder without restrictions or limitations under the
Securities Act of 1933, except as described below. We have agreed in the
registration rights agreement to use commercially reasonable efforts to complete
the exchange offer and issue the exchange notes no later than 180 days after the
closing date of the private offering of the old notes. This exchange offer is
intended to satisfy our exchange offer obligations under the registration rights
agreement.
For each old note surrendered to us pursuant to the exchange offer, the
holder of such old note will receive an exchange note having a principal amount
equal to that of the surrendered old note. The term "holder" with respect to the
exchange offer means any person in whose name old notes are registered on our
books or any other person who has obtained a properly completed bond power from
the registered holder or any person whose old notes are held of record by The
Depository Trust Company ("DTC") who desires to deliver old notes by book-entry
transfer through DTC.
Under existing interpretations of the Securities Act by the staff of the
SEC contained in several no-action letters to third parties, we believe that the
exchange notes will generally be freely transferable by holders who have validly
participated in the exchange offer without further registration under the
Securities Act (assuming the truth of certain representations required to be
made by each holder of notes, as set forth below). For additional information on
the SEC's position, we refer you to the following no-action letters: Exxon
Capital Holdings Corporation, available April 13, 1988; Morgan Stanley & Co.
Incorporated, available June 5, 1991; and Shearman & Sterling, available July 2,
1993. However, any purchaser of old notes who is one of our "affiliates" as
defined in Rule 405 under the Securities Act, who intends to participate in the
exchange offer for the purpose of distributing the exchange notes, or who is a
broker-dealer who purchased old notes from us to resell pursuant to Rule 144A or
any other available exemption under the Securities Act:
- will not be able to tender its old notes in the exchange offer;
- will not be able to rely on the interpretations of the staff of the SEC;
and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the old
notes unless such sale or transfer is made pursuant to an exemption from
these requirements.
If you wish to exchange your old notes for exchange notes in the exchange
offer, you will be required to make representations in a letter of transmittal
which is attached to this prospectus, including that:
- you are not our "affiliate" (as defined in Rule 405 under the Securities
Act);
- any exchange notes to be received by you will be acquired in the ordinary
course of your business;
14
- you have no arrangement or understanding with any person to participate
in the distribution of the exchange notes in violation of the provisions
of the Securities Act;
- if you are not a broker-dealer, you are not engaged in, and do not intend
to engage in, a distribution of exchange notes; and
- if you are a broker-dealer (a "participating broker-dealer"), you
acquired the old notes for your own account as a result of market-making
or other trading activities, you have not entered into any arrangement or
understanding with us or one of our affiliates to distribute the exchange
notes and you will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of the exchange notes.
The SEC has taken the position that participating broker-dealers may be
deemed to be "underwriters" with the meaning of the Securities Act, and
accordingly 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 notes, with the prospectus contained in the exchange offer
registration statement. Under the registration rights agreement, we are required
to allow participating broker-dealers and other persons, if any, subject to
similar prospectus delivery requirements, to use the prospectus contained in the
exchange offer registration statement in connection with the resale of the
exchange notes.
Under the registration rights agreement, our obligations to register the
new notes will terminate upon the completion of the exchange offer. However, the
SEC interpretations referred to above may be subject to change, hindering our
ability to complete the exchange offer. If:
- any changes in applicable law or the applicable interpretations of the
staff of the SEC do not permit us to conduct the exchange offer;
- for any other reason the exchange offer is not completed within 180 days
following the date of the first issuance of the old notes;
- a holder of old notes notifies us within 20 business days after the
consummation deadline that the holder (1) was prohibited by law or SEC
policy from participating in the exchange offer, (2) may not resell the
new notes acquired by it in the exchange offer to the public without
delivering a prospectus and the prospectus contained in this registration
statement is not appropriate or available for such resales by such
holder, or (3) is a broker-dealer and holds notes acquired directly from
us or any of our affiliates,
then, we and the Guarantors will, at our cost:
- as promptly as practicable after such filing obligation arises, use our
commercially reasonable efforts to file a shelf registration statement
covering resales of the old notes or exchange notes, as applicable;
- use our commercially reasonable efforts to cause the shelf registration
statement to be declared effective under the Securities Act within 90
days after such filing obligation arises; and
- use our commercially reasonable efforts to keep effective the shelf
registration until the earlier of two years after its effective date, or
the date on which all of the notes to be sold pursuant to such shelf
registration have been sold.
If we file a shelf registration statement, we will provide you copies of
the prospectus that is a part of the shelf registration statement, notify you
when the shelf registration statement for the old notes has become effective and
take other actions as are required to permit unrestricted resales of the old
notes. A holder of old notes that sells the old notes pursuant to the shelf
registration statement generally will be:
- required to be named as a selling security holder in the related
prospectus and deliver a prospectus to purchasers;
- subject to certain of the civil liability provisions under the Securities
Act in connection with the sales; and
- bound by the provisions of the registration rights agreement that are
applicable to such a holder, including indemnification obligations.
15
In addition, each holder of the old notes will be required to deliver
information to be used in connection with the shelf registration statement and
to provide any comments on the shelf registration statement within the time
periods described in the registration rights agreement in order to have their
old notes included in the shelf registration statement and to benefit from the
provisions regarding liquidated damages described below.
If any of the following (each a "registration default") occurs:
- either one of these registration statements required to be filed by us is
not filed with the SEC on or before its required deadline;
- either one of these registration statements required to be filed by us is
not declared effective on or before its required deadline;
- the exchange offer is not completed on or before the 180th calendar day
following the date of the first issuance of the old notes; or
- either one of these registration statements required to be filed is filed
and declared effective but thereafter ceases to be effective or usable
(subject to certain exceptions),
the interest rate borne by the old notes will increase by 0.25% per annum upon
the occurrence of a registration default. This rate will continue to increase by
0.25% per annum with respect to each 90 day period that the liquidated damages
(as defined below) continue to accrue in any such circumstance. However, the
maximum total increase in the interest rate will in no event exceed one percent
(1.00%) per year. We refer to this increase in the interest rate on the old
notes as "liquidated damages." Such interest is payable in addition to any other
interest payable from time to time with respect to the old notes and the
exchange notes in cash on each interest payment date to the holders of record
for such interest payment date. After the cure of registration defaults, the
accrual of liquidated damages will stop and the interest rate will revert to the
original rate.
The above summary highlights the material provisions of the registration
rights agreement, but does not restate that agreement in its entirety. We urge
you to review all of the provisions of the registration rights agreement,
because it, and not this description, defines your rights as holders to exchange
your old notes for registered exchange notes. A copy of the registration rights
agreement has previously been filed with the SEC by us, and is incorporated by
reference in the registration statement of which this prospectus forms a part.
Following the consummation of the exchange offer, holders of old notes who
were eligible to participate in the exchange offer but who did not tender their
old notes will not have any further registration rights, and the old notes will
continue to be subject to restrictions on transfer. Accordingly, the liquidity
of the market for the old notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
This prospectus and the accompanying letter of transmittal contain the
terms and conditions of the exchange offer. Upon the terms and subject to the
conditions set forth in this prospectus and in the accompanying letter of
transmittal, we will accept for exchange all old notes that are properly
tendered and not withdrawn on or before 5:00 p.m., New York City time, on the
expiration date. After authentication of the exchange notes by the trustee or an
authentication agent, we will issue and deliver $1,000 principal amount of
exchange notes in exchange for each $1,000 principal amount of outstanding old
notes accepted in the exchange offer. Holders may tender some or all of their
old notes in the exchange offer in denominations of $1,000 and integral
multiples thereof.
The form and terms of the exchange notes are identical in all material
respects to the form and terms of the old notes, except that:
(1) the offering of the exchange notes has been registered under the
Securities Act;
(2) the exchange notes will generally not be subject to transfer
restrictions or registration rights; and
16
(3) certain provisions relating to liquidated damages on the old notes
provided for in certain circumstances will be eliminated.
The exchange notes will evidence the same debt as the old notes. The
exchange notes will be issued under and entitled to the benefits of the
indenture.
As of the date of this prospectus, $150,000,000 aggregate principal amount
of the old notes is outstanding. In connection with the issuance of the old
notes, arrangements were made for the old notes to be issued and transferable in
book-entry form through the facilities of DTC, acting as a depositary. The
exchange notes will also be issuable and transferable in book-entry form through
DTC.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders of the old notes as of the close
of business on April 12, 2002. The exchange offer is not conditioned upon any
minimum aggregate principal amount of old notes being tendered. However, our
obligation to accept old notes for exchange pursuant to the exchange offer is
subject to certain customary conditions that we describe under "-- Conditions to
the Exchange Offer" below.
We shall be deemed to have accepted validly tendered old notes when, as and
if we have given oral or written notice thereof to the exchange agent. The
exchange agent will act as agent for the tendering holders for the purpose of
receiving exchange notes from us and delivering exchange notes to such holders.
If any tendered old notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted old notes will be returned, at our cost, to
the tendering holder thereof as promptly as practicable after the expiration
date.
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the exchange offer. We will pay all charges and expenses, other than
certain applicable taxes, in connection with the exchange offer. See
" -- Solicitation of Tenders; Fees and Expenses" for more detailed information
regarding the expenses of the exchange offer.
By executing or otherwise becoming bound by the letter of transmittal, you
will be making the representations described under " -- Procedures for
Tendering" below.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" means 5:00 p.m., New York City time, on May 13,
2002, unless we, in our sole discretion, extend the exchange offer, in which
case the term "expiration date" means the latest date to which the exchange
offer is extended. We may extend the exchange offer at any time and from time to
time by giving oral or written notice to the exchange agent and by timely public
announcement.
We expressly reserve the right, at any time, to extend the period of time
during which the exchange offer is open, and thereby delay acceptance of any old
notes, by giving oral or written notice of such extension to the exchange agent
and notice of such extension to the holders as described below. During any such
extension, all old notes previously tendered will remain subject to the exchange
offer and may be accepted for exchange by us. Any old notes not accepted for
exchange for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes that we have not yet accepted for
exchange, if any of the conditions set forth herein under " -- Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by us, if
such conditions are permitted to be waived by us.
We will give oral or written notice of any extension, amendment,
termination or non-acceptance described above to holders of the old notes as
promptly as practicable. If the exchange offer is amended in a manner determined
by us to constitute a material change, we will promptly disclose the amendment
in a manner reasonably calculated to inform the holders and we will extend the
exchange offer to the extent required by law.
17
Without limiting the manner in which we may choose to make public
announcements of any extension, amendment, termination or non-acceptance of the
exchange offer, and subject to applicable law, we will have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a timely release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
Interest on the exchange notes will accrue from the last interest payment
date on which interest was paid on the old notes surrendered in exchange
therefor or, if no interest has been paid on the old notes, from the issue date
of the old notes. Interest on the exchange notes will be payable semi-annually
on May 15 and November 15 of each year, commencing May 15, 2002.
PROCEDURES FOR TENDERING
WHAT TO SUBMIT AND HOW
Each holder of old notes wishing to accept the exchange offer must
complete, sign and date the letter of transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein. Each holder
should then mail or otherwise deliver the completed letter of transmittal, or
such facsimile, together with the old notes to be exchanged and any other
required documentation, to Wells Fargo Bank Minnesota, National Association, as
exchange agent, at the address set forth below under " -- Exchange Agent" on or
before the expiration date. A holder may also effect a tender of old notes
pursuant to the procedures for book-entry transfer as provided for herein and in
the letter of transmittal.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the old notes by
causing DTC to transfer the old notes into the exchange agent's account in
accordance with DTC's procedure for such transfer. Although delivery of old
notes may be effected through book-entry transfer into the exchange agent's
account at DTC, the letter of transmittal, or a facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the exchange agent at its address set
forth herein under " -- Exchange Agent" before 5:00 p.m., New York City time, on
the expiration date. Delivery of documents to DTC in accordance with its
procedures does not constitute delivery to the exchange agent.
Only a holder may tender its old notes in the exchange offer. To tender in
the exchange offer, a holder must:
(1) complete, sign and date the letter of transmittal or a facsimile
thereof;
(2) have the signatures of the holder guaranteed if required by the
letter of transmittal; and
(3) unless such tender is being effected pursuant to the procedure for
book-entry transfer, mail or otherwise deliver the letter of transmittal or
the facsimile, together with the old notes and other required documents, to
the exchange agent, before 5:00 p.m., New York City time, on the expiration
date.
The tender by a holder will constitute an agreement between such holder,
our company and the exchange agent in accordance with the terms and subject to
the conditions set forth herein and in the letter of transmittal. If less than
all of the old notes are tendered, a tendering holder should fill in the amount
of old notes being tendered in the appropriate box on the letter of transmittal.
The entire amount of old notes delivered to the exchange agent will be deemed to
have been tendered unless otherwise indicated.
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to ensure delivery to the exchange agent before the expiration date. No
letter of transmittal or old notes should be sent to ResCare. Holders may also
request that their respective brokers, dealers, commercial banks, trust
companies or nominees effect the tender for holders, in each case as set forth
herein and in the letter of transmittal.
18
Any beneficial owner whose old notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on his behalf. If the beneficial owner wishes to
tender on his own behalf, the beneficial owner must, before completing and
executing the letter of transmittal and delivering his old notes, either make
appropriate arrangements to register ownership of the old notes in the owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
REQUIRED REPRESENTATIONS IN LETTER OF TRANSMITTAL
The letter of transmittal will include representations to us that, among
other things:
(1) the exchange notes acquired pursuant to the exchange offer are
being acquired in the ordinary course of business of the person receiving
the exchange notes, whether or not such person is the holder;
(2) neither the holder nor any other person receiving the exchange
notes is engaged in, intends to engage in or has any arrangement or
understanding with any person to participate in the distribution of the
exchange notes;
(3) neither the holder nor any other person receiving the exchange
notes is an "affiliate," as defined in Rule 405 under the Securities Act of
1933, of our company; and
(4) if the tendering holder is a broker or dealer as defined in the
Exchange Act, then
(a) it acquired the old notes for its own account as a result of
market-making activities or other trading activities; and
(b) it has not entered into any arrangement or understanding with
our company or any "affiliate" of our company within the meaning of Rule
405 under the Securities Act to distribute the exchange notes to be
received in the exchange offer.
Each broker-dealer that receives exchange notes for its own account in exchange
for old notes, where such old notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such exchange
notes. See "Plan of Distribution."
HOW TO SIGN YOUR LETTER OF TRANSMITTAL AND OTHER DOCUMENTS
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless the old
notes tendered pursuant thereto are tendered:
(1) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instruction" of
the letter of transmittal; or
(2) for the account of an Eligible Institution.
If the letter of transmittal is signed by a person other than the registered
holder of old notes, the old notes must be endorsed or accompanied by
appropriate bond powers that authorize the person to tender the old notes on
behalf of the registered holder, in either case signed as the name of the
registered holder or holders appears on the old notes. If the letter of
transmittal or any old notes or bond powers are signed or endorsed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, those
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
completed letter of transmittal.
19
IMPORTANT RULES CONCERNING THE EXCHANGE OFFER
You should note that:
- All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of the tendered old notes will be
determined by us in our sole discretion, which determination will be
final and binding;
- We reserve the absolute right to reject any and all old notes not
properly tendered or any old notes the acceptance of which would, in our
judgment or the judgment of our counsel, be unlawful;
- We also reserve the absolute right to waive any irregularities or
conditions of tender as to particular old notes. Our company's
interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final
and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of old notes must be cured within such time as
we shall determine;
- Although we intend to notify holders of defects or irregularities with
respect to any tender of old notes, neither our company, the exchange
agent nor any other person will be under any duty to give notification of
any defect or irregularity with respect to tenders of old notes, nor will
any of them incur any liability for failure to give that notification;
and
- Tenders of old notes will not be deemed to have been made until such
irregularities have been cured or waived. Any old notes received by the
exchange agent that we determine are not properly tendered or the tender
of which is otherwise rejected by us and as to which the defects or
irregularities have not been cured or waived by us will be returned by
the exchange agent to the tendering holder unless otherwise provided in
the letter of transmittal, as soon as practicable following the
expiration date.
BOOK-ENTRY TRANSFER
The exchange agent will make a request promptly after the date of this
prospectus to establish accounts with respect to the old notes at the DTC for
the purpose of facilitating the exchange offer. Any financial institution that
is a participant in the DTC's system may make book-entry delivery of old notes
by causing the DTC to transfer the participant's old notes into the exchange
agent's account with respect to the old notes in accordance with DTC's Automated
Tender Offer Program procedures for such transfer. However, the exchange for the
old notes so tendered will only be made after timely confirmation of the
book-entry transfer of old notes into the exchange agent's account, and timely
receipt by the exchange agent of an agent's message and any other documents
required by the letter of transmittal. The term "agent's message" means a
message, transmitted by DTC and received by the exchange agent and forming a
part of the confirmation of a book-entry transfer, which states that DTC has
received an express acknowledgment from a participant that is tendering old
notes that the participant has received the letter of transmittal and agrees to
be bound by the terms of the letter of transmittal, and that we may enforce such
agreement against the participant.
Although delivery of old notes may be effected through book-entry transfer
into the exchange agent's account at DTC, an appropriate letter of transmittal
properly completed and duly executed with any required signature guarantee and
all other required documents must in each case be transmitted to and received or
confirmed by the exchange agent at its address set forth below on or before the
expiration date, or you must comply with the guaranteed delivery procedures
described below. Delivery of documents to DTC does not constitute delivery to
the exchange agent.
GUARANTEED DELIVERY PROCEDURES
If you are a registered holder of old notes and you wish to tender your old
notes but your old notes are not immediately available, or time will not permit
your old notes or other required documents to reach
20
the exchange agent before the expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, you may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) before the expiration date, the exchange agent receives from the
Eligible Institution a properly completed and duly executed notice of
guaranteed delivery, by facsimile transmittal, mail or hand delivery
(a) stating the name and address of the holder, the certificate
number or numbers of the holder's old notes and the principal amount of
the old notes tendered;
(b) stating that the tender is being made thereby; and
(c) guaranteeing that, within three New York Stock Exchange trading
days after the expiration date, the letter of transmittal, or a
facsimile thereof, together with the certificate(s) representing the old
notes to be tendered in proper form for transfer, or confirmation of a
book-entry transfer into the exchange agent's account at DTC of old
notes delivered electronically, and any other documents required by the
letter of transmittal, will be deposited by the Eligible Institution
with the exchange agent; and
(3) the properly completed and executed letter of transmittal, or a
facsimile thereof, together with the certificate(s) representing all
tendered old notes in proper form for transfer, or confirmation of a
book-entry transfer into the exchange agent's account at DTC of old notes
delivered electronically and all other documents required by the letter of
transmittal are received by the exchange agent within three NYSE trading
days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time before 5:00 p.m., New York City time, on the expiration date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be received by the exchange agent at its address set
forth herein before 5:00 p.m., New York City time, on the expiration date. Any
notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn (the "Depositor"),
- identify the old notes to be withdrawn, including the certificate number
or numbers and principal amount or, in the case of old notes transferred
by book-entry transfer, the name and number of the account at DTC to be
credited,
- be signed by the Depositor in the same manner as the original signature
on the letter of transmittal by which the old notes were tendered,
including any required signature guarantee, or be accompanied by
documents of transfer sufficient to permit the trustee with respect to
the old notes to register the transfer of the old notes into the name of
the Depositor withdrawing the tender, and
- specify the name in which any old notes to be withdrawn are to be
registered, if different from that of the Depositor.
Please note that all questions as to the validity, form and eligibility,
including time of receipt, of withdrawal notices will be determined by us, and
our determination shall be final and binding on all parties. Any old notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer, and no exchange notes will be issued with respect thereto unless
the old notes so withdrawn are validly retendered. Properly withdrawn old notes
may be retendered by following one of the procedures described above under
" -- Procedures for Tendering" at any time before the expiration date.
21
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or to issue exchange notes in exchange for, any
old notes, and may terminate or amend the exchange offer as provided herein
before the acceptance of the old notes if, in our judgment, any of the following
conditions has occurred or exists or has not been satisfied:
(1) that the exchange offer, or the making of any exchange by a
holder, violates the applicable interpretations of the staff of the SEC;
(2) that any action or proceeding shall have been instituted or
threatened in any court or by or before any governmental agency or body
with respect to the exchange offer; or
(3) that there has been proposed, adopted or enacted any law, statute,
rule or regulation that, in the sole judgment of our company, might
materially impair our ability to proceed with the exchange offer.
If we determine that we may terminate the exchange offer for any of the
reasons set forth above, we may:
(1) refuse to accept any old notes and return any old notes that have
been tendered to their holders;
(2) extend the exchange offer and retain all old notes tendered before
the expiration date of the exchange offer, subject to the rights of such
holders of tendered old notes to withdraw their tendered old notes; or
(3) waive the termination event with respect to the exchange offer and
accept all properly tendered old notes that have not been withdrawn. If a
waiver constitutes a material change in the exchange offer, we will
disclose the change by means of a supplement to this prospectus that will
be distributed to each registered holder, and we will extend the exchange
offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders, if the exchange offer would otherwise expire during that period.
The above conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition. Our failure
at any time to exercise the foregoing rights will not be deemed to be a waiver
by us of any such right and each such right will be deemed an ongoing right that
may be asserted at any time and from time to time.
EXCHANGE AGENT
Wells Fargo Bank Minnesota, N.A., the trustee under the indenture, has been
appointed as exchange agent for the exchange offer. All executed letters of
transmittal should be directed to the exchange agent at the address set forth
below. In its capacity as such, the exchange agent has no fiduciary duties and
will be acting solely on the basis of directions of our company. Questions,
requests for assistance and requests for additional copies of this prospectus or
of the letter of transmittal should be directed to the exchange agent addressed
as follows:
By Courier, Mail or Hand Delivery:
Wells Fargo Bank Minnesota, NA
Attention: Corporate Trust Services
213 Court Street - Suite 902
Middletown, CT 06457
Facsimile for Eligible Institutions: (860) 704-6219
Delivery to an address or facsimile number other than those listed above
will not constitute a valid delivery.
22
SOLICITATION OF TENDERS, FEES AND EXPENSES
We will pay all expenses of soliciting tenders pursuant to the exchange
offer. The principal solicitation pursuant to the exchange offer is being made
by mail. Additional solicitations may be made by officers and regular employees
of our company and our affiliates in person, by telegraph, telephone or
telecopier.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket costs and expenses in connection
with the exchange offer and will indemnify the exchange agent for all losses and
claims incurred by it as a result of the exchange offer.
We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this prospectus, letters of transmittal and related documents to the
beneficial owners of the old notes and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting and
legal fees and printing costs, will be paid by our company.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. If, however, certificates representing
exchange notes or old notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the old notes tendered, or if
tendered old notes are registered in the name of any person other than the
person signing the letter of transmittal, or if the transfer tax is imposed for
any reason other than the exchange of old notes pursuant to the exchange offer,
then the amount of any such transfer taxes, whether imposed on the registered
holder or any other persons, will be payable by the tendering holder. If
satisfactory evidence of payment of transfer taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of the transfer taxes will
be billed by us directly to the tendering holder.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the old
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by us as
a result of the consummation of the exchange offer. The expenses of the exchange
offer will be amortized by us over the term of the exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of, and upon acceptance for exchange of all
validly tendered old notes pursuant to the terms of, this exchange offer, we
will have fulfilled certain obligations contained in the registration rights
agreement. Holders of the old notes who do not tender their old notes in the
exchange offer will continue to hold those old notes and will be entitled to all
the rights, and subject to the limitations applicable thereto, under the
indenture and the registration rights agreement, except for any rights under the
registration rights agreement that by their terms terminate or cease to have
further effect as a result of the making of this exchange offer. All untendered
old notes will continue to be subject to the restrictions on transfer set forth
in the Indenture. Accordingly, untendered old notes may be resold only:
(1) to ResCare;
(2) pursuant to a registration statement that has been declared
effective under the Securities Act;
(3) in the United States to qualified institutional buyers within the
meaning of Rule 144A in reliance upon the exemption from the registration
requirements of the Securities Act provided by Rule 144A;
23
(4) in the United States to institutional "accredited investors," as
defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the Securities
Act, in transactions exempt from the registration requirements of the
Securities Act;
(5) outside the United States in transactions complying with the
provisions of Regulation S under the Securities Act; or
(6) pursuant to any other available exemption from the registration
requirements under the Securities Act.
To the extent that old notes are tendered and accepted in the exchange
offer, the liquidity of the trading market for untendered old notes could be
adversely affected.
USE OF PROCEEDS
The exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement. We will not receive any cash proceeds from
the exchange offer.
24
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be
read in conjunction with our historical consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" incorporated into this prospectus by reference.
Some of the selected historical consolidated financial data for and as of
each of the years ended December 31, 1997, 1998, 1999, 2000, and 2001 set forth
below have been derived from our audited consolidated financial statements.
Historical results are not necessarily indicative of the results to be expected
in the future.
In June 1999, we completed a merger with PeopleServe, Inc. The transaction
was accounted for as a pooling-of-interests. Accordingly, our selected
historical consolidated financial data has been restated for all periods
presented to include the financial condition and results of operations of
PeopleServe. Statistical information included in "Operating Data" for years
before the merger has not been restated to reflect the operations of
PeopleServe.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
STATEMENT OF INCOME DATA:
Revenues........................................... $468,108 $702,914 $824,479 $865,796 $895,205
Operating income(1)................................ 32,216 52,310 38,639 47,382 12,776
Income (loss) from continuing operations........... 15,631 22,932 9,736 14,176 (4,369)
Net income (loss).................................. 15,631 22,932 6,338 14,176 (4,372)
Basic earnings per share:
From continuing operations.................... $ 0.69 $ 0.96 $ 0.40 $ 0.58 $ (0.18)
Net income (loss)............................. 0.69 0.96 0.26 0.58 (0.18)
Diluted earnings per share:
From continuing operations.................... 0.68 0.90 0.39 0.58 (0.18)
Net income (loss)............................. 0.68 0.90 0.25 0.58 (0.18)
OTHER FINANCIAL DATA:
EBITDAR(2)......................................... $ 55,374 $ 92,655 $ 85,545 $ 94,826 $ 63,647
EBITDAR margin(2).................................. 11.8% 13.2% 10.4% 11.0% 7.1%
EBITDA(2).......................................... $ 42,024 $ 70,871 $ 59,746 $ 69,690 $ 33,855
EBITDA margin(2)................................... 9.0% 10.1% 7.2% 8.0% 3.8%
Depreciation and amortization...................... $ 9,808 $ 18,561 $ 21,107 $ 22,308 $ 21,079
Facility rent(3)................................... 13,350 21,784 25,799 25,136 29,792
Maintenance capital expenditures(4)................ 10,518 10,734 12,166 9,322 5,497
OPERATING DATA:
Number of facilities............................... 524 1,379 2,350 2,400 1,980
Disabilities Services Segment:
Total revenue................................. $405,495 $570,626 $654,553 $680,629 $699,677
Persons served................................ 6,628 11,952 15,927 16,561 17,768
Capacity utilized............................. 97.0% 97.4% 98.2% 97.9% 96.8%
Youth Services Segment:
Total revenue................................. $ 62,613 $132,288 $169,926 $185,167 $195,528
Persons served................................ 5,323 8,395 8,340 9,410 9,547
Capacity utilized............................. 97.6% 97.9% 82.2% 96.4% 99.0%
</Table>
25
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
SELECTED HISTORICAL RATIOS:(2)(5)(6)
Ratio of EBITDAR to interest and facility rent..... 2.8x 2.5x 1.9x 2.0x 1.3x
Ratio of EBITDA to interest expense................ 6.4x 4.6x 3.0x 3.0x 1.6x
Ratio of total adjusted debt to EBITDAR............ 4.8x 4.7x 5.8x 5.0x 8.0x
Ratio of total debt to EBITDA...................... 3.7x 3.7x 4.9x 3.9x 8.0x
Percentage of total debt to total capitalization... 55.7% 62.6% 64.1% 60.5% 60.8%
Ratio of earnings to fixed charges................. 3.5x 2.7x 1.7x 1.8x 0.8x
BALANCE SHEET DATA:
Working capital.................................... $106,001 $ 75,524 $102,141 $122,305 $142,877
Total assets....................................... 344,301 493,793 523,131 536,771 534,936
Total debt, including capital leases............... 156,316 258,762 291,713 272,277 269,711
Shareholders' equity............................... 124,325 154,587 163,384 178,123 174,129
Days sales outstanding............................. 58 60 62 59 53
</Table>
- ---------------
(1) Operating income for the year ended December 31, 2001 includes a
restructuring charge of approximately $1.6 million ($0.9 million net of tax,
or $0.04 per share) for costs associated with the exit from Tennessee. In
addition, we recorded a charge of $22.0 million ($13.2 million net of tax,
or $0.54 per share) related to additional reserves for accounts receivable
and insurance claims. Operating income for the year ended December 31, 2000
includes the following: (1) a charge of $1.8 million ($1.1 million net of
tax, or $0.04 per share) related to the write-off of costs associated with
the terminated management-led buyout, (2) a charge of $1.7 million ($1.0
million net of tax, or $0.04 per share) related to our 2000 restructuring
plan and (3) a charge of $0.6 million for the settlement of a lawsuit.
Operating income for 1999 includes the following: (1) an additional
allowance for doubtful accounts of $8.0 million, (2) a charge of $2.5
million related to higher medical claims costs and (3) a charge of $20.5
million ($13.7 million net of tax, or $0.55 per share) recorded in
connection with the PeopleServe merger.
(2) EBITDA is defined as earnings from continuing operations before depreciation
and amortization, net interest expense and income taxes. EBITDAR is defined
as EBITDA before facility rent. EBITDA margin and EBITDAR margin are defined
as EBITDA and EBITDAR, respectively, divided by total revenues. EBITDA and
EBITDAR are commonly used as analytical indicators within the health care
industry, and also serve as measures of leverage capacity and debt service
ability. EBITDA and EBITDAR should not be considered as measures of
financial performance under accounting principles generally accepted in the
United States, and the items excluded from EBITDA and EBITDAR are
significant components in understanding and assessing financial performance.
EBITDA and EBITDAR should not be considered in isolation or as alternatives
to net income, cash flows generated by operating, investing or financing
activities or other financial statement data presented in the consolidated
financial statements as indicators of financial performance or liquidity.
Because EBITDA and EBITDAR are not measurements determined in accordance
with accounting principles generally accepted in the United States and are
thus susceptible to varying calculations, EBITDA and EBITDAR as presented
may not be comparable to other similarly titled measures of other companies.
(3) Facility rent is defined as land and building lease expense less
amortization of any deferred gain on applicable lease transactions.
(4) Maintenance capital expenditures represent purchases of fixed assets
excluding land, buildings, acquisitions of businesses and strategic project
costs.
(5) Total adjusted debt is defined as total debt plus annual facility rent times
a multiple of eight.
(6) For the purpose of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness and
amortization of capitalized debt issuance costs and an estimate of interest
within rental expense.
26
MANAGEMENT
<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------
Ronald G. Geary................................. 54 Chairman of the Board, President and
Chief Executive Officer and Director
L. Bryan Shaul.................................. 56 Executive Vice President of Finance
and Administration and Chief Financial
Officer
Paul G. Dunn.................................... 35 Chief Development Officer
Ralph G. Gronefeld.............................. 42 President, Division for Persons with
Disabilities
Vincent F. Doran................................ 50 President, Division for Youth Services
Katherine W. Gilchrist.......................... 49 Vice President and Chief Financial
Officer, Division for Persons with
Disabilities
James R. Fornear................................ 70 Director
Spiro B. Mitsos................................. 70 Director
E. Halsey Sandford.............................. 68 Director
W. Bruce Lunsford............................... 53 Director
Seymour L. Bryson............................... 63 Director
Olivia F. Kirtley............................... 50 Director
Vincent D. Pettinelli........................... 57 Director
Michael J. Foster............................... 48 Director
</Table>
Ronald G. Geary, an attorney and certified public accountant, has served as
one of our directors and President since 1990 and as Chief Executive Officer
since 1993. He was elected Chairman of the Board in June 1998 when Mr. Fornear
retired. Before he was named Chief Executive Officer, Mr. Geary was our Chief
Operating Officer from 1990 to 1993. Mr. Geary is a director of Ventas, Inc., a
real estate investment trust and Alterra Healthcare Corporation, a leading
operator of assisted living communities.
L. Bryan Shaul has served as Executive Vice President of Finance and
Administration and Chief Financial Officer since March 2001. Before joining us,
he served at Humana, Inc., a health insurance company, as Vice President-Finance
and Controller from March 2000, and as Vice President of Mergers and
Acquisitions from March 1999 to March 2000. Before joining Humana, Mr. Shaul was
Chief Financial Officer of Primary Health, Inc. in Boise, Idaho, a physician
practice management and HMO company, from February 1997 to February 1999, Chief
Financial Officer of Pacific Eyenet, Inc. in Los Angeles, California, a
physician practice management company, from August 1996 to February 1997 and
Chief Financial Officer of Right CHOICE Managed Care, Inc., a health insurance
company, from March 1994 to December 1995.
Paul G. Dunn has served as Chief Development Officer since 1997 and has
responsibility for overseeing all our development activities. From 1999 to 2000,
he served as Executive Vice President for Alternative Youth Services and
Youthtrack. From 1992 to 1997, Mr. Dunn was employed by Laidlaw, Inc., most
recently as Corporate Director, Financial Operations for its subsidiary, Laidlaw
Medical Transportation, Inc., an operator of ambulance services.
Ralph G. Gronefeld was named President, Division for Persons with
Disabilities in March 2002. He served as Executive Vice President -- Operations,
Division for Persons with Disabilities, beginning in March 2001 after serving as
Chief Financial Officer since May 1998. He previously served as Executive Vice
President of Operations for the Division for Youth Services and Vice President
responsible for our Alternative Youth Services and Youthtrack subsidiaries. Mr.
Gronefeld joined us in June 1995 as Director of Internal Audit. From July 1995
through March 1996, he served as interim senior administrator for our west
region in our Division for Persons with Disabilities.
Vincent F. Doran has served as President, Division for Youth Services,
since August 2000 after serving as President, Job Corps Operations from 1997.
Before joining us, Mr. Doran was President for Job Corps Operations for Teledyne
Economic Development, a product line of the Teledyne Controls business
27
of Teledyne Industries, Inc., a publicly traded conglomerate where he had been
employed in various capacities for 25 years.
Katherine W. Gilchrist, a certified public accountant, joined us as Vice
President and Chief Financial Officer for the Division for Persons with
Disabilities in March 2001. From 1998 to 2001, Ms. Gilchrist served as Vice
President-Financial Operations for the East Region of American Medical Response,
Inc. (a subsidiary of Laidlaw, Inc.), a national health care transportation
services company. From 1996 to 1998, she was Vice President of Operations for
ConnectiCare, Inc., a health maintenance organization serving the state of
Connecticut. From 1994 to 1996, she was Managing Director of MHC Operations for
CSC Healthcare Systems, Inc. (a subsidiary of Computer Sciences Corporation), a
company that developed and implemented computer systems for health maintenance
organizations and related companies.
James R. Fornear, our founder, served as Chairman of our Board of Directors
from 1984 until 1998. Mr. Fornear was our President from 1974 to 1990 and our
Chief Executive Officer from 1989 to 1993.
Spiro B. Mitsos, Ph.D., a retired psychologist, has been one of our
directors since 1974. He has been our Secretary since 1984 and he served as our
Treasurer from 1984 until 1998. Dr. Mitsos was employed by us to provide
psychological consultation services to facilities operated by us from 1984 until
he retired in 2000. Dr. Mitsos has served as an adjunct faculty member at
Southern Illinois University, the University of Kentucky and the University of
Evansville.
E. Halsey Sandford has been one of our directors since 1984 and served as
Senior Executive from 1997 until March 2001 when he retired. From 1992 to 1997,
Mr. Sandford served as Executive Vice President responsible for development for
our Division for Persons with Disabilities.
W. Bruce Lunsford, an attorney and certified public accountant, has served
as one of our directors since 1992. He is the founder, Chairman and former CEO
of Ventas, Inc., a New York Stock Exchange listed real estate investment trust.
He is the founder, and former Chairman and CEO of Vencor, Inc., a leading
provider of long-term hospital care to chronically ill patients, serving from
1985 until January 1999. Vencor filed voluntary petitions for protection under
Chapter 11 of the federal bankruptcy code in September 1999 and emerged in April
2001 after successfully completing its financial restructuring. Mr. Lunsford is
also the founder and former Chairman of Atria Communities, Inc., which operates
assisted living and independent living communities. Mr. Lunsford is a director
of National City, Kentucky and a former director of National City Corporation, a
financial services company. He is a former director of Churchill Downs, Inc., an
operator of thoroughbred racing tracks.
Seymour L. Bryson, Ph.D. has served as one of our directors since 1989.
Since 1984, Dr. Bryson has held several positions with Southern Illinois
University at Carbondale, including professor in the University's Rehabilitation
Institute, Dean of the College of Human Resources, Special Assistant to the
Chancellor, Executive Assistant to the President and Executive Assistant to the
Chancellor.
Olivia F. Kirtley, a certified public accountant, has served as one of our
directors since 1998. Ms. Kirtley is Past Chair of the American Institute of
Certified Public Accountants, or AICPA, and currently serves as Chair of the
AICPA Board of Examiners. From 1991 to 2000, Ms. Kirtley served as Vice
President and Chief Financial Officer of Vermont American Corporation, a leading
manufacturer and marketer of power tool accessories. Ms. Kirtley is a director
of Lancer Corporation, a worldwide manufacturer and distributor of fountain
drink dispensing equipment.
Vincent D. Pettinelli has served as one of our directors since 1999. Mr.
Pettinelli is the founder of PeopleServe, Inc., a provider of services to
persons with mental retardation and developmental disabilities serving as
president from 1979 until 1996 and as Chairman of the Board from 1996 until its
acquisition by us in 1999.
Michael J. Foster has served as one of our directors since July 2001. Since
1989, Mr. Foster has been employed by RFE Management Corp., the investment
manager for RFE Investment Partners V, L.P. and other private equity investment
funds. Mr. Foster currently serves as a director of several privately held
portfolio companies of RFE Investment Partners V, L.P. and the other investment
funds managed by RFE Management Corp.
28
LOAN GUARANTEE
As disclosed in our proxy statement on Schedule 14A, filed on July 26,
2001, and incorporated herein by reference, our subsidiary, PeopleServe, Inc.,
guaranteed, or in some other way agreed to be obligated for, the payment of
funds borrowed by certain partnerships in which Mr. Pettinelli has an interest
and that own approximately 60 properties leased to our subsidiaries or
non-profit agencies with which some of our subsidiaries have management
agreements. We had a letter of credit in the amount of $5.2 million in place
supporting PeopleServe's obligations, which has been released. The guaranteed
debt of approximately $4.7 million became due on November 1, 2001, and was paid
by Mr. Pettinelli.
29
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
On November 15, 2001, we entered into a new $80 million revolving credit
facility (including a $50 million letter of credit sublimit) with a banking
syndicate led by National City Bank. The new credit facility replaces our prior
credit facility, will be used for working capital purposes and will mature on
September 30, 2004. As of December 31, 2001, $29.8 million of our letter of
credit sublimit had been used to replace previously outstanding letters of
credit. We are able to reborrow amounts repaid under the facility before
maturity. We and our subsidiaries are borrowers under the credit facility. The
facility is secured by a security interest in most of our assets and those of
our subsidiaries, and any new subsidiary will be required to become a guarantor.
Loans under the new credit facility will bear interest based on LIBOR or
based on the administrative agent's base rate from time-to-time in effect. For
the period from the closing date through June 30, 2002, LIBOR loans will bear
interest at LIBOR plus 250 basis points, and base rate loans will bear interest
at 150 basis points plus the administrative agent's base rate. After June 30,
2002, both LIBOR loans and base rate loans will bear interest at rates
determined with reference to a pricing grid based on our leverage ratio. Standby
letter of credit fees under the facility will equal the then applicable spread
above LIBOR plus a letter of credit facing fee of 0.125% to National City Bank
as the funding bank.
Our new credit facility limits, among other things, our ability to incur
contingent obligations, to make investments, to make additional acquisitions or
merge with another entity, to sell or to create or incur liens on assets, to
incur other indebtedness, to pay dividends or to repurchase shares of our stock
and to repay other indebtedness before its stated maturity. In addition, the
facility requires us to meet various financial tests.
On March 22, 2002, we completed an amendment to our credit facility. The
amendment excludes the $22 million increase in our reserves for doubtful
accounts receivable and insurance claims taken in the fourth quarter of fiscal
2001 for purposes of the financial test requirements. The amendment also
includes other changes in determining the borrowing base and the definition of
eligible accounts receivable for that determination. As a result of the
amendment, we complied with all of our financial test requirements as of
December 31, 2001.
CONVERTIBLE NOTES
As of December 31, 2001, we had outstanding $97.4 million aggregate
principal amount of our 6% Convertible Subordinated Notes due 2004, or 6% Notes,
and $15.6 million aggregate principal amount of our 5.9% Convertible
Subordinated Notes due 2005, or 5.9% Notes (together, the Convertible Notes).
The old notes and the exchange notes are senior to the Convertible Notes. Except
as noted in the following paragraphs, the terms of the Convertible Notes are
substantially the same.
The 6% Notes bear interest at a rate of 6% per annum. Interest on the 6%
Notes is payable semi-annually on June 1 and December 1. Principal on the 6%
Notes is payable on December 1, 2004. The 6% Notes are redeemable in whole or in
part at a price, expressed as a percentage of the principal amount, ranging from
103.43% during the period beginning December 5, 2000 and ending on November 30,
2001 to 100.86% for the period beginning December 1, 2003 and ending on November
30, 2004, in each case plus accrued interest. The 6% Notes are convertible at
the option of the holder, unless previously redeemed, into our common stock at a
conversion price of $18.81 per share, subject to adjustment in certain events.
The 5.9% Notes bear interest at a rate of 5.9% per annum. Interest on the
5.9% Notes is payable semi-annually on March 15 and September 15. Principal on
the 5.9% Notes is payable on March 1, 2005. The 5.9% Notes are redeemable in
whole or in part at a price, expressed as a percentage of the principal amount,
ranging from 103.37% during the period beginning March 15, 2001 and ending on
February 14, 2002 to 100.85% for the period beginning March 15, 2004 and ending
on February 14, 2005, in each case plus accrued interest. The 5.9% Notes are
convertible at the option of the holder, unless previously
30
redeemed, into our common stock at a conversion price of $25.84 per share,
subject to adjustment in certain events.
Upon the occurrence of a Repurchase Event (as defined below), each holder
of Convertible Notes has the right, at the holder's option, to require us to
repurchase all or any part of the holder's Convertible Notes at 100% of the
principal amount, in each case plus accrued interest. Our ability to repurchase
our Convertible Notes following a Repurchase Event depends on our having
sufficient funds and may be limited by the terms of our other indebtedness or
the subordination provisions of the indenture relating to the 6% Notes and the
statement of terms relating to the 5.9% Notes.
As defined in the indenture relating to the 6% Notes and the statement of
terms relating to the 5.9% Notes, "Repurchase Event" means the occurrence of any
of the following:
- We sell all or substantially all of our assets;
- We merge into or consolidate with another corporation and
- either we are not the surviving corporation in the transaction (other
than a transaction with a wholly owned subsidiary in which all of our
common stock is changed into or exchanged for the same consideration) or
our common stock would be converted into cash, securities or other
property; and
- holders of our common stock immediately before the transaction do not
have a majority of the total voting power of the surviving corporation in
substantially the same proportion in which they held our common stock
before the transaction;
- Any person or group beneficially owns 50% of the total voting power of
all classes of our capital stock;
- If, in any two-year period, individuals who constituted the board of
directors at the beginning of the period (together with any new directors
whose election or nomination for election was approved by two-thirds of
the directors then still in office who were directors at the beginning of
the period or whose election or nomination was previously so approved)
cease for any reason to constitute a majority of the board of directors
then in office;
- We are liquidated or dissolved or adopt a plan of liquidation or
dissolution; or
- Our common stock is no longer listed for trading on a U.S. national
securities exchange or on an established automated over-the-counter
trading market in the United States.
OTHER LONG-TERM DEBT
At December 31, 2001, our obligations under capital leases totaled $4.5
million and the outstanding principal amount of other indebtedness totaled $3.5
million.
31
DESCRIPTION OF NOTES
As used below in this "Description of Notes" section, the "Issuer" means
Res-Care, Inc., a Kentucky corporation, and its successors, but not any of its
Subsidiaries. The Issuer issued the old notes and will issue the exchange notes
described in this prospectus (the "Notes") under an Indenture, dated as of
November 15, 2001 (the "Indenture"), among the Issuer, the Guarantors and
National City Bank, as Trustee. On February 12, 2002, Wells Fargo Bank
Minnesota, National Association, succeeded National City Bank as Trustee under
the Indenture. The Indenture is subject to and governed by the Trust Indenture
Act of 1939, as amended. The terms of the Notes include those set forth in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act.
ResCare has previously filed a copy of the Indenture with the Commission,
and the Indenture is incorporated by reference as an exhibit to the registration
statement of which this prospectus forms a part. Copies of the Indenture and the
registration rights agreement are available as set forth above under "Where You
Can Find More Information." You can find definitions of certain terms used in
this description under the heading "Certain Definitions." Certain defined terms
used in this description but not defined below under "Certain Definitions" have
the meanings assigned to them in the Indenture. The registered holder of a note
will be treated as the owner of it for all purposes. Only registered holders
will have rights under the Indenture.
The following is a summary of the material terms and provisions of the
Notes. The following summary does not purport to be a complete description of
the Notes and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the Indenture and the Trust Indenture Act.
THE EXCHANGE NOTES
The exchange notes:
- are senior unsecured obligations of ResCare;
- are pari passu in right of payment with any existing and future senior
unsecured indebtedness of ResCare;
- are unconditionally guaranteed by the Guarantors; and
- have terms that are substantially identical to the old note, except that
the exchange notes will be registered under the Securities Act, and
therefore, generally will not be subject to transfer restrictions or
registration rights, and the provisions of the registration rights
agreement relating to liquidated damages on the outstanding old notes
under certain circumstances will be eliminated.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on November 15, 2008. The Notes will bear interest at
the rate shown on the cover page of this prospectus, payable on May 15 and
November 15 of each year, commencing on May 15, 2002, to Holders of record at
the close of business on May 1 or November 1 as the case may be, immediately
preceding the relevant interest payment date. Interest on the Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
The Notes will be issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000.
An aggregate principal amount of $150.0 million was issued in the private
offering. The Issuer may issue additional Notes having identical terms and
conditions to the Notes being issued in this offering (the "Additional Notes"),
subject to compliance with the "Limitations on Additional Indebtedness" covenant
described below. Any Additional Notes will be part of the same issue as the
Notes and will vote on all matters as one class with the Notes, including,
without limitation, with respect to waivers, amendments, redemptions and offers
to purchase. For purposes of this "Description of Notes," except for the
"Limitations on Additional Indebtedness" covenant, references to the Notes
include Additional Notes, if any.
32
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder has given wire transfer instructions to the Issuer and the
Trustee at least ten Business Days before the applicable payment date, the
Issuer will make all payments on such Holder's Notes in accordance with those
instructions. Otherwise, payments on the Notes will be made at the office or
agency of the Paying Agent (the "Paying Agent") and Registrar (the "Registrar")
for the Notes unless the Issuer elects to make interest payments by check mailed
to the Holders at their addresses set forth in the register of Holders.
RANKING
The Notes will be general unsecured obligations of the Issuer. The Notes
will rank senior in right of payment to all future obligations of the Issuer
that are, by their terms, expressly subordinated in right of payment to the
Notes and pari passu in right of payment with all existing and future unsecured
obligations of the Issuer that are not so subordinated. Each Note Guarantee (as
defined below) will be a general unsecured obligation of the Guarantor thereof
and will rank senior in right of payment to all future obligations of such
Guarantor that are, by their terms, expressly subordinated in right of payment
to such Note Guarantee and pari passu in right of payment with all existing and
future unsecured obligations of such Guarantor that are not so subordinated.
The Notes and each Note Guarantee will be effectively subordinated to
secured Indebtedness of the Issuer and the applicable Guarantor (including
Indebtedness under the Credit Facility) to the extent of the value of the assets
securing such Indebtedness.
The Notes will also be effectively subordinated to all existing and future
obligations, including Indebtedness, of any Unrestricted Subsidiaries and our
other Subsidiaries that do not guarantee the Notes. Claims of creditors of these
Subsidiaries, including trade creditors, will generally have priority as to the
assets of these Subsidiaries over the claims of the Issuer and the holders of
the Issuer's Indebtedness, including the Notes.
NOTE GUARANTEES
The Issuer's obligations under the Notes and the Indenture will be jointly
and severally guaranteed (the "Note Guarantees") by each Restricted Subsidiary
(other than any Foreign Subsidiaries) of the Issuer.
All of the Issuer's Domestic Subsidiaries will guarantee the Notes. Foreign
Subsidiaries and Unrestricted Subsidiaries will not be Guarantors. Currently,
ResCare Premier Canada, Inc., an Ontario corporation, is our only Foreign
Subsidiary and we have no Unrestricted Subsidiaries. In the event of a
bankruptcy, liquidation or reorganization of any of these non-Guarantor
Subsidiaries, these non-Guarantor Subsidiaries will pay the holders of their
debts and their trade creditors before they will be able to distribute any of
their assets to us.
Under the circumstances described below under the "Designation of
Unrestricted Subsidiaries" covenant, the Issuer will be permitted to designate
some of its Subsidiaries as "Unrestricted Subsidiaries." The effect of
designating a Subsidiary as an "Unrestricted Subsidiary" will be:
- an Unrestricted Subsidiary will not be subject to many of the restrictive
covenants in the Indenture;
- a Subsidiary that has previously been a Guarantor and that is designated
an Unrestricted Subsidiary will be released from its Note Guarantee; and
- the assets, income, cash flow and other financial results of an
Unrestricted Subsidiary will not be consolidated with those of the Issuer
for purposes of calculating compliance with the restrictive covenants
contained in the Indenture.
The obligations of each Guarantor under its Note Guarantee will be limited
to the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor (including, without limitation, any
Guarantees under the Credit Facility permitted under clause (1) of the
"Limitations on Additional Indebtedness" covenant) and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Note
33
Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Guarantor under its Note Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under its Note
Guarantee will be entitled to a contribution from each other Guarantor in a pro
rata amount based on adjusted net assets of each Guarantor.
In the event of a sale or other disposition of all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the Equity Interests of any Guarantor then held by the
Issuer and the Restricted Subsidiaries, then that Guarantor will be released and
relieved of any obligations under its Note Guarantee; provided, however,that the
Net Available Proceeds of such sale or other disposition shall be applied in
accordance with the applicable provisions of the Indenture, to the extent
required thereby, including the "Limitations on Asset Sales" covenant. In
addition, the Indenture will provide that any Guarantor that is designated as an
Unrestricted Subsidiary or that otherwise ceases to be a Guarantor, in each case
in accordance with the provisions of the Indenture, will be released from its
Note Guarantee upon effectiveness of such Designation or when it first ceases to
be a Restricted Subsidiary, as the case may be.
OPTIONAL REDEMPTION
Except as set forth below, the Notes may not be redeemed before November
15, 2005. At any time on or after November 15, 2005, the Issuer, at its option,
may redeem the Notes, in whole or in part, at the redemption prices (expressed
as percentages of principal amount) set forth below, together with accrued and
unpaid interest thereon, if any, to the redemption date, if redeemed during the
12-month period beginning November 15 of the years indicated:
<Table>
<Caption>
OPTIONAL REDEMPTION
YEAR PRICE
- ---- -------------------
2005........................................................ 105.313%
2006........................................................ 102.656%
2007 and thereafter......................................... 100.000%
</Table>
At any time before November 15, 2004, the Issuer may redeem up to 35% of
the aggregate principal amount of the Notes with the net cash proceeds of one or
more Qualified Equity Offerings at a redemption price equal to 110.625% of the
principal amount of the Notes to be redeemed, plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided, however, that (1) at least
65% of the aggregate principal amount of Notes issued under the Indenture
remains outstanding immediately after the occurrence of such redemption and (2)
the redemption occurs within 90 days of the date of the closing of any such
Qualified Equity Offering.
The Issuer may acquire Notes by means other than a redemption, whether
pursuant to an issuer tender offer, open market purchase or otherwise, so long
as the acquisition does not otherwise violate the terms of the Indenture.
SELECTION AND NOTICE OF REDEMPTION
If less than all of the Notes are to be redeemed at any time pursuant to an
optional redemption, selection of the Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not then
listed on a national security exchange, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided, however, that
no Notes of a principal amount of $1,000 or less shall be redeemed in part. In
addition, if a partial redemption is made pursuant to the provisions described
in the second paragraph under "-- Optional Redemption," selection of the Notes
or portions thereof for redemption shall be made by the Trustee only on a pro
rata basis or on as nearly a pro rata basis as is practicable (subject to the
procedures of The Depository Trust Company), unless that method is otherwise
prohibited.
Notice of redemption will be mailed by first-class mail at least 30 but not
more than 60 days before the date of redemption to each Holder of Notes to be
redeemed at its registered address. If any Note is to
34
be redeemed in part only, the notice of redemption that relates to that Note
will state the portion of the principal amount of the Note to be redeemed. A new
Note in a principal amount equal to the unredeemed portion of the Note will be
issued in the name of the Holder of the Note upon cancellation of the original
Note. On and after the date of redemption, interest will cease to accrue on
Notes or portions thereof called for redemption so long as the Issuer has
deposited with the Paying Agent for the Notes funds in satisfaction of the
redemption price (including accrued and unpaid interest on the Notes to be
redeemed) pursuant to the Indenture.
CHANGE OF CONTROL
Upon the occurrence of any Change of Control as defined herein, each Holder
will have the right to require that the Issuer purchase that Holder's Notes for
a cash price (the "Change of Control Purchase Price") equal to 101% of the
principal amount of the Notes to be purchased, plus accrued and unpaid interest
thereon, if any, to the date of purchase.
Within 30 days following any Change of Control, the Issuer will mail, or
caused to be mailed, to the Holders a notice:
(1) describing the transaction or transactions that constitute the
Change of Control;
(2) offering to purchase, pursuant to the procedures required by the
Indenture and described in the notice (a "Change of Control Offer"), on a
date specified in the notice (which shall be a Business Day not earlier
than 30 days nor later than 60 days from the date the notice is mailed) and
for the Change of Control Purchase Price, all Notes properly tendered by
such Holder pursuant to such Change of Control Offer; and
(3) describing the procedures that Holders must follow to accept the
Change of Control Offer.
The Change of Control Offer is required to remain open for at least 20
Business Days or for such longer period as is required by law.
The Issuer will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the date of purchase.
If a Change of Control Offer is made, there can be no assurance that the
Issuer will have available funds sufficient to pay for all or any of the Notes
that might be delivered by Holders seeking to accept the Change of Control
Offer. In addition, the Issuer cannot assure you that in the event of a Change
of Control it will be able to obtain the consents necessary to consummate a
Change of Control Offer from the lenders under agreements governing outstanding
Indebtedness which may prohibit the Change of Control Offer.
The provisions described above that require us to make a Change of Control
Offer following a Change of Control will be applicable regardless of whether any
other provisions of the Indenture are applicable. Except as described above with
respect to a Change of Control, the Indenture does not contain provisions that
permit the Holders of the Notes to require that the Issuer purchase or redeem
the Notes in the event of a takeover, recapitalization or similar transaction.
The Issuer's obligation to make a Change of Control Offer will be satisfied
if a third party makes the Change of Control Offer in the manner and at the
times and otherwise in compliance with the requirements applicable to a Change
of Control Offer made by the Issuer and purchases all Notes properly tendered
and not withdrawn under the Change of Control Offer.
A "Change of Control" includes certain sales of all or substantially all of
the assets of the Issuer and the Restricted Subsidiaries taken as a whole. The
phrase "all or substantially all" as used in the Indenture (including as set
forth under the "Limitations on Mergers, Consolidations, Etc." covenant) varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (which governs the Indenture) and
is subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
assets of the Issuer, and therefore
35
it may be unclear as to whether a Change of Control has occurred and whether the
Holders have the right to require the Issuer to purchase Notes.
None of the provisions relating to a purchase upon a Change of Control is
waivable by the Board of Directors of the Issuer. However, the Issuer could
enter into certain transactions that would not result in a Change of Control,
but would increase the amount of Indebtedness outstanding at such time or
otherwise affect the Issuer's capital structure or credit ratings.
Failure by the Issuer to purchase the Notes when required upon a Change of
Control will result in an Event of Default with respect to the Notes. As a
result, these provisions could have the effect of deterring hostile or friendly
acquisitions of the Issuer when the Person attempting the acquisition views
itself as unable to finance the purchase of the principal amount of Notes that
may be tendered to the Issuer upon the occurrence of a Change of Control.
The Issuer will comply with applicable tender offer rules, including the
requirements of Rule 14e-l under the Exchange Act and any other applicable laws
and regulations in connection with the purchase of Notes pursuant to a Change of
Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the "Change of Control" provisions of the Indenture,
the Issuer shall comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the "Change of
Control" provisions of the Indenture by virtue of this compliance.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATIONS ON ADDITIONAL INDEBTEDNESS
The Issuer will not, and the Issuer will not permit any Restricted
Subsidiary to, directly or indirectly, incur any Indebtedness; provided,
however, that the Issuer or any Guarantor may incur additional Indebtedness
(including Acquired Indebtedness) if no Default shall have occurred and be
continuing at the time of or as a consequence of the incurrence of the
Indebtedness and if, after giving effect thereto, the Consolidated Fixed Charge
Coverage Ratio on the date thereof would be at least 2.25 to 1.00 if such date
is on or before December 31, 2002 or 2.5 to 1 if such date is after December 31,
2002, determined on a pro forma basis as if the incurrence of such additional
Indebtedness and the application of the net proceeds therefrom had occurred at
the beginning of the four-quarter period used to calculate the Issuer's
Consolidated Fixed Charge Coverage Ratio (the "Coverage Ratio Exception").
Notwithstanding the above, so long as no Default shall have occurred and be
continuing at the time of or as a consequence of the incurrence of the following
Indebtedness, each of the following shall be permitted (the "Permitted
Indebtedness"):
(1) Indebtedness of the Issuer and any Guarantor under the Credit
Facility in an aggregate amount at any time outstanding (whether incurred
under the Coverage Ratio Exception or as Permitted Indebtedness) not to
exceed the greater of (x) $80.0 million and (y) the amount of the Borrowing
Base as of the date of such incurrence (provided that in no case shall the
Indebtedness permitted pursuant to this clause (1) exceed $100.0 million at
any one time outstanding);
(2) the Notes and the Note Guarantees issued on the Issue Date;
(3) Indebtedness of the Issuer and the Restricted Subsidiaries to the
extent outstanding on the Issue Date (other than Indebtedness referred to
in clauses (1) and (2) above, and after giving effect to the use of
proceeds of the Notes);
(4) Indebtedness of the Issuer and the Restricted Subsidiaries under
Hedging Obligations; provided, however, that (a) such Hedging Obligations
relate to payment obligations on Indebtedness otherwise permitted to be
incurred by this covenant, and (b) the notional principal amount of such
Hedging Obligations at the time incurred does not exceed the principal
amount of the Indebtedness to which such Hedging Obligations relate;
(5) Indebtedness of the Issuer owed to a Guarantor and Indebtedness of
any Guarantor owed to the Issuer or any other Guarantor; provided, however,
that (a) any Indebtedness of the Issuer owed to
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a Guarantor is unsecured and subordinated, pursuant to a written agreement,
to the Issuer's obligation, under the Indenture and the Notes and (b) upon
any such Guarantor ceasing to be a Guarantor or such Indebtedness being
owed to any Person other than the Issuer or a Guarantor, the Issuer or such
Guarantor, as applicable, shall be deemed to have incurred Indebtedness not
permitted by this clause (5);
(6) Indebtedness in respect of bid, performance or surety bonds issued
for the account of the Issuer or any Restricted Subsidiary in the ordinary
course of business, including guarantees or obligations of the Issuer or
any Restricted Subsidiary with respect to letters of credit supporting such
bid, performance or surety obligations (in each case other than for an
obligation for money borrowed);
(7) Purchase Money Indebtedness incurred by the Issuer or any
Guarantor, in an aggregate amount not to exceed at any time outstanding
$8.0 million;
(8) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within five Business Days of incurrence;
(9) Indebtedness arising in connection with endorsement of instruments
for deposit in the ordinary course of business;
(10) Refinancing Indebtedness with respect to Indebtedness incurred
pursuant to the Coverage Ratio Exception or clauses (2), (3), (7) and (12)
in this covenant;
(11) Indebtedness of Unrestricted Subsidiaries; and
(12) Indebtedness of the Issuer or any Guarantor in an aggregate
amount in addition to items (1) through (11) above not to exceed $10.0
million at any time outstanding.
For purposes of determining compliance with this covenant, if an item of
Indebtedness meets the criteria of more than one of the categories of Permitted
Indebtedness described in clauses (1) through (12) above or is entitled to be
incurred pursuant to the Coverage Ratio Exception, the Issuer shall, in its sole
discretion, classify such item of Indebtedness and may divide and classify such
Indebtedness in more than one of the types of Indebtedness described, except
that Indebtedness outstanding under the Credit Facility shall be deemed to first
have been incurred under clause (1) above. In addition, with respect to any
Indebtedness issued at a discount from principal amount, the amount of such
Indebtedness incurred upon issuance will be deemed to be the accreted value
thereof determined in accordance with GAAP.
LIMITATIONS ON LAYERING INDEBTEDNESS
The Issuer will not, and will not permit any Guarantor to, directly or
indirectly, incur any Indebtedness that is or purports to be by its terms (or by
the terms of any agreement governing such Indebtedness) contractually
subordinated to any other Indebtedness of the Issuer or of such Guarantor, as
the case may be, unless such Indebtedness is also by its terms (or by the terms
of any agreement governing such Indebtedness) contractually made expressly
subordinate to the Notes or the Note Guarantee of such Guarantor, to the same
extent and in the same manner as such Indebtedness is contractually subordinated
to such other Indebtedness of the Issuer or such Guarantor, as the case may be.
LIMITATIONS ON RESTRICTED PAYMENTS
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, make any Restricted Payment if at the time of such
Restricted Payment:
(1) a Default under the Indenture shall have occurred and be
continuing or shall occur as a consequence thereof;
(2) the Issuer cannot incur $1.00 of additional Indebtedness pursuant
to the Coverage Ratio Exception; or
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(3) the amount of such Restricted Payment, when added to the aggregate
amount of all other Restricted Payments made after the Issue Date (other
than Restricted Payments made pursuant to clause (2), (3), (4) or (6) of
the next paragraph), exceeds the sum (the "Restricted Payments Basket") of
(without duplication):
(a) 50% of Consolidated Net Income for the period (taken as one
accounting period) commencing on the first day of the first full fiscal
quarter commencing after the Issue Date to and including the last day of
the fiscal quarter ended immediately before the date of such calculation
for which consolidated financial statements are available (or, if such
Consolidated Net Income shall be a deficit, minus 100% of such aggregate
deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Issuer
either (x) as contributions to the common equity of the Issuer after the
Issue Date or (y) from the issuance and sale of Qualified Equity
Interests after the Issue Date, other than to the extent any such
proceeds are used to redeem Notes in accordance with the second
paragraph under "-- Optional Redemption," plus
(c) the aggregate amount by which Indebtedness (other than
Subordinated Indebtedness) of the Issuer or any Restricted Subsidiary is
reduced on the Issuer's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Issuer) after the Issue Date into
Qualified Equity Interests (less the amount of any cash, or the fair
value of assets, distributed by the Issuer or any Restricted Subsidiary
upon such conversion or exchange), plus
(d) in the case of the disposition or repayment of or return on any
Investment that was treated as a Restricted Payment made after the Issue
Date, an amount (to the extent not included in the computation of
Consolidated Net Income) equal to the lesser of (i) the return of
capital with respect to such Investment and (ii) the amount of such
Investment that was treated as a Restricted Payment, in either case,
less the cost of the disposition of such Investment and net of taxes,
plus
(e) upon a Redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the lesser of (i) the Fair Market Value of the
Issuer's proportionate interest in such Subsidiary immediately following
such Redesignation, and (ii) the aggregate amount of the Issuer's
Investments in such Subsidiary to the extent such Investments reduced
the amount available for subsequent Restricted Payments under this
clause (3) and were not previously repaid or otherwise reduced.
The foregoing provisions will not prohibit:
(1) the payment by the Issuer or any Restricted Subsidiary of any
dividend within 60 days after the date of declaration thereof, if on the
date of declaration the payment would have complied with the provisions of
the Indenture;
(2) so long as no Default shall have occurred and be continuing at the
time of or as a consequence of such redemption, the redemption of any
Equity Interests of the Issuer or any Restricted Subsidiary in exchange
for, or out of the proceeds of the substantially concurrent issuance and
sale of, Qualified Equity Interests;
(3) so long as no Default shall have occurred and be continuing at the
time of or as a consequence of such redemption, the redemption of
Subordinated Indebtedness of the Issuer or any Guarantor (a) in exchange
for, or out of the proceeds of the substantially concurrent issuance and
sale of, Qualified Equity Interests or (b) in exchange for, or out of the
proceeds of the substantially concurrent incurrence of, Refinancing
Indebtedness permitted to be incurred under the "Limitations on Additional
Indebtedness" covenant and the other terms of the Indenture;
(4) the redemption of any Disqualified Equity Interests of any Person
in exchange for, or out of the net proceeds of the substantially concurrent
issuance or sale (other than to a Subsidiary of the Issuer) of,
Disqualified Equity Interests of such Person; provided, however, that any
Disqualified Equity Interests so issued have a stated liquidation,
redemption or similar value no greater than the
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Disqualified Equity Interests being redeemed and matures, is mandatorily
redeemable and/or is redeemable at the sole option of the holder thereof on
a date later than the date of the Disqualified Equity Interests being
redeemed;
(5) so long as no Default shall have occurred and be continuing at the
time of or as a consequence of such redemption, the redemption of Equity
Interests of the Issuer held by officers, directors or employees or former
officers, directors or employees (or their transferees, estates or
beneficiaries under their estates), upon their death, disability,
retirement, severance or termination of employment or service; provided,
however, that the aggregate cash consideration paid for all such
redemptions shall not exceed $2.0 million during any calendar year;
(6) repurchases of Equity Interests deemed to occur upon the exercise
of stock options if the Equity Interests represents a portion of the
exercise price thereof;
(7) so long as no Default shall have occurred and be continuing at the
time of or as a consequence of such redemption or repurchase, the
redemption or repurchase of the Issuer's Convertible Notes for cash in an
amount less than the principal and accrued and unpaid interest on such
redeemed or repurchased Convertible Notes;
provided, however, that no issuance and sale of Qualified Equity Interests
pursuant to clause (2) or (3) above shall increase the Restricted Payments
Basket, except to the extent the proceeds thereof exceed the amounts used to
effect the transactions described therein.
LIMITATIONS ON DIVIDEND AND OTHER RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or consensual restriction on the ability of
any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on or in respect of
its Equity Interests;
(2) make loans or advances or pay any Indebtedness or other obligation
owed to the Issuer or any other Restricted Subsidiary; or
(3) transfer any of its assets to the Issuer or any other Restricted
Subsidiary; except for:
(a) encumbrances or restrictions existing under or by reason of
applicable law;
(b) encumbrances or restrictions existing under the Indenture, the
Notes and the Note Guarantees;
(c) non-assignment provisions of any contract or any lease entered
into in the ordinary course of business;
(d) encumbrances or restrictions existing under agreements existing
on the Issue Date (including, without limitation, the Credit Facility)
as in effect on that date;
(e) restrictions on the transfer of assets subject to any Lien
permitted under the Indenture imposed by the holder of such Lien;
(f) restrictions on the transfer of assets imposed under any
agreement to sell such assets permitted under the Indenture to any
Person pending the closing of such sale;
(g) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to any Person, or the
assets of any Person, other than the Person or the assets so acquired;
(h) encumbrances or restrictions arising in connection with
Refinancing Indebtedness; provided, however, that any such encumbrances
and restrictions are not materially more restrictive with respect to any
Restricted Subsidiary than those in effect on the Issue Date with
respect to that Restricted Subsidiary pursuant to the agreements
creating or evidencing the Indebtedness being refinanced;
39
(i) customary provisions in leases, partnership agreements, limited
liability company organizational governance documents, joint venture
agreements and other similar agreements entered into in the ordinary
course of business that restrict the transfer of leasehold interests or
ownership interests in such partnership, limited liability company,
joint venture or similar Person;
(j) Purchase Money Indebtedness incurred in compliance with the
"Limitations on Additional Indebtedness" covenant that impose
restrictions of the nature described in clause (3) above on the assets
acquired; and
(k) any encumbrances or restrictions imposed by any amendments or
refinancings of the contracts, instruments or obligations referred to in
clauses (a) through (j) above; provided, however, that such amendments
or refinancings are, in the good faith judgment of the Issuer's Board of
Directors, no more materially restrictive with respect to such
encumbrances and restrictions than those before such amendment or
refinancing.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, in one transaction or a series of related transactions,
sell, lease, transfer or otherwise dispose of any of its assets to, or purchase
any assets from, or enter into any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (an "Affiliate
Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to the Issuer or the relevant Restricted Subsidiary than those that may
have been obtained in a comparable transaction at such time on an
arm's-length basis by the Issuer or that Restricted Subsidiary from a
Person that is not an Affiliate of the Issuer or that Restricted
Subsidiary; and
(2) the Issuer delivers to the Trustee:
(a) with respect to any Affiliate Transaction involving aggregate
value in excess of $1.0 million, an Officers' Certificate certifying
that such Affiliate Transaction complies with clause (1) above and a
Secretary's Certificate which sets forth and authenticates a resolution
that has been adopted by the Independent Directors approving such
Affiliate Transaction; and
(b) with respect to any Affiliate Transaction involving aggregate
value of $5.0 million or more, the certificates described in the
preceding clause (a) and (x) a written opinion as to the fairness of
such Affiliate Transaction to the Issuer or such Restricted Subsidiary
from a financial point of view or (y) a written appraisal supporting the
value of such Affiliate Transaction, in either case, issued by an
Independent Financial Advisor.
The foregoing restrictions shall not apply to:
(1) transactions exclusively between or among (a) the Issuer and one
or more Restricted Subsidiaries or (b) Restricted Subsidiaries; provided,
however, in each case, that no Affiliate of the Issuer (other than another
Restricted Subsidiary) owns Equity Interests of any such Restricted
Subsidiary;
(2) reasonable director, officer, employee and consultant compensation
(including bonuses) and other benefits (including retirement, health, stock
and other benefit plans) and indemnification arrangements;
(3) loans and advances permitted by clause (3) of the definition of
"Permitted Investments";
(4) any agreement as in effect as of the Issue Date and any extension,
amendment or modification thereto (so long as any such extension, amendment
or modification satisfies the requirements set forth in clause (1) of the
first paragraph of this covenant) or any transaction contemplated thereby;
(5) Restricted Payments of the type described in clause (1), (2) or
(4) of the definition of "Restricted Payment" and which are made in
accordance with the "Limitations on Restricted Payments" covenant.
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LIMITATIONS ON LIENS
The Issuer shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or permit or suffer to exist any
Lien of any nature whatsoever (other than Permitted Liens) against any assets of
the Issuer or any Restricted Subsidiary (including Equity Interests of a
Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired,
or any proceeds therefrom, or assign or otherwise convey any right to receive
income or profits therefrom, which Lien secures Indebtedness or trade payables,
unless contemporaneously therewith:
(1) in the case of any Lien securing an obligation that ranks pari
passu with the Notes or a Note Guarantee, effective provision is made to
secure the Notes or such Note Guarantee, as the case may be, at least
equally and ratably with or before such obligation with a Lien on the same
collateral; and
(2) in the case of any Lien securing an obligation that is
subordinated in right of payment to the Notes or a Note Guarantee,
effective provision is made to secure the Notes or such Note Guarantee, as
the case may be, with a Lien on the same collateral that is before the Lien
securing such subordinated obligation, in each case, for so long as such
obligation is secured by such Lien.
LIMITATIONS ON ASSET SALES
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Sale unless:
(1) the Issuer or such Restricted 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; and
(2) at least 80% of the total consideration received in such Asset
Sale or series of related Asset Sales consists of cash, Cash Equivalents or
Replacement Assets.
For purposes of clause (2), the following shall be deemed to be cash:
(a) the amount (without duplication) of any Indebtedness (other
than Subordinated Indebtedness) of the Issuer or such Restricted
Subsidiary that is expressly assumed by the transferee in such Asset
Sale and with respect to which the Issuer or such Restricted Subsidiary,
as the case may be, is unconditionally released by the holder of such
Indebtedness, and
(b) the amount of any obligations received from such transferee
that are within 30 days converted by the Issuer or such Restricted
Subsidiary to cash (to the extent of the cash actually so received).
If at any time any non-cash consideration received by the Issuer or any
Restricted Subsidiary of the Issuer, as the case may be, in connection with any
Asset Sale is repaid or 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 repayment, conversion or disposition shall be deemed to
constitute the date of an Asset Sale hereunder and the Net Available Proceeds
thereof shall be applied in accordance with this covenant.
If the Issuer or any Restricted Subsidiary engages in an Asset Sale, the
Issuer or such Restricted Subsidiary shall, no later than one year following the
consummation thereof, apply all or any of the Net Available Proceeds therefrom
to:
(1) permanently repay any Indebtedness under the Credit Facility and
permanently reduce the commitments thereunder; and/or
(2) invest all or any part of the Net Available Proceeds thereof in
the purchase of assets (other than securities, unless such securities
represent Equity Interests in an entity engaged solely in a Permitted
Business, such entity becomes a Restricted Subsidiary and the Issuer or a
Restricted Subsidiary acquires voting and management control of such
entity) to be used by the Issuer or any Restricted Subsidiary in a
Permitted Business.
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The amount of Net Available Proceeds not applied or invested as provided in
this paragraph will constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds $10.0
million, the Issuer will be required to make an offer to purchase from all
Holders and, if applicable, redeem (or make an offer to do so) any Pari Passu
Indebtedness of the Issuer or a Guarantor, the provisions of which require the
Issuer or a Guarantor to redeem such Indebtedness with the proceeds from any
Asset Sales (or offer to do so), in an aggregate principal amount of Notes and
such Pari Passu Indebtedness equal to the amount of such Excess Proceeds as
follows:
(1) The Issuer will (a) make an offer to purchase (a "Net Proceeds
Offer") to all Holders in accordance with the procedures set forth in the
Indenture, and (b) redeem (or make an offer to do so) any such other Pari
Passu Indebtedness, pro rata in proportion to the respective principal
amounts of the Notes and such other Indebtedness required to be redeemed,
the maximum principal amount of Notes and Pari Passu Indebtedness that may
be redeemed out of the amount (the "Payment Amount") of such Excess
Proceeds;
(2) 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 a
Net Proceeds Offer, plus accrued and unpaid interest thereon, if any, to
the date such Net Proceeds Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the Indenture and the
redemption price for such Pari Passu Indebtedness (the "Pari Passu
Indebtedness Price") shall be as set forth in the related documentation
governing such Indebtedness;
(3) if the aggregate Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the pro rata portion of the Payment
Amount allocable to the Notes, Notes to be purchased will be selected on a
pro rata basis; and
(4) upon completion of such Net Proceeds Offer in accordance with the
foregoing provisions, the amount of Excess Proceeds with respect to which
such Net Proceeds Offer was made shall be deemed to be zero.
To the extent that the sum of the aggregate Offered Price of Notes tendered
pursuant to a Net Proceeds Offer and the aggregate Pari Passu Indebtedness Price
paid to the holders of such Pari Passu Indebtedness is less than the Payment
Amount relating thereto (such shortfall constituting a "Net Proceeds
Deficiency"), the Issuer may use the Net Proceeds Deficiency, or a portion
thereof, for general corporate purposes, subject to the provisions of the
Indenture.
In the event of the transfer of substantially all (but not all) of the
assets of the Issuer and the Restricted Subsidiaries as an entirety to a Person
in a transaction covered by and effected in accordance with the covenant
described under the "Limitations on Mergers, Consolidations, Etc." covenant the
successor corporation shall be deemed to have sold for cash at Fair Market Value
the assets of the Issuer and the Restricted Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale (with such Fair
Market Value being deemed to be Net Available Proceeds for such purpose).
The Issuer will comply with applicable tender offer rules, including the
requirements of Rule 14e-1 under the Exchange Act and any other applicable laws
and regulations in connection with the purchase of Notes pursuant to a Net
Proceeds Offer. To the extent that the provisions of any securities laws or
regulations conflict with the "Limitations on Asset Sales" provisions of the
Indenture, the Issuer shall comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
"Limitations on Asset Sales" covenant by virtue of this compliance.
LIMITATIONS ON DESIGNATION OF UNRESTRICTED SUBSIDIARIES
The Issuer may designate any Subsidiary of the Issuer as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(1) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
42
(2) the Issuer would be permitted to make, at the time of such
Designation, (a) a Permitted Investment or (b) an Investment pursuant to
the first paragraph of the "Limitations on Restricted Payments" covenant,
in either case, in an amount (the "Designation Amount") equal to the Fair
Market Value of the Issuer's proportionate interest in such Subsidiary on
such date.
No Subsidiary shall be designated as an "Unrestricted Subsidiary" unless
such Subsidiary:
(1) has no Indebtedness other than Permitted Unrestricted Subsidiary
Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Issuer or any Restricted Subsidiary unless the terms
of the agreement, contract, arrangement or understanding are no less
favorable to the Issuer or the Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of the Issuer
or such Restricted Subsidiary;
(3) is a Person with respect to which neither the Issuer nor any
Restricted Subsidiary has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
the Person's financial condition or to cause the Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Issuer or any Restricted
Subsidiary, except for any guarantee given solely to support the pledge by
the Issuer or any Restricted Subsidiary of the Equity Interests of such
Unrestricted Subsidiary, which guarantee is not recourse to the Issuer or
any Restricted Subsidiary, and except to the extent the amount thereof
constitutes a Restricted Payment permitted pursuant to the "Limitations on
Restricted Payments" covenant.
No holder of any Indebtedness of any Unrestricted Subsidiary shall have a
right to declare a default on such Indebtedness or cause the payment thereof to
be accelerated or payable before its stated maturity as a result of a default on
any Indebtedness of the Issuer or any Restricted Subsidiary, except to the
extent such Indebtedness is a guarantee by such Unrestricted Subsidiary of
Indebtedness of the Issuer or any Restricted Subsidiary. If, at any time, any
Unrestricted Subsidiary fails to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of the Subsidiary
and any Liens on assets of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary as of the date and, if the Indebtedness is not permitted
to be incurred under the "Limitations on Additional Indebtedness" covenant or
the Lien is not permitted under the "Limitations on Liens" covenant, the Issuer
shall be in default of the applicable covenant.
The Issuer may redesignate an Unrestricted Subsidiary as a Restricted
Subsidiary (a "Redesignation") only if:
(1) no Default shall have occurred and be continuing at the time of
and after giving effect to such Redesignation; and
(2) all Liens, Indebtedness and Investments of such Unrestricted
Subsidiary outstanding immediately following such Redesignation would, if
incurred or made at such time, have been permitted to be incurred or made
for all purposes of the Indenture.
Unrestricted Subsidiaries are generally not restricted by the covenants of
the Indenture. The Indenture generally places no restriction on an Unrestricted
Subsidiary's ability to, among other things, incur Indebtedness, make Restricted
Payments (including Investments), or merge, consolidate or sell all or any
portion of its assets.
All Designations and Redesignations must be evidenced by resolutions of the
Board of Directors of the Issuer, delivered to the Trustee certifying compliance
with the foregoing provisions.
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LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into any Sale and Leaseback Transaction; provided,
however, that the Issuer or any Restricted Subsidiary may enter into a Sale or
Leaseback Transaction if:
(1) the Issuer or such Restricted Subsidiary could have (a) incurred
the Indebtedness attributable to such Sale and Leaseback Transaction
pursuant to the "Limitations on Additional Indebtedness" covenant and (b)
incurred a Lien to secure such Indebtedness pursuant to the "Limitations on
Liens" covenant;
(2) the gross cash proceeds of such Sale and Leaseback Transaction are
at least equal to the Fair Market Value of the asset that is the subject of
such Sale and Leaseback Transaction; and
(3) the transfer of assets in such Sale and Leaseback Transaction is
permitted by, and the Issuer or the applicable Restricted Subsidiary
applies the proceeds of such transaction in accordance with, the covenant
described under the "Limitations on Asset Sales" covenant.
LIMITATIONS ON MERGERS, CONSOLIDATIONS, ETC.
The Issuer will not, directly or indirectly, in a single transaction or a
series of related transactions, (a) consolidate or merge with or into (other
than a merger that satisfies the requirements of clause (1) below with a
Wholly-Owned Restricted Subsidiary solely for the purpose of changing the
Issuer's jurisdiction of incorporation to another State of the United States),
or sell, lease, transfer, convey or otherwise dispose of or assign all or
substantially all of the assets of the Issuer or the Issuer and the Restricted
Subsidiaries (taken as a whole) or (b) adopt a Plan of Liquidation unless, in
either case:
(1) either:
(a) the Issuer will be the surviving or continuing Person; or
(b) the Person formed by or surviving such consolidation or merger
or to which such sale, lease, conveyance or other disposition shall be
made (or, in the case of a Plan of Liquidation, any Person to which
assets are transferred) (collectively, the "Successor") is a corporation
organized and existing under the laws of any State of the United States
of America or the District of Columbia, and the Successor expressly
assumes, by supplemental indenture in form and substance satisfactory to
the Trustee, all of the obligations of the Issuer under the Notes, the
Indenture and the Registration Rights Agreement;
(2) immediately before and immediately after giving effect to such
transaction and the assumption of the obligations as set forth in clause
(1)(b) above and the incurrence of any Indebtedness to be incurred in
connection therewith, no Default shall have occurred and be continuing; and
(3) immediately after and giving effect to such transaction and the
assumption of the obligations set forth in clause (1)(b) above and the
incurrence of any Indebtedness to be incurred in connection therewith, and
the use of any net proceeds therefrom on a pro forma basis, (a) the
Consolidated Net Worth of the Issuer or the Successor, as the case may be,
would be at least equal to the Consolidated Net Worth of the Issuer
immediately before such transaction and (b) the Issuer or the Successor, as
the case may be, could incur $1.00 of additional Indebtedness pursuant to
the Coverage Ratio Exception.
For purposes of this covenant, any Indebtedness of the Successor which was
not Indebtedness of the Issuer immediately before the transaction shall be
deemed to have been incurred in connection with such transaction.
44
Except as provided under "Note Guarantees" above, no Guarantor may
consolidate with or merge with or into (whether or not such Guarantor is the
surviving Person) another Person, whether or not affiliated with such Guarantor,
unless:
(1) either:
(a) such Guarantor, another Guarantor or the Issuer will be the
surviving or continuing Person; or
(b) the Person formed by or surviving any such consolidation or
merger assumes, by supplemental indenture in form and substance
satisfactory to the Trustee, all of the obligations of such Guarantor
under the Note Guarantee of such Guarantor, the Indenture and the
Registration Rights Agreement; and
(2) immediately after giving effect to such transaction, no Default
shall have occurred and be continuing.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the assets of one or more Restricted Subsidiaries, the
Equity Interests of which constitute all or substantially all of the assets of
the Issuer, will be deemed to be the transfer of all or substantially all of the
assets of the Issuer.
Upon any consolidation, combination or merger of the Issuer or a Guarantor,
or any transfer of all or substantially all of the assets of the Issuer in
accordance with the foregoing, in which the Issuer or such Guarantor is not the
continuing obligor under the Notes or its Note Guarantee, the surviving entity
formed by such consolidation or into which the Issuer or such Guarantor is
merged or to which the conveyance, lease or transfer is made will succeed to,
and be substituted for, and may exercise every right and power of, the Issuer or
such Guarantor under the Indenture, the Notes and the Note Guarantees with the
same effect as if such surviving entity had been named therein as the Issuer or
such Guarantor and, except in the case of a conveyance, transfer or lease, the
Issuer or such Guarantor, as the case may be, will be released from the
obligation to pay the principal of and interest on the Notes or in respect of
its Note Guarantee, as the case may be, and all of the Issuer's or such
Guarantor's other obligations and covenants under the Notes, the Indenture and
its Note Guarantee, if applicable.
Notwithstanding the foregoing, any Restricted Subsidiary may merge into the
Issuer or a Guarantor.
ADDITIONAL NOTE GUARANTEES
If, after the Issue Date, (a) the Issuer or any Restricted Subsidiary shall
acquire or create another Subsidiary (other than a Subsidiary that has been
designated an Unrestricted Subsidiary) or (b) any Unrestricted Subsidiary is
Redesignated a Restricted Subsidiary, then, in each such case, the Issuer shall
cause such Restricted Subsidiary to:
(1) execute and deliver to the Trustee (a) a supplemental indenture in
form and substance satisfactory to the Trustee pursuant to which such
Restricted Subsidiary shall unconditionally guarantee all of the Issuer's
obligations under the Notes and the Indenture and (b) a notation of
guarantee in respect of its Note Guarantee; and
(2) deliver to the Trustee one or more opinions of counsel that such
supplemental indenture (a) has been duly authorized, executed and delivered
by such Restricted Subsidiary and (b) constitutes a valid and legally
binding obligation of such Restricted Subsidiary in accordance with its
terms.
The obligations of each Guarantor under its Note Guarantee will be limited
to the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor (including, without limitation, any
guarantees under the Credit Facility permitted by the "Limitations on Additional
Indebtedness" covenant) and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Note Guarantee or pursuant to its
contribution obligations under the Indenture, result in the obligations of such
Guarantor under its Note Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or
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state law. Each Guarantor that makes a payment for distribution under its Note
Guarantee is entitled to a contribution from each other Guarantor in a pro rata
amount based on adjusted net assets of each Guarantor.
In the event of a sale or other disposition of all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the Capital Stock of any Guarantor then held by the Issuer
and the Restricted Subsidiaries, then that Guarantor will be released and
relieved of any obligations under its Note Guarantee; provided that the Net
Available Proceeds of such sale or other disposition are applied in accordance
with the applicable provisions of the Indenture, to the extent required thereby.
See "-- Certain Covenants -- Limitations on Asset Sales." In addition, the
Indenture provides that any Guarantor that is Designated as an Unrestricted
Subsidiary or that otherwise ceases to be a Guarantor, in each case in
accordance with the provisions of the Indenture, will be released from its Note
Guarantee upon effectiveness of such Designation or when it first ceases to be a
Restricted Subsidiary, as the case may be.
CONDUCT OF BUSINESS
The Issuer will not, and will not permit any Restricted Subsidiary to,
engage in any business other than the Permitted Business.
REPORTS
Whether or not required by the SEC, so long as any Notes are outstanding,
the Issuer will furnish to the Holders of Notes, within the time periods
specified in the SEC's rules and regulations (including any grace periods or
extensions permitted by the SEC):
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
the Issuer were required to file these forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by the Issuer's certified independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if the Issuer were required to file these reports.
In addition, whether or not required by the SEC, the Issuer will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the SEC for public availability within the time periods specified in
the SEC's rules and regulations (unless the SEC will not accept the filing) and
make the information available to securities analysts and prospective investors
upon request. The Issuer and the Guarantors have agreed that, for so long as any
Notes remain outstanding, the Issuer will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT
Each of the following is an "Event of Default":
(1) failure by the Issuer to pay interest on any of the Notes when it
becomes due and payable and the continuance of any such failure for 30
days;
(2) failure by the Issuer to pay the principal on any of the Notes
when it becomes due and payable, whether at stated maturity, upon
redemption, upon purchase, upon acceleration or otherwise;
(3) failure by the Issuer to comply with any of its agreements or
covenants under the "Limitations on Mergers, Consolidations, Etc." or
"Limitations on Asset Sales" covenants or in respect of its obligations to
make a Change of Control Offer as described above under "-- Change of
Control;"
(4) failure by the Issuer to comply with any other agreement or
covenant in the Indenture and continuance of this failure for 30 days after
notice of the failure has been given to the Issuer by the
46
Trustee or by the Holders of at least 25% of the aggregate principal amount
of the Notes then outstanding;
(5) default under any mortgage, Indenture or other instrument or
agreement under which there may be issued or by which there may be secured
or evidenced Indebtedness of the Issuer or any Restricted Subsidiary,
whether such Indebtedness now exists or is incurred after the Issue Date,
which default:
(a) is caused by a failure by the Issuer or a Restricted Subsidiary
to pay when due principal on such Indebtedness within the applicable
express grace period,
(b) results in the acceleration of such Indebtedness before its
express final maturity or
(c) results in the commencement of judicial proceedings to
foreclose upon, or to exercise remedies under applicable law or
applicable security documents to take ownership of, the assets securing
such Indebtedness, and
in each case, the principal amount of such Indebtedness, together with any
other Indebtedness with respect to which an event described in clause (a),
(b) or (c) has occurred and is continuing, aggregates $15.0 million or
more;
(6) one or more judgments or orders that exceed $15.0 million in the
aggregate (net of amounts covered by insurance or bonded) for the payment
of money have been entered by a court or courts of competent jurisdiction
against the Issuer or any Restricted Subsidiary and such judgment or
judgments have not been satisfied, stayed, annulled or rescinded within 60
days of being entered;
(7) the Issuer or any Restricted Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a Custodian of it or for all or
substantially all of its assets, or
(d) makes a general assignment for the benefit of its creditors;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Issuer or any Restricted Subsidiary
as debtor in an involuntary case,
(b) appoints a Custodian of the Issuer or any Restricted Subsidiary
or a Custodian for all or substantially all of the assets of the Issuer
or any Restricted Subsidiary, or
(c) orders the liquidation of the Issuer or any Restricted
Subsidiary, and the order or decree remains unstayed and in effect for
60 days; or
(9) any Note Guarantee ceases to be in full force and effect (other
than in accordance with the terms of such Note Guarantee and the Indenture)
or is declared null and void and unenforceable or found to be invalid or
any Guarantor denies its liability under its Note Guarantee (other than by
reason of release of a Guarantor from its Note Guarantee in accordance with
the terms of the Indenture and the Note Guarantee).
If an Event of Default (other than an Event of Default specified in clause
(7) or (8) above with respect to the Issuer), shall have occurred and be
continuing under the Indenture, the Trustee, by written notice to the Issuer, or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding by written notice to the Issuer and the Trustee, may declare all
amounts owing under the Notes to be due and payable immediately. Upon such
declaration of acceleration, the aggregate principal of and accrued and unpaid
interest on the outstanding Notes shall immediately become due and payable;
provided, however, that after such acceleration, but before a judgment or decree
based on acceleration, the Holders of a majority in aggregate principal amount
of such outstanding Notes may, under certain circumstances, rescind and annul
such acceleration if all Events of Default, other than the nonpayment of
47
accelerated principal and interest, have been cured or waived as provided in the
Indenture. If an Event of Default specified in clause (7) or (8) with respect to
the Issuer occurs, all outstanding Notes shall become due and payable without
any further action or notice.
The Trustee shall, within 30 days after the occurrence of any Default with
respect to the Notes, give the Holders notice of all uncured Defaults thereunder
known to it; provided, however, that, except in the case of an Event of Default
in payment with respect to the Notes or a Default in complying with the
"Limitations on Mergers, Consolidations, Etc." covenant, the Trustee shall be
protected in withholding such notice if and so long as a committee of its trust
officers in good faith determines that the withholding of such notice is in the
interest of the Holders.
No Holder will have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless the Trustee:
(1) has failed to act for a period of 60 days after receiving written
notice of a continuing Event of Default by such Holder and a request to act
by Holders of at least 25% in aggregate principal amount of Notes
outstanding;
(2) has been offered indemnity satisfactory to it in its reasonable
judgment; and
(3) has not received from the Holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with
such request.
However, such limitations do not apply to a suit instituted by a Holder of
any Note for enforcement of payment of the principal of or interest on such Note
on or after the due date therefor (after giving effect to the grace period
specified in clause (1) of the first paragraph of this "Events of Default"
section).
The Issuer is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and, upon any officer of the Issuer
becoming aware of any Default, a statement specifying such Default and what
action the Issuer is taking or proposes to take with respect thereto.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuer may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Legal Defeasance means that the Issuer
and the Guarantors shall be deemed to have paid and discharged the entire
Indebtedness represented by the Notes and the Note Guarantees, and the Indenture
shall cease to be of further effect as to all outstanding Notes and Note
Guarantees, except as to:
(1) rights of Holders to receive payments in respect of the principal
of and interest on the Notes when such payments are due from the trust
funds referred to below,
(2) the Issuer's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost
or stolen Notes, and the maintenance of an office or agency for payment and
money for security payments held in trust,
(3) the rights, powers, trust, duties, and immunities of the Trustee,
and the Issuer's obligation in connection therewith, and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Issuer may, at its option and at any time, elect to have
its obligations and the obligations of the Guarantors released with respect to
most of the covenants under the Indenture, except as described otherwise in the
Indenture ("Covenant Defeasance"), and thereafter any omission to comply with
such obligations shall not constitute a Default. In the event Covenant
Defeasance occurs, certain Events of Default (not including non-payment and,
solely for a period of 91 days following the deposit referred to in clause (1)
of the next paragraph, bankruptcy, receivership, rehabilitation and insolvency
events) will no longer apply. Covenant Defeasance will not be effective until
such bankruptcy, receivership, rehabilitation and insolvency events no longer
apply. The Issuer may exercise its Legal Defeasance option regardless of whether
it previously exercised Covenant Defeasance.
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In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuer must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, U.S. legal tender, U.S. Government
Obligations or a combination thereof, in such amounts as will be sufficient
(without reinvestment) in the opinion of a nationally recognized firm of
independent public accountants selected by the Issuer, to pay the principal
of and interest on the Notes on the stated date for payment or on the
redemption date of the principal or installment of principal of or interest
on the Notes, and the Trustee must have a valid, perfected, exclusive
security interest in such trust,
(2) in the case of Legal Defeasance, the Issuer shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that:
(a) the Issuer has received from, or there has been published by
the Internal Revenue Service, a ruling, or
(b) since the Issue Date, there has been a change in the applicable
U.S. federal income tax law,
in either case to the effect that, and based thereon this opinion of
counsel shall confirm that, the Holders will not recognize income,
gain or loss for U.S. federal income tax purposes as a result of the
Legal Defeasance and will be subject to U.S. federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred,
(3) in the case of Covenant Defeasance, the Issuer shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Covenant Defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if the Covenant Defeasance had not occurred,
(4) no Default shall have occurred and be continuing on the date of
such deposit (other than a Default resulting from the borrowing of funds to
be applied to such deposit and the grant of any Lien securing such
borrowing),
(5) the Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a Default under the Indenture or any
other material agreement or instrument to which the Issuer or any of its
Subsidiaries is a party or by which the Issuer or any of its Subsidiaries
is bound,
(6) the Issuer shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by it with the intent of
preferring the Holders over any other of its creditors or with the intent
of defeating, hindering, delaying or defrauding any other of its creditors
or others, and
(7) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that the conditions
provided for in, in the case of the Officers' Certificate, clauses (1)
through (6) and, in the case of the opinion of counsel, clauses (1) (with
respect to the validity and perfection of the security interest), (2)
and/or (3) and (5) of this paragraph have been satisfied.
If the funds deposited with the Trustee to effect Covenant Defeasance are
insufficient to pay the principal of and interest on the Notes when due, then
the Issuer's obligations and the obligations of Guarantors under the Indenture
will be revived and no such defeasance will be deemed to have occurred.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to rights of registration of transfer or exchange of Notes which
shall survive until all Notes have been canceled) as to all outstanding Notes
when either
(1) all the Notes that have been authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced or paid and Notes
for whose payment money has been deposited in
49
trust or segregated and held in trust by the Issuer and thereafter repaid
to the Issuer or discharged from this trust) have been delivered to the
Trustee for cancellation, or
(2) (a) all Notes not delivered to the Trustee for cancellation
otherwise have become due and payable or have been called for redemption
pursuant to the provisions described under "-- Optional Redemption," and
the Issuer has irrevocably deposited or caused to be deposited with the
Trustee trust funds in trust in an amount of money sufficient to pay and
discharge the entire Indebtedness (including all principal and accrued
interest) on the Notes not theretofore delivered to the Trustee for
cancellation,
(b) the Issuer has paid all sums payable by it under the Indenture,
(c) the Issuer has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the Notes at
maturity or on the date of redemption, as the case may be, and
(d) the Trustee, for the benefit of the Holders, has a valid,
perfected, exclusive security interest in this trust.
In addition, the Issuer must deliver an Officers' Certificate and an
opinion of counsel (as to legal matters) stating that all conditions precedent
to satisfaction and discharge have been satisfied.
TRANSFER AND EXCHANGE
A Holder will be able to register the transfer or exchange of 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 Issuer, the Registrar is not
required (1) to register the transfer of or exchange any Note selected for
redemption, (2) to register the transfer of or exchange any Note for a period of
15 days before a selection of Notes to be redeemed or (3) to register the
transfer or exchange of a Note between a record date and the next succeeding
interest payment date.
The Notes will be issued in registered form and 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
with the consent (which may include consents obtained in connection with a
tender offer or exchange offer for Notes) of the Holders of at least 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 in the payment of the principal or interest on the
Notes) with the consent (which may include consents obtained in connection with
a tender offer or exchange offer for Notes) of the Holders of a majority in
principal amount of the Notes then outstanding; provided, however, that, without
the consent of each Holder, no amendment may:
(a) change the maturity of any Note;
(b) reduce the amount, extend the due date or otherwise affect the
terms of any scheduled payment of interest on or principal of the Notes;
(c) reduce any premium payable upon optional redemption of the Notes,
change the date on which any Notes are subject to redemption or otherwise
alter the provisions with respect to the redemption of the Notes;
(d) make any Note payable in money or currency other than that stated
in the Notes;
(e) amend, change or modify in any material respect the obligation of
the Company to make and consummate a Change of Control Offer with respect
to a Change of Control that has occurred or make and consummate a Net
Proceeds Offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto;
50
(f) amend, modify or change any provision of the Indenture or the
related definitions in a manner that adversely affects the Holders;
(g) reduce the amount of Notes whose Holders must consent to an
amendment or waiver to the Indenture or the Notes;
(h) impair the rights of Holders to receive payments of principal of
or interest on the Notes;
(i) release any Guarantor from any of its obligations under its Note
Guarantee or the Indenture, except as permitted by the Indenture; or
(j) make any change in these amendment and waiver provisions.
Notwithstanding the foregoing, the Issuer and the Trustee may amend the
Indenture, the Note Guarantees or the Notes without the consent of any Holder,
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Issuer's obligations to the Holders in the case of a merger or
acquisition, to release any Guarantor from any of its obligations under its Note
Guarantee or the Indenture (to the extent permitted by the Indenture), to make
any change that does not materially adversely affect the rights of any Holder
or, in the case of the Indenture, to maintain the qualification of the Indenture
under the Trust Indenture Act.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Issuer
will have any liability for any obligations of the Issuer under the Notes or the
Indenture or of any Guarantor under its Note Guarantee or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes and the Note
Guarantees.
CONCERNING THE TRUSTEE
Wells Fargo Bank Minnesota, National Association is the Trustee under the
Indenture and has been appointed by the Issuer as Registrar and Paying Agent
with regard to the Notes. The Indenture contains certain limitations on the
rights of the Trustee, should it become a creditor of the Issuer, to obtain
payment of claims in certain cases, or to realize on certain assets received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest (as defined in the Indenture), 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, 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, the Notes and the Note Guarantees are governed by, and
construed in accordance with, the laws of the State of New York.
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.
"Acquired Indebtedness" means (1) with respect to any Person that becomes a
Restricted Subsidiary after the Issue Date, Indebtedness of such Person and its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
that was not incurred in connection with, or in contemplation of, such
51
Person becoming a Restricted Subsidiary and (2) with respect to the Issuer or
any Restricted Subsidiary, any Indebtedness of a Person (other than the Issuer
or a Restricted Subsidiary) existing at the time such Person is merged with or
into the Issuer or a Restricted Subsidiary, or Indebtedness expressly assumed by
the Issuer or any Restricted Subsidiary in connection with the acquisition of an
asset or assets from another Person, which Indebtedness was not, in any case,
incurred by such other Person in connection with, or in contemplation of, such
merger or acquisition.
"Affiliate" of any Person means any other Person which directly or
indirectly controls or is controlled by, or is under direct or indirect common
control with, the referenced Person. For purposes of the "Limitations on
Transactions with Affiliates" covenant, Affiliates shall be deemed to include,
with respect to any Person, any other Person (1) which beneficially owns or
holds, directly or indirectly, 10% or more of any class of the Voting Stock of
the referent Person, (2) of which 10% or more of the Voting Stock is
beneficially owned or held, directly or indirectly, by the referenced Person or
(3) with respect to an individual, any immediate family member of such Person.
For purposes of this definition, "control" of a Person shall mean 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.
"Amend" means to amend, supplement, restate, amend and restate or otherwise
modify; and "amendment" shall have a correlative meaning.
"Asset" means any asset or property.
"Asset Acquisition" means
(1) an Investment by the Issuer or any Restricted Subsidiary of the
Issuer in any other Person if, as a result of such Investment, such Person
shall become a Restricted Subsidiary of the Issuer, or shall be merged with
or into the Issuer or any Restricted Subsidiary of the Issuer, or
(2) the acquisition by the Issuer or any Restricted Subsidiary of the
Issuer of all or substantially all of the assets of any other Person or any
division or line of business of any other Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition by the Issuer or any Restricted Subsidiary to
any Person other than the Issuer or any Restricted Subsidiary (including by
means of a Sale and Leaseback Transaction or a merger or consolidation)
(collectively, for purposes of this definition, a "transfer"), in one
transaction or a series of related transactions, of any assets (including Equity
Interests) of the Issuer or any of its Restricted Subsidiaries other than in the
ordinary course of business. For purposes of this definition, the term "Asset
Sale" shall not include:
(1) transfers of cash or Cash Equivalents;
(2) transfers of assets (including Equity Interests) that are governed
by, and made in accordance with, the "Limitations on Mergers,
Consolidations, Etc." covenant;
(3) Permitted Investments and Restricted Payments permitted under the
"Limitations on Restricted Payments" covenant;
(4) the creation or realization of any Permitted Lien; and
(5) any transfer or series of related transfers that, but for this
clause, would be Asset Sales, if after giving effect to such transfers, the
aggregate Fair Market Value of the assets transferred in such transaction
or any such series of related transactions does not exceed $1.0 million.
"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 Issuer's then-current weighted average
cost of funds for borrowed money as at the time of determination, compounded on
a semi-annual basis) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in any such Sale and Leaseback
Transaction.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar federal or state law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the board of
directors or comparable governing body of such Person.
52
"Borrowing Base" means, as of any date, an amount equal to 70% of the face
amount of "Eligible Accounts Receivable" (as defined in the Credit Facility
Agreement) of the Issuer and its Restricted Subsidiaries as of the end of the
most recent fiscal quarter preceding such date that were not more than 90 days
past due, calculated on a consolidated basis and in accordance with GAAP.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in the State of New York are authorized or required
by law to close.
"Capital Expenditures" shall mean, with respect to any Person, for any
period, all expenditures by such Person which should be capitalized in
accordance with GAAP during such period, including all such expenditures with
respect to fixed or capital assets (including, without limitation, expenditures
for maintenance and repairs which should be capitalized in accordance with GAAP)
and, without duplication, the amount of all Capitalized Lease Obligations
incurred by such Person during such period.
"Capitalized Lease" means a lease required to be capitalized for financial
reporting purposes in accordance with GAAP.
"Capitalized Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under a Capitalized Lease, and the amount of
such obligation shall be the capitalized amount thereof determined in accordance
with GAAP.
"Capital Stock" of any Person means (1) any and all shares or other Equity
Interests (including common stock, Preferred Stock and partnership interests) in
such Person and (2) all rights to purchase, warrants or options (whether or not
currently exercisable), participations or other equivalents of or interests in
(however designated) such shares or other interests in such Person.
"Cash Equivalents" means:
(1) marketable obligations with a maturity of 360 days or less issued
or directly and fully guaranteed or insured by the United States of America
or any agency or instrumentality thereof;
(2) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500 million and
is assigned at least a "B" rating by Thomson Financial BankWatch;
(3) commercial paper maturing no more than 180 days from the date of
creation thereof issued by a corporation that is not the Issuer or an
Affiliate of the Issuer, and is organized under the laws of any State of
the United States of America or the District of Columbia and rated at least
A-1 by S&P or at least P-1 by Moody's;
(4) repurchase obligations with a term of not more than ten days for
underlying securities of the types described in clause (1) above entered
into with any commercial bank meeting the specifications of clause (2)
above; and
(5) investments in money market or other mutual funds substantially
all of whose assets comprise securities of the types described in clauses
(1) through (4) above.
"Change of Control" means the occurrence of any of the following events:
(1) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for
purposes of this clause that person or group shall be deemed to have
"beneficial ownership" of all securities that any such Person or group has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of Voting Stock
representing more than 35% of the voting power of the total outstanding
Voting Stock of the Issuer;
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Issuer
(together with any new directors whose election to such Board of Directors
or whose nomination for election by the stockholders of the Issuer was
approved by a vote of the majority of the directors of the Issuer then
still in office who were either
53
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 Issuer;
(3) (a) all or substantially all of the assets of the Issuer and the
Restricted Subsidiaries taken as a whole are sold or otherwise transferred
to any Person or
(b) the Issuer consolidates or merges with or into another Person
or any Person consolidates or merges with or into the Issuer, in either
case under this clause (3), in one transaction or a series of related
transactions in which immediately after the consummation thereof Persons
owning Voting Stock representing in the aggregate 100% of the total
voting power of the Voting Stock of the Issuer immediately before such
consummation do not own Voting Stock representing a majority of the
total voting power of the Voting Stock of the Issuer or the surviving or
transferee Person; or
(4) the Issuer shall adopt a Plan of Liquidation or dissolution or any
such plan shall be approved by the stockholders of the Issuer.
"Consolidated Amortization Expense" for any period means the amortization
expense of the Issuer and the Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Cash Flow Available for Fixed Charges" for any period means,
without duplication, the sum of the amounts for such period of
(1) Consolidated Net Income, plus
(2) in each case only to the extent (and in the same proportion)
deducted in determining Consolidated Net Income and with respect to the
portion of Consolidated Net Income attributable to any Restricted
Subsidiary only if a corresponding amount would be permitted at the date of
determination to be distributed to the Issuer by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders:
(a) Consolidated Income Tax Expense,
(b) Consolidated Amortization Expense (but only to the extent not
included in Consolidated Interest Expense),
(c) Consolidated Depreciation Expense,
(d) Consolidated Interest Expense, and
(e) all other non-cash items reducing the Consolidated Net Income
(excluding any non-cash charge that results in an accrual of a reserve
for cash charges in any future period) for such period, in each case
determined on a consolidated basis in accordance with GAAP, minus
(3) the aggregate amount of all non-cash items, determined on a
consolidated basis, to the extent such items increased Consolidated Net
Income for such period.
"Consolidated Depreciation Expense" for any period means the depreciation
expense of the Issuer and the Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means the ratio of Consolidated
Cash Flow Available for Fixed Charges during the most recent four consecutive
full fiscal quarters for which financial statements are available (the
"Four-Quarter Period") ending on or before the date of the transaction giving
rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the
"Transaction Date") to Consolidated Interest Expense for the Four-Quarter
Period. For purposes of this definition, Consolidated Cash Flow Available for
Fixed Charges and Consolidated Interest Expense shall be calculated after giving
effect on a pro forma basis for the period of such calculation to:
(1) the incurrence of any Indebtedness or the issuance of any
Preferred Stock of the Issuer or any Restricted Subsidiary (and the
application of the proceeds thereof) and any repayment of other
54
Indebtedness or redemption of other Preferred Stock (and the application of
the proceeds therefrom) (other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital
purposes pursuant to any revolving credit arrangement) occurring during the
Four-Quarter Period or at any time after the last day of the Four-Quarter
Period and on or before the Transaction Date, as if such incurrence,
repayment, issuance or redemption, as the case may be (and the application
of the proceeds thereof), occurred on the first day of the Four-Quarter
Period; and
(2) any Asset Sale or Asset Acquisition (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of the Issuer or any Restricted Subsidiary
(including any Person who becomes a Restricted Subsidiary as a result of
such Asset Acquisition) incurring Acquired Indebtedness and also including
any Consolidated Cash Flow Available for Fixed Charges (including any pro
forma expense and cost reductions calculated on a basis consistent with
Regulation S-X under the Exchange Act) associated with any such Asset
Acquisition) occurring during the Four-Quarter Period or at any time after
the last day of the Four-Quarter Period and on or before the Transaction
Date, as if such Asset Sale or Asset Acquisition or other disposition
(including the incurrence of, or assumption or liability for, any such
Indebtedness or Acquired Indebtedness) occurred on the first day of the
Four-Quarter Period.
If the Issuer or any Restricted Subsidiary directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if the Issuer or
such Restricted Subsidiary had directly incurred or otherwise assumed such
guaranteed Indebtedness.
In calculating Consolidated Interest Expense for purposes of determining
the denominator (but not the numerator) of the Consolidated Fixed Charge
Coverage Ratio:
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on this Indebtedness in effect on the
Transaction Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the Transaction
Date will be deemed to have been in effect during the Four-Quarter Period;
and
(3) notwithstanding clause (1) or (2) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements with a term of at least one year after the Transaction Date
relating to Hedging Obligations, shall be deemed to accrue at the rate per
annum resulting after giving effect to the operation of these agreements.
"Consolidated Income Tax Expense" for any period means the provision for
taxes of the Issuer and the Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Indebtedness" means, as of any date, the total Indebtedness
of the Issuer and the Restricted Subsidiaries as of such date, determined on a
consolidated basis.
"Consolidated Interest Expense" for any period means the sum, without
duplication, of the total interest expense of the Issuer and the Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP and including, without duplication,
(1) imputed interest on Capitalized Lease Obligations and Attributable
Indebtedness,
(2) commissions, discounts and other fees and charges owed with
respect to letters of credit securing financial obligations, bankers'
acceptance financing and receivables financings,
(3) the net costs associated with Hedging Obligations,
(4) amortization of debt issuance costs, debt discount or premium and
other financing fees and expenses,
(5) the interest portion of any deferred payment obligations,
55
(6) all other non-cash interest expense,
(7) the product of (a) all dividend payments on any series of
Disqualified Equity Interests of the Issuer or any Preferred Stock of any
Restricted Subsidiary (other than any such Disqualified Equity Interests or
any Preferred Stock held by the Issuer or a Wholly Owned Restricted
Subsidiary), multiplied by (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of the Issuer and the
Restricted Subsidiaries, expressed as a decimal,
(8) all interest payable with respect to discontinued operations, and
(9) all interest on any Indebtedness of any other Person guaranteed by
the Issuer or any Restricted Subsidiary.
"Consolidated Net Income" for any period means the net income (or loss) of
the Issuer and the Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP; provided, however, that there shall
be excluded from such net income (to the extent otherwise included therein),
without duplication:
(1) the net income (or loss) of any Person (other than a Restricted
Subsidiary) in which any Person other than the Issuer and the Restricted
Subsidiaries has an ownership interest, except to the extent that cash in
an amount equal to any such income has actually been received by the Issuer
or any of its Restricted Subsidiaries during such period;
(2) except to the extent includible in the Consolidated Net Income of
the Issuer pursuant to the foregoing clause (1), the net income (or loss)
of any Person that accrued before the date that (a) such Person becomes a
Restricted Subsidiary or is merged into or consolidated with the Issuer or
any Restricted Subsidiary or (b) the assets of such Person are acquired by
the Issuer or any Restricted Subsidiary;
(3) the net income of any Restricted Subsidiary during such period to
the extent that the declaration or payment of dividends or similar
distributions by such Restricted 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;
(4) for the purposes of calculating the Restricted Payments Basket
only, in the case of a successor to the Issuer by consolidation, merger or
transfer of its assets, any income (or loss) of the successor before such
merger, consolidation or transfer of assets;
(5) other than for purposes of calculating the Restricted Payments
Basket, any gain (or loss), together with any related provisions for taxes
on any such gain (or the tax effect of any such loss), realized during such
period by the Issuer or any Restricted Subsidiary upon (a) the acquisition
of any securities, or the extinguishment of any Indebtedness, of the Issuer
or any Restricted Subsidiary or (b) any Asset Sale by the Issuer or any
Restricted Subsidiary; and
(6) other than for purposes of calculating the Restricted Payments
Basket, any extraordinary gain (or extraordinary loss), together with any
related provision for taxes on any such extraordinary gain (or the tax
effect of any such extraordinary loss), realized by the Issuer or any
Restricted Subsidiary during such period.
In addition, any return of capital with respect to an Investment that
increased the Restricted Payments Basket pursuant to clause (3)(d) of the first
paragraph of the "Limitations on Restricted Payments" covenant or decreased the
amount of Investments outstanding pursuant to clause (12) of the definition of
"Permitted Investments" shall be excluded from Consolidated Net Income for
purposes of calculating the Restricted Payments Basket.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the consolidated stockholders' equity of such Person, determined on a
consolidated basis in accordance with GAAP, less (without duplication)
56
(1) any amounts thereof attributable to Disqualified Equity Interests
of such Person or its Subsidiaries or any amount attributable to
Unrestricted Subsidiaries; and
(2) all marks to market (other than marks to market resulting from
foreign currency translations and marks to market of tangible assets of a
going concern business made within twelve months after the acquisition of
such business) after the Issue Date in the book value of any asset owned by
such Person or a Subsidiary of such Person.
"Convertible Notes" means the Issuer's 6% Convertible Subordinated Notes
due 2004 and 5.9% Convertible Subordinated Notes due 2005.
"Coverage Ratio Exception" has the meaning set forth in the proviso in the
first paragraph of the "Limitations on Additional Indebtedness" covenant.
"Credit Facility" means the up to $80.0 million senior credit facility to
be entered into by the Issuer, including any notes, guarantees, collateral and
security documents, instruments and agreements executed in connection therewith
(including Hedging Obligations related to the Indebtedness incurred thereunder),
and in each case as amended or refinanced from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of borrowings or other
Indebtedness outstanding or available to be borrowed thereunder) all or any
portion of the Indebtedness under such agreements, and any successor or
replacement agreement or agreements with the same or any other agents, creditor,
lender or group of creditors or lenders.
"Credit Facility Agreement" means the Credit and Security Agreement to be
entered into by the Issuer, the Guarantors, National City Bank of Kentucky and
the banks identified therein, with respect to the Credit Facility.
"Custodian" means any receiver, Trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Default" means (1) any Event of Default or (2) any event, act or condition
that, after notice or the passage of time or both, would be an Event of Default.
"Designation" has the meaning given to this term in the "Limitations on
Designation of Unrestricted Subsidiaries" covenant.
"Designation Amount" has the meaning given to this term in "Limitations on
Designation of Unrestricted Subsidiaries" covenant.
"Disqualified Equity Interests" of any Person means any Equity Interests of
such Person that, by their terms, or by the terms of any related agreement or of
any security into which they are convertible, puttable or exchangeable, are, or
upon the happening of any event or the passage of time would be, required to be
redeemed by such Person, whether or not at the option of the holder thereof, or
mature or are mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, in whole or in part, on or before the date which is 91 days after the
final maturity date of the Notes; provided, however, that any class of Equity
Interests of such Person that, by its terms, authorizes such Person to satisfy
in full its obligations with respect to the payment of dividends or upon
maturity, redemption (pursuant to a sinking fund or otherwise) or repurchase
thereof or otherwise by the delivery of Equity Interests that are not
Disqualified Equity Interests, and that are not convertible, puttable or
exchangeable for Disqualified Equity Interests or Indebtedness, will not be
deemed to be Disqualified Equity Interests so long as such Person satisfies its
obligations with respect thereto solely by the delivery of Equity Interests that
are not Disqualified Equity Interests; provided further, however, that any
Equity Interests that would not constitute Disqualified Equity Interests but for
provisions thereof giving holders thereof (or the holders of any security into
or for which such Equity Interests are convertible, exchangeable or exercisable)
the right to require the Issuer to redeem such Equity Interests upon the
occurrence of a change in control occurring before the final maturity date of
the Notes shall not constitute Disqualified Equity Interests if the change in
control provisions applicable to such Equity Interests are no more favorable to
such holders than the provisions described under "Change of Control" above and
such Equity Interests specifically provide that the Issuer
57
will not redeem any such Equity Interests pursuant to such provisions before the
Issuer's purchase of the Notes as required pursuant to the provisions described
under "Change of Control" above.
"Domestic Subsidiary" means any Restricted Subsidiary organized under the
laws of the United States or any state of the United States or the District of
Columbia.
"Equity Interests" of any Person means (1) any and all shares or other
equity interests (including common stock, Preferred Stock, limited liability
company interests and partnership interests) in such Person and (2) all rights
to purchase, warrants or options (whether or not currently exercisable),
participations or other equivalents of or interests in (however designated) such
shares or other interests in such Person.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) that would be
negotiated in an arm's-length transaction for cash between a willing seller and
a willing and able buyer, neither of which is under any compulsion to complete
the transaction, as such price is determined in good faith by the Board of
Directors of the Issuer or a duly authorized committee thereof, as evidenced by
a resolution of such board or committee.
"Foreign Subsidiary" means any Restricted Subsidiary that is not a Domestic
Subsidiary.
"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, as in effect on the Issue Date.
"Guarantee" means a direct or indirect guarantee by any Person of any
Indebtedness of any other Person and includes any obligation, direct or
indirect, contingent or otherwise, of such Person: (1) to purchase or pay (or
advance or supply funds for the purchase or payment of) Indebtedness of such
other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise); or (2) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part). "Guarantee," when used as a verb, and "guaranteed" have correlative
meanings.
"Guarantors" means each Domestic Subsidiary of the Issuer on the Issue
Date, and each other Person that is required to become a Guarantor by the terms
of the Indenture after the Issue Date, in each case, until such Person is
released from its Note Guarantee.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to (1) any interest rate swap agreement, interest rate collar agreement
or other similar agreement or arrangement designed to protect such Person
against fluctuations in interest rates, (2) agreements or arrangements designed
to protect such Person against fluctuations in foreign currency exchange rates
in the conduct of its operations, or (3) any forward contract, commodity swap
agreement, commodity option agreement or other similar agreement or arrangement
designed to protect such Person against fluctuations in commodity prices, in
each case entered into in the ordinary course of business for bona fide hedging
purposes and not for the purpose of speculation.
"Holder" means any registered holder, from time to time, of the Notes.
"Incur" means, with respect to any Indebtedness or Obligation, incur,
create, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to such Indebtedness or
Obligation; provided, however, that (1) the Indebtedness of a Person existing at
the time such Person became a Restricted Subsidiary or at the time such Person
merged with or into the Issuer or a Restricted Subsidiary shall be deemed to
have been incurred at such time and (2) neither the accrual of interest nor the
accretion of original issue discount shall be deemed to be an incurrence of
Indebtedness.
58
"Indebtedness" of any Person at any date means, without duplication:
(1) all liabilities, contingent or otherwise, 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);
(2) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all obligations of such Person in respect of letters of credit or
other similar instruments (or reimbursement obligations with respect
thereto);
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, except trade payables and accrued
expenses incurred by such Person in the ordinary course of business in
connection with obtaining goods, materials or services;
(5) the maximum fixed redemption or repurchase price of all
Disqualified Equity Interests of such Person;
(6) all Capitalized Lease Obligations of such Person;
(7) all Indebtedness of others secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
(8) all Indebtedness of others guaranteed by such Person to the extent
of such guarantee; provided that Indebtedness of the Issuer or a Restricted
Subsidiary that is guaranteed by the Issuer or another Restricted
Subsidiary shall be counted only once in the calculation of the amount of
Indebtedness of the Issuer and its Subsidiaries on a consolidated basis;
(9) all Attributable Indebtedness;
(10) to the extent not otherwise included in this definition, Hedging
Obligations of such Person;
(11) all obligations of such Person under conditional sale or other
title retention agreements relating to assets purchased by such Person; and
(12) the liquidation value of Preferred Stock of a Subsidiary of such
Person issued and outstanding and held by any Person other than such Person
(or one of its wholly-owned Subsidiaries or, if such Person is the Issuer,
one of its Wholly-Owned Restricted Subsidiaries).
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above, the maximum liability of such Person for any such contingent obligations
at such date and, in the case of clause (7), the lesser of (a) the Fair Market
Value of any asset subject to a Lien securing the Indebtedness of others on the
date that the Lien attaches and (b) the amount of the Indebtedness secured. For
purposes of clause (5), the "maximum fixed redemption or repurchase price" of
any Disqualified Equity Interests that do not have a fixed redemption or
repurchase price shall be calculated in accordance with the terms of such
Disqualified Equity Interests as if such Disqualified Equity Interests were
redeemed on any date on which an amount of Indebtedness outstanding shall be
required to be determined pursuant to the Indenture.
The Indenture will not restrict any Unrestricted Subsidiary from incurring
Indebtedness nor will Indebtedness of any Unrestricted Subsidiaries be included
in the Consolidated Fixed Charge Coverage Ratio, as long as the Unrestricted
Subsidiary incurring such Indebtedness remains an Unrestricted Subsidiary.
"Independent Director" means a director of the Issuer who
(1) is independent with respect to the transaction at issue;
(2) does not have any material financial interest in the Issuer or any
of its Affiliates (other than as a result of holding securities of the
Issuer); and
(3) has not and whose Affiliates or affiliated firm has not, at any
time during the twelve months before the taking of any action hereunder,
directly or indirectly, received, or entered into any understanding or
agreement to receive, compensation, payment or other benefit, of any type
or form, from the Issuer or any of its Affiliates in excess of $60,000,
other than customary directors' fees for
59
serving on the Board of Directors of the Issuer or any Affiliate and
reimbursement of out-of-pocket expenses for attendance at the Issuer's or
Affiliate's board and board committee meetings.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable judgment of the Issuer's Board of Directors, qualified to perform the
task for which it has been engaged and disinterested and independent with
respect to the Issuer and its Affiliates; provided, however, that the prior
rendering of service to the Issuer or an Affiliate of the Issuer shall not, by
itself, disqualify the advisor.
"Initial Purchasers" means UBS Warburg LLC, Lehman Brothers Inc., Banc One
Capital Markets, Inc., U.S. Bancorp Piper Jaffray Inc., Jefferies & Company,
Inc. and First Analysis Securities Corporation.
"Interest" means, with respect to the Notes, interest and Liquidated
Damages, if any, on the Notes.
"Investments" of any Person means:
(1) all direct or indirect investments by such Person in any other
Person in the form of loans, advances or capital contributions or other
credit extensions constituting Indebtedness of such other Person, and any
guarantee of Indebtedness of any other Person;
(2) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Equity Interests or other securities of any other
Person;
(3) all other items that would be classified as investments on a
balance sheet of such Person prepared in accordance with GAAP; and
(4) the Designation of any Subsidiary as an Unrestricted Subsidiary.
Except as otherwise expressly specified in this definition, the amount of
any Investment (other than an Investment made in cash) shall be the Fair Market
Value thereof on the date such Investment is made. The amount of Investment
pursuant to clause (4) shall be the Designation Amount determined in accordance
with the covenant described under the "Limitations on Designation of
Unrestricted Subsidiaries" covenant. If the Issuer or any Subsidiary sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary, the Issuer shall be deemed to have made an Investment on
the date of any such sale or other disposition equal to the Fair Market Value of
the Equity Interests of and all other Investments in such Subsidiary not sold or
disposed of, which amount shall be determined by the Board of Directors of the
Issuer. Notwithstanding the foregoing, redemptions of Equity Interests of the
Issuer shall be deemed not to be Investments.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means, with respect to any asset, any mortgage, deed of trust, lien
(statutory or other), pledge, lease, easement, restriction, covenant, charge,
security interest or other encumbrance of any kind or nature in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law, including any conditional sale or other title retention agreement, and any
lease in the nature thereof, any option or other agreement to sell, and any
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction (other than
cautionary filings in respect of operating leases).
"Liquidated Damages" has the meaning set forth in the Registration Rights
Agreement.
"Net Available Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents, net of
(1) brokerage commissions and other fees and expenses (including fees
and expenses of legal counsel, accountants and investment banks) of such
Asset Sale;
(2) provisions for taxes payable as a result of such Asset Sale (after
taking into account any available tax credits or deductions and any tax
sharing arrangements);
60
(3) amounts required to be paid to any Person (other than the Issuer
or any Restricted Subsidiary) owning a beneficial interest in the assets
subject to the Asset Sale or having a Lien thereon;
(4) payments of unassumed liabilities (not constituting Indebtedness)
relating to the assets sold at the time of, or within 30 days after the
date of, such Asset Sale; and
(5) appropriate amounts to be provided by the Issuer or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with
GAAP against any liabilities associated with such Asset Sale and retained
by the Issuer or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including pensions and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale, all
as reflected in an Officers' Certificate delivered to the Trustee;
provided, however, that any amounts remaining after adjustments,
revaluations or liquidations of such reserves shall constitute Net
Available Proceeds.
"Obligation" means any principal, interest, penalties, fees,
indemnification, reimbursements, costs, expenses, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officer" means any of the following of the Issuer: the Chairman of the
Board of Directors, the Chief Executive Officer, the Chief Financial Officer,
the President, any Vice President, the Treasurer or the Secretary.
"Officers' Certificate" means a certificate signed by two Officers.
"Pari Passu Indebtedness" means any Indebtedness of the Issuer or any
Guarantor that ranks pari passu as to payment with the Notes or the Note
Guarantees, as applicable.
"Permitted Business" means the businesses engaged in by the Issuer and its
Subsidiaries on the Issue Date as described in this prospectus and businesses
that are reasonably related thereto or reasonable extensions thereof within the
health care and youth services industries.
"Permitted Investments" means:
(1) Investments by the Issuer or any Restricted Subsidiary in (a) any
Restricted Subsidiary or (b) in any Person that is or will become
immediately after such Investment a Restricted Subsidiary or that will
merge or consolidate into the Issuer or a Restricted Subsidiary;
(2) Investments in the Issuer by any Restricted Subsidiary;
(3) loans and advances to directors, employees and officers of the
Issuer and the Restricted Subsidiaries for bona fide business purposes and
to purchase Equity Interests of the Issuer not in excess of $2.0 million at
any one time outstanding;
(4) Hedging Obligations incurred pursuant to clause (4) of the second
paragraph under the "Limitations on Additional Indebtedness" covenant;
(5) Cash Equivalents;
(6) receivables owing to the Issuer or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Issuer or any such Restricted Subsidiary deems reasonable under the
circumstances;
(7) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(8) Investments made by the Issuer or any Restricted Subsidiary as a
result of consideration received in connection with an Asset Sale made in
compliance with the "Limitations on Asset Sales" covenant;
(9) lease, utility and other similar deposits in the ordinary course
of business;
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(10) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Issuer or any
Restricted Subsidiary or in satisfaction of judgments;
(11) Investments in existence on the Issue Date; and
(12) other Investments in an aggregate amount not to exceed $10.0
million at any one time outstanding (with each Investment being valued as
of the date made and without regard to subsequent changes in value).
The amount of Investments outstanding at any time pursuant to clause (12)
above shall be deemed to be reduced:
(a) upon the disposition or repayment of or return on any
Investment made pursuant to clause (12) above, by an amount equal to the
return of capital with respect to such Investment to the Issuer or any
Restricted Subsidiary (to the extent not included in the computation of
Consolidated Net Income), less the cost of the disposition of such
Investment and net of taxes; and
(b) upon a Redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, by an amount equal to the lesser of (x) the Fair
Market Value of the Issuer's proportionate interest in such Subsidiary
immediately following such Redesignation, and (y) the aggregate amount
of Investments in such Subsidiary that increased (and did not previously
decrease) the amount of Investments outstanding pursuant to clause (12)
above.
"Permitted Liens" means the following types of Liens:
(1) (a) statutory liens of landlords and liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business and
(b) Liens for taxes, assessments or governmental charges or claims,
in either case, for sums not yet delinquent or being contested in good
faith, if such reserve or other appropriate provision, if any, as shall
be required by GAAP shall have been made in respect thereof;
(2) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(3) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(4) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other assets
relating to such letters of credit and products and proceeds thereof;
(5) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Issuer
or any Restricted Subsidiary, including rights of offset and setoff;
(6) bankers' Liens, rights of setoff and other similar Liens existing
solely with respect to cash and Cash Equivalents on deposit in one or more
accounts maintained by the Issuer or any Restricted Subsidiary, in each
case granted in the ordinary course of business in favor of the bank or
banks with which such accounts are maintained, securing amounts owing to
such bank with respect to cash management and operating account
arrangements, including those involving pooled accounts and netting
arrangements; provided, however, that in no case shall any such Liens
secure (either directly or indirectly) the repayment of any Indebtedness;
(7) leases or subleases (or any Liens related thereto) granted to
others that do not materially interfere with the ordinary course of
business of the Issuer or any Restricted Subsidiary;
62
(8) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(9) Liens securing all of the Notes and Liens securing any Note
Guarantee;
(10) Liens existing on the Issue Date securing Indebtedness
outstanding on the Issue Date and Liens securing Refinancing Indebtedness,
provided that such Liens do not extend to or cover any assets or property
other than the collateral securing the Indebtedness to be refinanced, or
Liens securing Refinancing Indebtedness with respect to Indebtedness
incurred pursuant to clause (2) of the definition of "Permitted
Indebtedness;"
(11) Liens in favor of the Issuer or a Guarantor;
(12) Liens securing Indebtedness of up to $100.0 million incurred
pursuant to clause (1) of the "Limitations on Additional Indebtedness"
covenant;
(13) Liens securing Permitted Unrestricted Subsidiary Indebtedness
permitted to be incurred under the Indenture;
(14) Liens securing Purchase Money Indebtedness permitted to be
incurred under the Indenture; provided, however, that such Liens apply only
to the property acquired, constructed or improved with the proceeds of such
Purchase Money Indebtedness within 90 days after the incurrence of such
Purchase Money Indebtedness;
(15) Liens securing Acquired Indebtedness permitted to be incurred
under the Indenture; provided, however, that the Liens do not extend to
assets not subject to such Lien at the time of acquisition (other than
improvements thereon) and are no more favorable to the holders of such
Liens than those securing such Acquired Indebtedness before the incurrence
of such Acquired Indebtedness by the Issuer or a Restricted Subsidiary;
(16) Liens on assets of a Person existing at the time such Person is
acquired or merged with or into or consolidated with the Issuer or any such
Restricted Subsidiary (and not created in anticipation or contemplation
thereof);
(17) Liens to secure Attributable Indebtedness permitted to be
incurred under the Indenture; provided, however, that any such Lien shall
not extend to or cover any assets of the Issuer or any Restricted
Subsidiary other than the assets which are the subject of the Sale and
Leaseback Transaction in which the Attributable Indebtedness is incurred;
(18) attachment or judgment Liens not giving rise to a Default and
which are being contested in good faith by appropriate proceedings;
(19) easements, rights-of-way, restrictions and other similar charges
or encumbrances not materially interfering with the ordinary course of
business of the Issuer and its Subsidiaries;
(20) zoning restrictions, licenses, restrictions on the use of real
property or minor irregularities in title thereto, which do not materially
impair the use of such real property in the ordinary course of business of
the Issuer and its Subsidiaries or the value of such real property for the
purpose of such business;
(21) any option, contract or other agreement to sell an asset;
provided, however, such sale is not otherwise prohibited under the
Indenture; and
(22) Liens, other than those described in (1) through (21) above,
incurred in the ordinary course of business of the Issuer or any Restricted
Subsidiary with respect to obligations that do not exceed $10.0 million at
any one time outstanding.
"Permitted Unrestricted Subsidiary Debt" means Indebtedness of an
Unrestricted Subsidiary:
(1) as to which neither the Issuer nor any Restricted Subsidiary (a)
provides credit support of any kind (including any undertaking, agreement
or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time
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or both any holder of any other Indebtedness (other than the Notes) of the
Issuer or any Restricted Subsidiary to declare a default on the other
Indebtedness or cause the payment thereof to be accelerated or payable
before its stated maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the Equity Interests or assets of the Issuer
or any Restricted Subsidiary.
"Person" means any individual, corporation, partnership, limited liability
company, 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.
"Plan of Liquidation" with respect to any Person, means a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise): (1) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety or
substantially as an entirety; and (2) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition of all
or substantially all of the remaining assets of such Person to creditors and
holders of Equity Interests of such Person.
"Preferred Stock" means, with respect to any Person, any and all preferred
or preference stock or other Equity Interests (however designated) of such
Person whether now outstanding or issued after the Issue Date.
"Principal" means, with respect to the Notes, the principal of, and
premium, if any, on the Notes.
"Purchase Money Indebtedness" means Indebtedness, including Capitalized
Lease Obligations, of the Issuer or any Restricted Subsidiary incurred for the
purpose of financing all or any part of the purchase price of property, plant or
equipment used in the business of the Issuer or any Restricted Subsidiary or the
cost of installation, construction or improvement thereof; provided, however,
that (1) the amount of such Indebtedness shall not exceed such purchase price or
cost, (2) such Indebtedness shall not be secured by any asset other than the
specified asset being financed or, in the case of real property or fixtures,
including additions and improvements, the real property to which such asset is
attached and (3) such Indebtedness shall be incurred within 90 days after such
acquisition of such asset by the Issuer or such Restricted Subsidiary or such
installation, construction or improvement.
"Qualified Equity Interests" means Equity Interests of the Issuer other
than Disqualified Equity Interests; provided, however, that such Equity
Interests shall not be deemed Qualified Equity Interests to the extent sold or
owed to a Subsidiary of the Issuer or financed, directly or indirectly, using
funds (1) borrowed from the Issuer or any Subsidiary of the Issuer until and to
the extent such borrowing is repaid or (2) contributed, extended, guaranteed or
advanced by the Issuer or any Subsidiary of the Issuer (including, without
limitation, in respect of any employee stock ownership or benefit plan).
"Qualified Equity Offering" means the issuance and sale of Qualified Equity
Interests of the Issuer to Persons other than any Person who is not, before such
issuance and sale, an Affiliate of the Issuer.
"Redeem" means to redeem, repurchase, purchase, defease, retire, discharge
or otherwise acquire or retire for value; and "redemption" shall have a
correlative meaning.
"Redesignation" has the meaning given to such term in the "Limitations on
Designation of Unrestricted Subsidiaries" covenant.
"Refinance" means to refinance, repay, prepay, replace, renew or refund.
"Refinancing Indebtedness" means Indebtedness of the Issuer or a Restricted
Subsidiary issued in exchange for, or the proceeds from the issuance and sale or
disbursement of which are used substantially concurrently to redeem or refinance
in whole or in part, or constituting an amendment of, any Indebtedness of the
Issuer or any Restricted Subsidiary (the "Refinanced Indebtedness") in a
principal amount not in excess of the principal amount of the Refinanced
Indebtedness so repaid or amended (plus the amount of any premium paid and the
amount of reasonable expenses incurred by the Issuer or any Restricted
Subsidiary in connection with such repayment or amendment) (or, if such
Refinancing Indebtedness refinances Indebtedness under a revolving credit
facility or other agreement providing a
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commitment for subsequent borrowings, with a maximum commitment not to exceed
the maximum commitment under such revolving credit facility or other agreement);
provided, however,that:
(1) other than with respect to the Convertible Notes, if the
Refinanced Indebtedness was subordinated to or pari passu with the Notes or
the Note Guarantees, as the case may be, then such Refinancing
Indebtedness, by its terms, is expressly pari passu with (in the case of
Refinanced Indebtedness that was pari passu with) or subordinate in right
of payment to (in the case of Refinanced Indebtedness that was subordinated
to) the Notes or the Note Guarantees, as the case may be, at least to the
same extent as the Refinanced Indebtedness;
(2) the Refinancing Indebtedness is scheduled to mature either (a) no
earlier than the Refinanced Indebtedness being repaid or amended or (b)
after the maturity date of the Notes;
(3) the portion, if any, of the Refinancing Indebtedness that is
scheduled to mature on or before the maturity date of the Notes 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 Refinanced Indebtedness being repaid that is
scheduled to mature on or before the maturity date of the Notes; and
(4) the Refinancing Indebtedness is secured only to the extent, if at
all, and by the assets, that the Refinanced Indebtedness being repaid,
extended or amended is secured.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of November 15, 2001, among the Issuer, the Guarantors and the Initial
Purchasers.
"Replacement Assets" means any properties or assets used or useful in a
Permitted Business.
"Restricted Payment" means any of the following:
(1) the declaration or payment of any dividend or any other
distribution on Equity Interests of the Issuer or any Restricted Subsidiary
or any payment made to the direct or indirect holders (in their capacities
as such) of Equity Interests of the Issuer or any Restricted Subsidiary,
including, without limitation, any payment in connection with any merger or
consolidation involving the Issuer, but excluding (a) dividends or
distributions payable solely in Qualified Equity Interests and (b) in the
case of Restricted Subsidiaries, dividends or distributions payable to the
Issuer or to a Restricted Subsidiary and pro rata dividends or
distributions payable to minority stockholders of any Restricted
Subsidiary;
(2) the redemption of any Equity Interests of the Issuer or any
Restricted Subsidiary, including, without limitation, any payment in
connection with any merger or consolidation involving the Issuer, but
excluding any such Equity Interests held by the Issuer or any Restricted
Subsidiary;
(3) any Investment other than a Permitted Investment; or
(4) any redemption before the scheduled maturity or before any
scheduled repayment of principal or sinking fund payment, as the case may
be, in respect of Subordinated Indebtedness.
"Restricted Payments Basket" has the meaning given to such term in the
first paragraph of the "Limitations on Restricted Payments" covenant.
"Restricted Subsidiary" means any Subsidiary of the Issuer other than an
Unrestricted Subsidiary.
"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 of any asset of such Person which has been or is being sold or
transferred by such Person 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 asset.
"SEC" means the U.S. Securities and Exchange Commission.
"Secretary's Certificate" means a certificate signed by the Secretary of
the Issuer.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
65
"Subordinated Indebtedness" means Indebtedness of the Issuer or any
Guarantor that is subordinated in right of payment to the Notes or the Note
Guarantees, respectively.
"Subsidiary" means, with respect to any Person:
(1) any corporation, limited liability company, association or other
business entity of which more than 50% of the total voting power of the
Equity Interests entitled (without regard to the occurrence of any
contingency) to vote in the election of the Board of Directors thereof are
at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person (or a combination
thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
Unless otherwise specified, "Subsidiary" refers to a Subsidiary of the
Issuer.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means (1) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors of the Issuer in accordance with the "Limitations on Designation of
Unrestricted Subsidiaries" covenant and (2) any Subsidiary of an Unrestricted
Subsidiary.
"U.S. Government Obligations" means direct non-callable obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"Voting Stock" with respect to any Person, means securities of any class of
Equity Interests of such Person entitling the holders thereof (whether at all
times or only so long as no senior class of stock or other relevant Equity
Interest has voting power by reason of any contingency) to vote in the election
of members of the Board of Directors of such Person.
"Weighted Average Life to Maturity" when applied to any Indebtedness at any
date, means the number of years obtained by dividing (1) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment by (2) the then outstanding principal amount of such
Indebtedness.
"Wholly-Owned Restricted Subsidiary" means a Restricted Subsidiary of which
100% of the Equity Interests (except for directors' 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) are owned directly by the Issuer or through
one or more Wholly-Owned Restricted Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be represented by one or more global notes in definitive
form ("Global Notes"). The Global Notes will be deposited on the Issue Date
with, or on behalf of, the Depository Trust Company ("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 thereof through its book-entry facilities.
DTC has advised the Issuer as follows:
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations, including the Euroclear System and
Clearstream Banking, Societe Anonyme, Luxembourg (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.
66
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies (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. None of the Issuer, the Guarantors or
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 Issuer 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 Issuer 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 Issuer 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.
Subject to certain conditions, 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 Notes in definitive form.
Upon any such issuance, the Trustee is required to register such Notes in the
name of and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof). Such Notes would be issued in fully registered form and
would be subject to the legal requirements described in this prospectus. In
addition, if (1) the Issuer notifies the Trustee in writing that DTC is no
longer willing or able to act as a depositary and the Issuer is unable to locate
a qualified successor within 90 days or (2) the Issuer, 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 Issuer 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
Issuer 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.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Issuer believes to be reliable, but the
Issuer takes no responsibility for the accuracy thereof.
67
REGISTRATION RIGHTS
This section is a summary and it does not describe every aspect of the
Registration Rights Agreement. We urge you to read the entire Registration
Rights Agreement because it, and not this description, defines your rights as
Holders of the Notes.
ResCare, the Guarantors and the Initial Purchasers entered into the
registration rights agreement in connection with the private offering of the old
notes. Pursuant to the registration rights agreement, ResCare and the Guarantors
agreed to file with the SEC the exchange offer registration statement on the
appropriate form under the Securities Act with respect to the exchange notes.
Pursuant to the registration rights agreement, ResCare and the Guarantors are
offering to holders of transfer restricted securities who are able to make
certain representations the opportunity to exchange their transfer restricted
securities for exchange notes.
If any changes in applicable law or the applicable interpretations of the
staff of the SEC do not permit us to effect the exchange offer, or if for any
reason the exchange offer is not completed within 180 days following the Issue
Date, or if any Holder of the Notes, other than the initial purchaser, is not
eligible to participate in the exchange offer, or upon the request of the
initial purchaser under the specified circumstances, we will, at our cost:
- as promptly as practicable, file a shelf registration statement covering
resales of the Notes or Exchange Notes, as applicable;
- use our reasonable best efforts to cause the shelf registration statement
to be declared effective under the Securities Act within 90 days after
the shelf registration is filed with the SEC; and
- use our reasonable best efforts to keep the shelf registration effective
until two years after the Issue Date or such shorter period ending when
all of the registrable Notes covered by the registration statement have
been sold as contemplated by the registration statement.
If we file a shelf registration statement, we will provide to each Holder
of the Notes copies of the prospectus that is a part of the shelf registration
statement, notify each Holder when the shelf registration statement for the
Notes has become effective and take other actions as are required to permit
unrestricted resales of the Notes. A Holder of Notes that sells the Notes
pursuant to the shelf registration statement generally will be:
- required to be named as a selling security holder in the related
prospectus and deliver a prospectus to purchasers;
- subject to certain of the civil liability provisions under the Securities
Act in connection with the sales; and
- bound by the provisions of the registration rights agreement that are
applicable to such a holder, including indemnification obligations.
In addition, each Holder of the Notes will be required to deliver
information to be used in connection with the shelf registration statement and
to provide any comments on the shelf registration statement within the time
periods described in the registration rights agreement in order to have their
Notes included in the shelf registration statement and to benefit from the
provisions regarding Liquidated Damages described in the following paragraph.
If any of the following occurs:
(1) the exchange offer registration statement is not filed with the
SEC on or before the 90th calendar day following the Issue Date or, if that
day is not a business day, then the next day that is a business day;
(2) the exchange offer registration statement is not declared
effective on or before the 150th calendar day following the Issue Date or,
if that day is not a business day, then the next day that is a business
day;
68
(3) the exchange offer is not completed or the shelf registration
statement is not declared effective, in either case, on or before the 180th
calendar day following the Issue Date or, if that day is not a business
day, then the next day that is a business day; or
(4) the shelf registration statement is required to be filed but is
not declared effective within the time period required by the registration
rights agreement or is declared effective but thereafter ceases to be
effective or usable (subject to certain exceptions) (each event referred to
in clauses 1 through 4 above, a "registration default");
the interest rate borne by the Notes will be increased by 0.25% per annum over
the stated rate for the Notes upon the occurrence of a registration default.
This rate will continue to increase by 0.25% for each 90-day period that the
Liquidated Damages (as defined below) continue to accrue under any such
circumstance. However, the maximum total increase in the interest rate will in
no event exceed one percent (1.00%) per year.
We refer to this increase in the interest rate on the Notes as "Liquidated
Damages." Such interest is payable in addition to any other interest payable
from time to time with respect to the Notes and the Exchange Notes in cash on
each interest payment date to the Holders of record for such interest payment
date. After the cure of registration defaults, the accrual of Liquidated Damage
will stop and the interest rate will revert to the original rate.
Under certain circumstances, we may delay the filing or the effectiveness
of the exchange offer or the shelf registration and will not be required to
maintain its effectiveness or amend or supplement it for a period of up to 60
days during any 12-month period. Any delay period will not alter our obligation
to pay Liquidated Damages with respect to a registration default.
All notices relating to the exchange offer will be published in accordance
with the provisions in the Indenture for notices to Holders. Notices shall be
given to declare the start of the exchange period and details of the conditions
of exchange and to announce the result of the exchange offer.
As described elsewhere in this prospectus, holders of old notes are
required to make certain representations to us in order to participate in the
exchange offer and will be required to deliver certain information to be used in
connection with any shelf registration statement within the time period set
forth in the registration rights agreement in order to have their old notes
included in any shelf registration statement and benefit from the provisions
regarding liquidated damages set forth above. By acquiring transfer restricted
securities, a holder will be deemed to have agreed to indemnify us and the
Guarantors against certain losses arising out of information furnished by such
holder in writing for inclusion in any shelf registration statement. Holders of
old notes will also be required to suspend their use of the prospectus included
in the shelf registration statement under certain circumstances upon receipt of
written notice to that effect from us.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal United States federal income
tax consequences of the exchange, as well as the ownership and disposition of
the notes to purchasers and beneficial owners of notes who are United States
Holders (as defined below) and the principal United States federal income and
estate tax consequences of the exchange, as well as the ownership and
disposition of the notes to purchasers and beneficial owners of notes who are
Foreign Holders (as defined below). This discussion is based on currently
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations promulgated thereunder, and administrative and
judicial interpretations thereof, all as in effect on the date hereof and all of
which are subject to change, possibly with retroactive effect, or different
interpretations. This discussion is limited to purchasers of notes who hold the
notes as capital assets, within the meaning of section 1221 of the Code. This
discussion does not address the tax consequences to Foreign Holders that are
subject to United States federal income tax on a net basis on income realized
with respect to a note because such income is effectively connected with the
conduct of a U.S. trade or business. Such Foreign Holders are generally taxed in
a similar manner to United States Holders, but certain special rules apply. This
discussion does not address the tax consequences to persons who hold the notes
through a partnership or similar pass-through entity. Moreover, this discussion
is for general information only and does not address all of the tax consequences
that may be relevant to particular purchasers of notes in light of their
personal circumstances or to certain types of purchasers (such as certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities, former citizens and long-term residents of the United States or
persons who have hedged the risk of owning a note) or the effect of any
applicable state, local or foreign tax laws.
You are urged to consult your own tax advisors as to the particular tax
consequences to you of the purchase, ownership and disposition of the notes,
including the applicability of any federal tax laws or any state, local or
foreign tax laws, and any changes (or proposed changes) in applicable tax laws
or interpretations thereof.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The exchange of old notes for the exchange notes in the exchange offer will
not be treated as an "exchange" for federal income tax purposes because the
exchange notes do not differ materially in kind or extent from the old notes.
Accordingly:
- holders will not recognize taxable gain or loss upon the receipt of the
exchange notes in exchange for old notes in the exchange offer;
- the holding period for an exchange note received in the exchange offer
will include the holding period of the old note surrendered in exchange
therefor; and
- the adjusted tax basis of an exchange note immediately after the exchange
will be the same as the adjusted tax basis of the old note surrendered in
exchange therefor.
UNITED STATES FEDERAL INCOME TAXATION OF UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a holder of a note
that is, for United States federal income tax purposes, (a) a citizen or
resident of the United States, (b) a corporation or other entity (other than a
pass-through entity, e.g., partnership, limited liability company,
S-corporation, estate or trust) created or organized in or under the laws of the
United States or any political subdivision thereof, (c) an estate the income of
which is subject to United States federal income taxation regardless of source
or (d) a trust if (i) a U.S. court is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons have authority to
control all substantial decisions of the trust or (ii) the trust has elected to
be treated as a United States Holder pursuant to applicable Treasury
regulations.
PAYMENT OF INTEREST
A United States Holder will be required to include in gross income interest
on a note at the time that such interest accrues or is received, in accordance
with the United States Holder's regular method of accounting for United States
federal income tax purposes.
70
MARKET DISCOUNT
Under the market discount rules, if a United States Holder of a note (other
than a Holder who purchased the note upon original issuance) purchases the note
at a market discount (i.e., at a price below its stated principal amount) in
excess of a statutorily-defined de minimis amount and thereafter recognizes gain
upon a disposition or retirement of the note, then the lesser of the gain
recognized or the portion of the market discount that accrued on a ratable basis
(or, if elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount in
a note may be taxable to a United States Holder to the extent of appreciation in
the value of the note at the time of certain otherwise nontaxable transactions
(e.g., gifts). Absent an election to include market discount in income as it
accrues, a United States Holder of a market discount note may be required to
defer a portion of any interest expense that otherwise may be deductible on any
indebtedness incurred or maintained to purchase or carry such note until the
United States Holder disposes of the note in a taxable transaction.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the note, unless the United
States Holder elects to accrue on a constant interest method. A United States
Holder may elect to include market discount in income currently as it accrues
(on either a ratable or constant interest method), in which case the rule
described above regarding deferral of interest deductions will not apply. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired after the first taxable year to which
the election applies and may not be revoked without the consent of the Internal
Revenue Service ("IRS").
AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a note for an amount in excess of the
principal amount will be considered to have purchased the note at a "premium,"
equal to such excess, and may elect to amortize the premium over the remaining
term of the note on a constant yield method. However, if the note is purchased
at a time when the note may be optionally redeemed by the issuer for an amount
that is in excess of its principal amount, special rules may apply that could
result in a deferral of the amortization of bond premium until later in the term
of the note. The amount amortized in any year will be treated as a reduction of
the United States Holder's interest income from the note. A United States Holder
that elects to amortize bond premium must reduce its tax basis in the note by
the premium amortized. Bond premium on a note held by a United States Holder
that does not make such election will decrease the gain or increase the loss
otherwise recognized on disposition of the note. The election to amortize
premium on a constant yield method, once made, applies to all debt obligations
held or subsequently acquired by the electing United States Holder on or after
the first day of the first taxable year to which the election applies and may
not be revoked without the consent of the IRS.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a note, a United States Holder generally will recognize taxable
gain or loss equal to the difference between the sum of cash plus the fair
market value of all other property received on such disposition (except to the
extent such cash or property is attributable to accrued interest not previously
included in income, which amount will be taxable as ordinary income) and such
United States Holder's adjusted tax basis in the note. A United States Holder's
adjusted tax basis in a note generally will equal the cost of the note to such
United States Holder, decreased by the amount of any payments (other than
interest) received by such United States Holder.
Gain or loss recognized on the disposition of a note generally will be
capital gain or loss (subject to the market discount rules discussed above) and
will be long-term capital gain or loss if, at the time of such disposition, the
United States Holder's holding period for the note is more than one year. The
deduction of capital losses is subject to certain limitations. United States
Holders of notes should consult tax advisors regarding the treatment of capital
gains and losses.
71
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding and information reporting requirements may apply to
certain payments ("reportable payments") of principal and interest on a note,
and to proceeds of the sale or redemption of a note before maturity. We, our
agent, a broker, the Trustee or any paying agent, as the case may be, will be
required to withhold from any reportable payment that is subject to backup
withholding a tax equal to 30.5% of such payment (which rate is reduced over the
next five years to 28% by January 1, 2006) if, among other things, a United
States Holder fails to furnish his taxpayer identification number (social
security or employer identification number), certify that such number is
correct, certify that such holder is not subject to backup withholding or
otherwise comply with the applicable requirements of the backup withholding
rules. Certain United States Holders, including all corporations, are not
subject to backup withholding and information reporting requirements for
payments made in respect of the notes. Any amounts withheld under the backup
withholding rules from a reportable payment to a United States Holder will be
allowed as a credit against such United States Holder's United States federal
income tax and may entitle the holder to a refund, provided that the required
information is furnished to the IRS.
The amount of any reportable payments, including interest, made to the
record United States Holders of notes (other than to holders which are exempt
recipients) and the amount of tax withheld, if any, with respect to such
payments will be reported to such United States Holders and to the IRS for each
calendar year.
UNITED STATES FEDERAL INCOME TAXATION OF FOREIGN HOLDERS
As used herein, the term "Foreign Holder" means a holder of a note that is,
for United States federal income tax purposes, neither a United States Holder,
as defined above nor a former citizen or long-term resident of the United
States, as defined in section 877 of the Code.
PAYMENT OF INTEREST ON NOTES
In general, payments of interest received by a Foreign Holder will not be
subject to a United States federal withholding tax, provided that (a)(i) the
Foreign Holder does not actually or constructively own 10% or more of the total
combined voting power of all of our classes of stock entitled to vote, (ii) the
Foreign Holder is not a controlled foreign corporation that is related to us
actually or constructively through stock ownership, (iii) the Foreign Holder is
not a bank receiving interest described in section 881(c)(3)(A) of the Code, and
(iv) either (A) the beneficial owner of the note, under penalties of perjury,
provides us or our agent with such beneficial owner's name and address and
certifies on IRS Form W-8BEN (or a suitable substitute form) that it is not a
United States Holder or (B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "financial institution") holds the note and provides a
statement to us or our agent under penalties of perjury in which it certifies
that such an IRS Form W-8BEN (or a suitable substitute) has been received by it
from the beneficial owner of the note or qualifying intermediary and furnishes
us or our agent a copy thereof or (b) the Foreign Holder is entitled to the
benefits of an income tax treaty under which interest on the notes is exempt
from United States withholding tax and the Foreign Holder or such Foreign
Holder's agent provides a properly executed IRS Form W-8BEN claiming the
exemption. Payments of interest not exempt from United States federal
withholding tax as described above will be subject to such withholding tax at
the rate of 30% (subject to reduction under an applicable income tax treaty).
Certain Foreign Holders who claim benefits of a treaty may be required in
certain circumstances to obtain a taxpayer identification number and to provide
certain documentary evidence issued by foreign governmental authorities to
establish residence in a foreign country. Special procedures apply to payments
through intermediaries.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
A Foreign Holder generally will not be subject to United States federal
income tax (and generally no tax will be withheld) with respect to gain realized
on the sale, exchange, redemption, retirement at maturity or other disposition
of a note (including any gain representing accrued market discount) unless (a)
the Foreign Holder is an individual who is present in the United States for a
period or periods
72
aggregating 183 or more days in the taxable year of the disposition and,
generally, either has a "tax home" or an "office or other fixed place of
business" in the United States or (b) the Foreign Holder is not exempt from
United States federal withholding tax on payments of interest on the note, in
which case the interest may be subject to withholding tax at the rate of 30%
(subject to reduction under an applicable income tax treaty).
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding and information reporting requirements do not apply to
payments of interest made by us or a paying agent to Foreign Holders if the
certification described above under "-- United States Federal Income Taxation of
Foreign Holders -- Payment of Interest on Notes" is received, provided that the
payor does not have actual knowledge that the holder is a United States Holder.
If any payments of principal and interest are made to the beneficial owner of a
note by or through the foreign office of a foreign custodian, foreign nominee or
other foreign agent of such beneficial owner, or if the foreign office of a
foreign "broker" (as defined in applicable Treasury regulations) pays the
proceeds of the sale of a note to the seller thereof, backup withholding and
information reporting will not apply. Information reporting requirements (but
not backup withholding) will apply, however, to a payment by a foreign office of
a broker that is (a) a United States person, (b) a foreign person that derives
50%, or more of its gross income for certain periods from the conduct of a trade
or business in the United States, (c) a "controlled foreign corporation"
(generally, a foreign corporation controlled by certain United States
shareholders) with respect to the United States, or, (d) a foreign partnership
with certain connections to the United States, unless the broker has documentary
evidence in its records that the holder is a Foreign Holder and certain other
conditions are met or the holder otherwise establishes an exemption. Payment by
a United States office of a broker is subject to both backup withholding and
information reporting unless the holder certifies under penalties of perjury
that it is a Foreign Holder or otherwise establishes an exemption.
FEDERAL ESTATE TAXES
Subject to applicable estate tax treaty provisions, notes held at the time
of death (or notes transferred before death but subject to certain retained
rights or powers) by an individual who at the time of death is a Foreign Holder
will not be included in such Foreign Holder's gross estate for United States
federal estate tax purposes provided that the individual does not actually or
constructively own 10% or more of the total combined voting power of all of our
classes of stock entitled to vote or hold the notes in connection with a U.S.
trade or business.
73
PLAN OF DISTRIBUTION
Any broker-dealer who holds old notes that were acquired for its account as
a result of market-making activities or other trading activities (other than old
notes acquired directly from us or any of our affiliates) may participate in the
exchange offer. Each participating broker-dealer that receives exchange notes
for its own account pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a participating broker-dealer in connection with resales of exchange notes
received in exchange for old notes where such old notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that, until November 15, 2003, or until all transfer restricted securities
covered by the exchange offer registration statement have been sold, whichever
period is shorter, we will make this prospectus as it may be amended or
supplemented, available to any participating broker-dealer for use in connection
with any such resale.
We will not receive any proceeds from any sale of exchange notes by
participating broker-dealers.
Exchange notes received by participating broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions
- in the over-the-counter market,
- in negotiated transactions,
- through the writing of options on the exchange notes or
- a combination of such methods of resale,
at market process prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such participating broker-dealer or the purchasers of any
such exchange notes.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for old notes where such old notes were acquired as a result of
market-making activities or other trading activities. We have agreed that,
starting on the expiration date and ending on the close of business one year
after the expiration date, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until such date all dealers effecting transactions in the
exchange notes may be required to deliver a prospectus.
Up until November 15, 2003, or until all transfer restricted securities
covered by the exchange offer registration statement have been sold, whichever
is earlier, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any participating broker-dealer
that requests such documents in the letter of transmittal. We have agreed to pay
all expenses incident to the exchange offer, including the expenses of one
counsel for the holders of the old notes, other than commissions and concessions
of any participating broker-dealer and will indemnify the holders of the old
notes, including any participating broker-dealers, against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the notes offered hereby will be
passed upon for us by Frost Brown Todd LLC, Louisville, Kentucky.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Res-Care, Inc. and subsidiaries as
of December 31, 2001 and 2000 and for each of the years in the three year period
ended December 31, 2001, have been incorporated by reference in this prospectus
and in the registration statement in reliance upon the report of KPMG LLP,
independent accountants, incorporated by reference in this prospectus, and upon
the authority of said firm as experts in accounting and auditing.
74
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION TO OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU
MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS
PROSPECTUS IS AN OFFER TO EXCHANGE OLD NOTES ONLY FOR THE EXCHANGE NOTES OFFERED
HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO
DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS
DATE.
---------------------
TABLE OF CONTENTS
<Table>
Where You Can Find More Information.... i
Incorporation by Reference............. i
Prospectus Summary..................... 1
Risk Factors........................... 13
The Exchange Offer..................... 14
Use of Proceeds........................ 24
Selected Historical Consolidated
Financial Data....................... 25
Management............................. 27
Description of Certain Indebtedness.... 30
Description of Notes................... 32
Registration Rights.................... 68
United States Federal Income Tax
Considerations....................... 70
Plan of Distribution................... 74
Legal Matters.......................... 74
Independent Accountants................ 74
</Table>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$150,000,000
[RES-CARE LOGO]
10 5/8% SENIOR NOTES DUE 2008
------------------------
PROSPECTUS
------------------------
APRIL 15, 2002
- ------------------------------------------------------
- ------------------------------------------------------
RES-CARE, INC.
LETTER OF TRANSMITTAL
FOR TENDER OF ALL OUTSTANDING
10 5/8% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
10 5/8% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS
DATED APRIL 15, 2002
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON MAY 13, 2002, UNLESS THE EXCHANGE OFFER IS EXTENDED.
TO: WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
(The "Exchange Agent")
<Table>
BY MAIL, HAND DELIVERY FACSIMILE FOR ELIGIBLE
OR COURIER: INSTITUTIONS:
Attn: Corporate Trust Services (860) 704-6219
213 Court Street - Suite 902
Middletown, CT 06457 TO CONFIRM BY TELEPHONE:
(860) 704-6216
</Table>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION TO A FACSIMILE
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE
METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK OF
THE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges that he or she has received the Prospectus,
dated April 15, 2002, (the "Prospectus") of Res-Care, Inc., a Kentucky
corporation (the "Company") and this Letter of Transmittal and the instructions
hereto (the "Letter of Transmittal"), which together constitute the Company's
offer to exchange (the "Exchange Offer") $1,000 principal amount of each of its
10 5/8% Senior Notes due 2008 (the "Exchange Notes") that have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which the Prospectus is a part, for each $1,000
principal amount of each of its outstanding 10 5/8% Senior Notes due 2008 (the
"Old Notes"), of which $150,000,000 aggregate principal amount is outstanding,
upon the terms and subject to the conditions set forth in the Prospectus. The
term "Expiration Date" shall mean 5:00 p.m., New York City time, on May 13,
2002, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the term shall mean the latest date and time to which the Exchange
Offer is extended by the Company. Capitalized terms used but not defined herein
have the meaning given to them in the Prospectus.
This Letter of Transmittal is to be used either if (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by Holders, (ii) tender of Old Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company ("Depositary" or "DTC"), pursuant to the procedures set forth in "The
Exchange Offer -- Procedures for Tendering" in the Prospectus by any financial
institution that is a participant in DTC and
1
whose name appears on a security position listing as the owner of Old Notes or
(iii) tender of Old Notes is to be made according to the guaranteed delivery
procedures set forth in the Prospectus under "The Exchange Offer -- Guaranteed
Delivery Procedures." Delivery of this Letter of Transmittal and any other
required documents must be made to the Exchange Agent. DELIVERY OF DOCUMENTS TO
DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The term "Holder" as used herein means any person in whose name Old Notes
are registered on the books of the Company or any other person who has obtained
a properly completed bond power from the registered holder.
All Holders of Old Notes who wish to tender their Old Notes must, before
the Expiration Date: (1) complete, sign, and deliver this Letter of Transmittal,
or a facsimile thereof, to the Exchange Agent, in person or to the address set
forth above; and (2) tender (and not withdraw) his or her Old Notes or, if a
tender of Old Notes is to be made by book-entry transfer to the account
maintained by the Exchange Agent at DTC, confirm such book-entry transfer (a
"Book-Entry Confirmation"), in each case in accordance with the procedures for
tendering described in the Instructions to this Letter of Transmittal. Holders
of Old Notes whose certificates are not immediately available, or who are unable
to deliver their certificates or Book-Entry Confirmation and all other documents
required by this Letter of Transmittal to be delivered to the Exchange Agent on
or before the Expiration Date, must tender their Old Notes according to the
guaranteed delivery procedures set forth under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures" in the Prospectus. (See Instruction 2.)
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of the Old Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made promptly following the
Expiration Date. For the purposes of the Exchange Offer, the Company shall be
deemed to have accepted for exchange validly tendered Old Notes when, as and if
the Company has given written notice thereof to the Exchange Agent.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW. THE INSTRUCTIONS INCLUDED IN THIS LETTER OF
TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR
ADDITIONAL COPIES OF THE PROSPECTUS, THIS LETTER OF TRANSMITTAL AND THE NOTICE
OF GUARANTEED DELIVERY MAY BE DIRECTED TO THE EXCHANGE AGENT. SEE INSTRUCTION 12
HEREIN.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD NOTES
MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY AND COMPLY WITH ALL OF
ITS TERMS.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule, attached hereto. The
minimum permitted tender is $1,000 in principal amount of each of the 10 5/8%
Senior Notes due 2008. All other tenders must be in integral multiples of
$1,000.
2
DESCRIPTION OF 10 5/8% SENIOR NOTES DUE 2008
- --------------------------------------------------------------------------------
<Table>
<Caption>
(B)
AGGREGATE PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)* (A) AMOUNT TENDERED
(PLEASE FILL IN, IF BLANK) CERTIFICATE NUMBER(S)* (IF LESS THAN ALL)**
- ------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF
OLD NOTES TENDERED
</Table>
- --------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Need not be completed by Holders who wish to tender with respect to all Old
Notes listed.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered, or Exchange Notes issued in exchange for Old Notes accepted for
exchange, are to be issued in the name of someone other than the undersigned.
Issue certificate(s) to:
Name
------------------------------------------------------------------------------
(Please Print)
------------------------------------------------------------------------------
(Please Print)
Address
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(Including Zip Code)
------------------------------------------------------------------------------
(Tax Identification or Social Security Number)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered, or Exchange Notes issued in exchange for Old Notes accepted for
exchange, are to be delivered to someone other than the undersigned.
3
Deliver certificate(s) to:
Name
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
- --------------------------------------------------------------------------------
(Please Print)
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Including Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security Number)
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH
THE CERTIFICATE(S) FOR OLD NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF
SUCH OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR, IF GUARANTEED DELIVERY
PROCEDURES ARE TO BE COMPLIED WITH, A NOTICE OF GUARANTEED DELIVERY, MUST BE
RECEIVED BY THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
[ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED BY DTC TO AN ACCOUNT
MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
-----------------------------------------------------------------------------
The Depository Trust Company Account Number
--------------------------------------------------------
Transaction Code Number
------------------------------------------------------------------------
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent on
or before the Expiration Date may tender their Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures." (See Instruction 2.)
[ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of tendering Holder(s)
--------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-----------------------------------------------------
Name of Institution which Guaranteed Delivery
----------------------------------------------------------
Transaction Code Number
------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that
4
will receive Exchange Notes for its own account in exchange for Old Notes, it
represents that the Old Notes to be exchanged for the Exchange Notes were
acquired by it and that it will deliver a prospectus in connection with any
resale of such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to Res-Care, Inc. (the "Company") the principal amount of Old
Notes indicated above. Subject to and effective upon the acceptance for exchange
of the principal amount of Old Notes tendered hereby in accordance with this
Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon
the order of, the Company all right, title and interest in and to the Old Notes
tendered hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company and as Trustee and
Registrar under the Indenture for the Old Notes and the Exchange Notes) with
respect to the tendered Old Notes with full power of substitution (such power of
attorney being deemed an irrevocable power coupled with an interest), subject
only to the right of withdrawal described in the Prospectus, to (i) deliver
certificates for such Old Notes to the Company or transfer ownership of such Old
Notes on the account books maintained by DTC, together, in either such case,
with all accompanying evidences of transfer and authenticity to, or upon the
order of, the Company and (ii) present such Old Notes for transfer on the books
of the Company and receive all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms of the
Exchange Offer.
The undersigned acknowledges that the Exchange Offer is being made in
reliance upon interpretative advice given by the staff of the Securities and
Exchange Commission to third parties in connection with transactions similar to
the Exchange Offer, so that the Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Old Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than a broker-dealer who
purchased such Old Notes directly from the Company for resale pursuant to Rule
144A or any other available exemption under the Securities Act or a person that
is an "affiliate" of the Company or any Guarantor within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holders' business and
such holders have no arrangement with any person to participate in the
distribution of such Exchange Notes.
The undersigned agrees that acceptance of any tendered Old Notes by the
Company and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Rights Agreement, (as defined in the Prospectus) and that, upon the issuance of
the Exchange Notes, the Company will have no further obligations or liabilities
thereunder (except in certain limited circumstances).
The undersigned represents and warrants that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving Exchange Notes (which shall be the
undersigned unless otherwise indicated in the box entitled "Special Delivery
Instructions" above) (the "Recipient"), (ii) neither the undersigned nor the
Recipient (if different) is engaged in, intends to engage in or has any
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes, and (iii) neither the undersigned nor the Recipient (if
different) is an "affiliate" of the Company or any Guarantor as defined in Rule
405 under the Securities Act. If the undersigned is not a broker-dealer, the
undersigned further represents that it is not engaged in, and does not intend to
engage in, a distribution of the Exchange Notes. If the undersigned is a
broker-dealer, the undersigned further (x) represents that it acquired Old Notes
for the undersigned's own account as a result of market-making activities or
other trading activities, (y) represents that it has not entered into any
arrangement or understanding with the Company or any "affiliate" of the Company
(within the meaning
5
of Rule 405 under the Securities Act) to distribute the Exchange Notes to be
received in the Exchange Offer and (z) acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act (for which purposes
delivery of the Prospectus, as the same may be hereafter supplemented or
amended, shall be sufficient) in connection with any resale of Exchange Notes
received in the Exchange Offer. Such a broker-dealer will not be deemed, solely
by reason of such acknowledgment and prospectus delivery, to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned understands and agrees that the Company reserves the right
not to accept tendered Old Notes from any tendering holder if the Company
determines, in its sole and absolute discretion, that such acceptance could
result in a violation of applicable securities laws.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and to acquire Exchange Notes issuable upon the exchange of such
tendered Old Notes, and that, when the same are accepted for exchange, the
Company will acquire good and unencumbered title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed to be necessary or desirable by the
Exchange Agent or the Company in order to complete the exchange, assignment and
transfer of tendered Old Notes or transfer of ownership of such Old Notes on the
account books maintained by a book-entry transfer facility.
The undersigned understands and acknowledges that the Company reserves the
right in its sole discretion to purchase or make offers for any Old Notes that
remain outstanding after the Expiration Date or, as set forth in the Prospectus
under the caption "The Exchange Offer -- Procedures for Tendering," to terminate
the Exchange Offer and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
The undersigned understands that the Company may accept the undersigned's
tender by delivering written notice of acceptance to the Exchange Agent, at
which time the undersigned's right to withdraw such tender will terminate. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
validly tendered Old Notes when, as and if the Company has given oral (which
shall be confirmed in writing) or written notice thereof to the Exchange Agent.
The undersigned understands that the first interest payment following the
Expiration Date will include unpaid interest on the Old Notes accrued through
the date of issuance of the Exchange Notes. The undersigned understands that
tenders of Old Notes pursuant to the procedures described under the caption "The
Exchange Offer -- Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
The undersigned acknowledges that the Exchange Offer is subject to the more
detailed terms set forth in the Prospectus and, in case of any conflict between
the terms of the Prospectus and this Letter of Transmittal, the Prospectus shall
prevail.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned (except as noted below with respect to tenders through DTC), at
the Company's cost and expense, to the undersigned at the address shown below or
at a different address as may be indicated herein under "Special Delivery
Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns. This tender may be withdrawn only in
accordance with the procedures set forth in this Letter of Transmittal.
By acceptance of the Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby acknowledges and agrees
that upon the receipt of notice by the Company of
6
the happening of any event which makes any statement in the Prospectus untrue in
any material respect or which requires the making of any changes in the
Prospectus in order to make the statements therein not misleading (which notice
the Company agrees to deliver promptly to such broker-dealer), such broker-
dealer will suspend use of the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented prospectus to such
broker-dealer.
Unless otherwise indicated under "Special Registration Instructions,"
please issue the certificates representing the Exchange Notes issued in exchange
for the Old Notes accepted for exchange and return any certificates for Old
Notes not tendered or not exchanged, in the name(s) of the undersigned (or, in
either such event in the case of Old Notes tendered by DTC, by credit to the
account at DTC). Similarly, unless otherwise indicated under "Special Delivery
Instructions," please send the certificates representing the Exchange Notes
issued in exchange for the Old Notes accepted for exchange and any certificates
for Old Notes not tendered or not exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s), unless, in either event, tender is being made through DTC. In the
event that both "Special Registration Instructions" and "Special Delivery
Instructions" are completed, please issue the certificates representing the
Exchange Notes issued in exchange for the Old Notes accepted for exchange in the
name(s) of, and return any certificates for Old Notes not tendered or not
exchanged to, the person(s) so indicated. The undersigned understands that the
Company has no obligations pursuant to the "Special Registration Instructions"
or "Special Delivery Instructions" to transfer any Old Notes from the name of
the registered Holder(s) thereof if the Company does not accept for exchange any
of the Old Notes so tendered.
Holders who wish to tender the Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent before
the Expiration Date, may tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 1 regarding the
completion of the Letter of Transmittal.
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
AND WHETHER OR NOT TENDER IS TO BE MADE
PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES
This Letter of Transmittal must be signed by the registered holder(s) as
their name(s) appear on the Old Notes or, if tendered by a participant in DTC,
exactly as such participant's name appears on a security listing as the owner of
Old Notes, or by person(s) authorized to become registered holder(s) by a
properly completed bond power from the registered holder(s), a copy of which
must be transmitted with this Letter of Transmittal. If Old Notes to which this
Letter of Transmittal relate are held of record by two or more joint holders,
then all such holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
then such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority to so act. (See Instruction 4.)
7
<Table>
X ---------------------------------------------------
- --------------------------------------------------- Date
X ---------------------------------------------------
- --------------------------------------------------- Date
Signature(s) of Holders(s) or
Authorized Signatory
Name(s): Address: ------------------------------- ---------------------------------------------------
Name(s): Address: ------------------------------- ---------------------------------------------------
(Including Zip Code) (Please Print)
Capacity:
Area Code and Telephone Number:
- --------------------------------------------------- ---------------------------------------------------
Social Security No.: ------------------------------
</Table>
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
BOX IV
SIGNATURE GUARANTEE (SEE INSTRUCTION 1)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
- --------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
- --------------------------------------------------------------------------------
(Address (Including Zip Code) and Telephone Number (Including Area Code) of
Firm)
- --------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Printed Name)
- --------------------------------------------------------------------------------
(Title)
Date:
- --------------------------------------------------------------------------------
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal need
not be guaranteed if (a) this Letter of Transmittal is signed by the registered
holder(s) of the Old Notes tendered herewith and such holder(s) have not
completed the box set forth herein entitled "Special Registration Instructions"
or the box entitled "Special Delivery Instructions" or (b) such Old Notes are
tendered for the account of an Eligible Institution. (See Instruction 6.)
Otherwise, all signatures on this Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States (an "Eligible Institution"). All
signatures on bond powers and endorsements on certificates must also be
guaranteed by an Eligible Institution.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. Certificates for
all physically delivered Old Notes or confirmation of any book-entry transfer to
the Exchange Agent at DTC of Old Notes tendered by book-entry transfer, as well
as, in each case (including cases where tender is affected by book-entry
transfer), a properly completed and duly executed copy of this Letter of
Transmittal or facsimile hereof and any other documents required by this Letter
of Transmittal must be
8
received by the Exchange Agent at its address set forth herein before 5:00 p.m.,
New York City time, on the Expiration Date. The method of delivery of the
tendered Old Notes, this Letter of Transmittal and all other required documents
to the Exchange Agent is at the election and risk of the Holder and the delivery
will be deemed made only when actually received by the Exchange Agent. If Old
Notes are sent by mail, registered mail with return receipt requested, properly
insured, is recommended. In all cases, sufficient time should be allowed to
ensure timely delivery. No Letter of Transmittal or Old Notes should be sent to
the Company.
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Depositary for purposes of the Exchange Offer within two
business days after receipt of this Prospectus, and any financial institution
that is a participant in the Depositary may make book-entry delivery of Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account at the Depositary in accordance with the Depositary's procedures
for transfer. However, although delivery of Old Notes may be effected through
book-entry transfer at the Depositary, the Letter of Transmittal, with any
required signature guarantees or an Agent's Message (as defined below) in
connection with a book-entry transfer and any other required documents, must, in
any case, be transmitted to and received by the Exchange Agent at the address
specified on the cover page of the Letter of Transmittal on or before the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
A Holder may tender Old Notes that are held through the Depositary by
transmitting its acceptance through the Depositary's Automatic Tender Offer
Program, for which the transaction will be eligible, and the Depositary will
then edit and verify the acceptance and send an Agent's Message to the Exchange
Agent for its acceptance. The term "Agent's Message" means a message transmitted
by the Depositary to, and received by, the Exchange Agent and forming part of
the Book-Entry Confirmation, which states that the Depositary has received an
express acknowledgment from each participant in the Depositary tendering the Old
Notes and that such participant has received the Letter of Transmittal and
agrees to be bound by the terms of the Letter of Transmittal and the Company may
enforce such agreement against such participant.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent
before the Expiration Date or comply with book-entry transfer procedures on a
timely basis must tender their Old Notes according to the guaranteed delivery
procedures set forth in the Prospectus. See "The Exchange Offer -- Guaranteed
Delivery Procedures." Pursuant to such procedure: (i) such tender must be made
by or through an Eligible Institution; (ii) before the Expiration Date, the
Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, overnight courier, mail or hand delivery) setting forth the name
and address of the Holder of the Old Notes, the certificate number or numbers of
such Old Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration Date, this Letter of Transmittal (or
facsimile hereof) together with the certificate(s) representing the Old Notes
and any other required documents will be deposited by the Eligible Institution
with the Exchange Agent; and (iii) such properly completed and executed Letter
of Transmittal (or facsimile hereof), as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all tendered Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at DTC), must be received by
the Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date, all in the manner provided in the Prospectus under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures." Any Holder who wishes to
tender his Old Notes pursuant to the guaranteed delivery procedures described
above must ensure that the Exchange Agent receives the Notice of Guaranteed
Delivery before 5:00 p.m., New York City time, on the Expiration Date. Upon
request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to
Holders who wish to tender their Old Notes according to the guaranteed delivery
procedures set forth above.
9
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes, and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. All tendering holders, by execution of this Letter of
Transmittal (or facsimile thereof), shall waive any right to receive notice of
the acceptance of the Old Notes for exchange. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes,
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Old Notes, The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in this Letter of Transmittal) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of defects or irregularities with respect to tenders
of Old Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such defects or irregularities have been cured to the Company's satisfaction or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders pursuant
to the Company's determination, unless otherwise provided in this Letter of
Transmittal as soon as practicable following the Expiration Date. The Exchange
Agent has no fiduciary duties to the Holders with respect to the Exchange Offer
and is acting solely on the basis of directions of the Company.
3. INADEQUATE SPACE. If the space provided is inadequate, the certificate
numbers and/or the number of Old Notes should be listed on a separate signed
schedule attached hereto.
4. TENDER BY HOLDER. Only a Holder of Old Notes may tender such Old Notes
in the Exchange Offer. Any beneficial owner of Old Notes who is not the
registered Holder and who wishes to tender should arrange with such registered
holder to execute and deliver this Letter of Transmittal on such beneficial
owner's behalf or must, before completing and executing this Letter of
Transmittal and delivering his Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such beneficial owner's name or obtain
a properly completed bond power from the registered holder or properly endorsed
certificates representing such Old Notes.
5. PARTIAL TENDERS; WITHDRAWALS. Tenders of Old Notes will be accepted only
in integral multiples of $1,000. If less than the entire principal amount of any
Old Notes is tendered, the tendering Holder should fill in the principal amount
tendered in the third column of the box entitled "Description of 10 5/8% Senior
Notes due 2008" above. The entire principal amount of any Old Notes delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Old Notes is not tendered, then
Old Notes for the principal amount of Old Notes not tendered and a certificate
or certificates representing Exchange Notes issued in exchange for any Old Notes
accepted will be sent to the Holder at his or her registered address, unless a
different address is provided in the "Special Delivery Instructions" box above
on this Letter of Transmittal or unless tender is made through DTC, promptly
after the Old Notes are accepted for exchange.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time before 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein before 5:00 p.m., New York City time, on the Expiration
Date. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes, or, in the case of Old Notes transferred by
book-entry transfer the name and number of the account at DTC to be credited),
(iii) be signed by the Depositor in the same manner as the original signature on
the Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Registrar with respect to the Old Notes register the
transfer of such Old Notes into the name of the person withdrawing the tender
and (iv) specify the name in which any such
10
Old Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange by the Company will be returned to the Holder thereof
without cost to such Holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may
be retendered by following one of the procedures described in the Prospectus
under "The Exchange Offer -- Procedures for Tendering" at any time before the
Expiration Date.
6. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS.
If this Letter of Transmittal (or facsimile hereof) is signed by the registered
holder(s) of the Old Notes tendered hereby, the signature must correspond with
the name(s) as written on the face of the Old Note without alteration,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many copies of this Letter of
Transmittal as there are different registrations of Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders (which term, for the purposes described herein,
shall include a book-entry transfer facility whose name appears on a security
listing as the owner of the Old Notes) of Old Notes tendered and the certificate
or certificates for Exchange Notes issued in exchange therefor is to be issued
(or any untendered principal amount of Old Notes to be reissued) to the
registered Holder, then such Holder need not and should not endorse any tendered
Old Notes, nor provide a separate bond power. In any other case, such Holder
must either properly endorse the Old Notes tendered or transmit a properly
completed separate bond power with this Letter of Transmittal with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers in each case
signed as the name of the registered Holder or Holders appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 6 must be guaranteed by an Eligible Institution.
7. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which Exchange
Notes or substitute Old Notes for principal amounts not tendered or not accepted
for exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
8. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the
federal income tax laws, payments that may be made by the Company on account of
Exchange Notes issued pursuant to the Exchange Offer may be subject to backup
withholding at the rate of 31%. In order to avoid such backup withholding, each
tendering Holder should complete and sign the Substitute Form W-9 included in
this Letter of Transmittal and either (a) provide the correct taxpayer
identification number ("TIN") and certify, under penalties of perjury, that the
TIN provided is correct and that (i) the
11
Holder has not been notified by the Internal Revenue Service (the "IRS") that
the Holder is subject to backup withholding as a result of failure to report all
interest or dividends or (ii) the IRS has notified the Holder that the Holder is
no longer subject to backup withholding; or (b) provide an adequate basis for
exemption. If the tendering Holder has not been issued a TIN and has applied for
one, or intends to apply for one in the near future, such Holder should check
the box in Part 3 of the Substitute Form W-9, sign and date the Substitute Form
W-9 and sign the Certificate of Payee Awaiting Taxpayer Identification Number.
If the box in Part 3 is checked, the Company (or the Paying Agent under the
Indenture governing the Exchange Notes) shall retain 31% of payments made to the
tendering Holder during the sixty-day period following the date of the
Substitute Form W-9. If the Holder furnishes the Exchange Agent or the Company
with its TIN within sixty days after the date of the Substitute Form W-9, the
Company (or the Paying Agent) shall remit such amounts retained during the
sixty-day period to the Holder and no further amounts shall be retained or
withheld from payments made to the Holder thereafter. If, however, the Holder
has not provided the Exchange Agent or the Company with its TIN within such
sixty-day period, the Company (or the Paying Agent) shall remit such previously
retained amounts to the IRS as backup withholding. In general, if a Holder is an
individual, the TIN is the Social Security number of such individual. If either
the Exchange Agent or the Company is not provided with the correct TIN, the
Holder may be subject to a $50 penalty imposed by the IRS. Certain Holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these backup withholding and reporting requirements. In order for
a foreign individual to qualify as an exempt recipient, such Holder must submit
a statement (generally, IRS Form W-8), signed under penalties of perjury,
attesting to that individual's exempt status. Such statements can be obtained
from the Exchange Agent. For further information concerning backup withholding
and instructions for completing the Substitute Form W-9 (including how to obtain
a taxpayer identification number if you do not have one and how to complete the
Substitute Form W-9 if Old Notes are registered in more than one name), consult
the enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9."
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Notes to be deemed invalidly tendered, but may require the Company (or the
Paying Agent) to withhold 31% of the amount of any payments made on account of
the Exchange Notes. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the IRS.
9. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered in the name of, any person other than the registered holder of the
Old Notes tendered hereby, or if tendered Old Notes are registered in the name
of a person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or on any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder. See the Prospectus under "The Exchange Offer -- Solicitation of Tenders;
Fees and Expenses."
Except as provided in this Instruction 9, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
10. WAIVER OF CONDITIONS. The Company reserves the right, in its sole
discretion, to amend, waive or modify specified conditions of the Exchange Offer
in the case of any Old Notes tendered.
11. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instructions.
12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
and requests for additional copies of the Prospectus or this Letter of
Transmittal may be directed to the
12
Exchange Agent at the address specified in the Prospectus. Holders may also
contact their broker, dealer, commercial bank, trust company or other nominee
for assistance concerning the Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
<Table>
CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
- ------------------------------------ ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------ ------------------------------------
Date Received ------------------- Accepted by --------------------- Checked by ----------------------
Delivery Prepared by ------------ Checked by ---------------------- Date ------------------------------
</Table>
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder whose tendered Old Notes are
accepted for exchange is required to provide the Exchange Agent (as payer) with
such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a
basis for exemption from backup withholding. If such Holder is an individual,
the TIN is his or her social security number. If the Exchange Agent is not
provided with the correct TIN, a $50 penalty may be imposed by the Internal
Revenue Service, and payments made pursuant to the Exchange Offer may be subject
to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to that Holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the Holder or other payee. Backup withholding is not
an additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to the Exchange
Offer, the Holder is required to provide the Exchange Agent with either: (i) the
Holder's correct TIN by completing the form below, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such Holder is awaiting a
TIN) and that (A) the Holder has been notified by the Internal Revenue Service
that the Holder is subject to backup withholding as a result of failure to
report all interest or dividends or (B) the Internal Revenue Service has
notified the Holder that the Holder is no longer subject to backup withholding
or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered Holder of
the Old Notes. If the Old Notes are held in more than one name or are held not
in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
13
TO BE COMPLETED BY ALL TENDERING HOLDERS
PAYER'S NAME: RES-CARE, INC.
- --------------------------------------------------------------------------------
<Table>
SOCIAL SECURITY NUMBER(S)
SUBSTITUTE FORM W-9
PART 1 -- PLEASE PROVIDE YOUR TIN IN
THE BOX AT RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW
-------------------------------------------------------------------------
or
-------------------------------------------------------------------------
Employer Identification Number(s)
- ----------------------------------------------------------------------------------------------------------------
DEPARTMENT OF THE Part 2 -- Certification -- Under penalties of perjury, I certify that:
TREASURY INTERNAL REVENUE SERVICE (1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me), and
PAYER'S REQUEST FOR TAXPAYER (2) I am not subject to back up withholding because: (a) I am exempt from
IDENTIFICATION NUMBER ("TIN") backup withholding, or (b) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a result
of a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to back up withholding.
Certification Instructions -- You must cross out item (2) above if you
have been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your tax
return.
- ----------------------------------------------------------------------------------------------------------------
Part 3
Name -------------------------------------------------------------------
Address -----------------------------------------------------------------
Signature ---------------------------------------------------------------
Awaiting TIN [ ] Date:
---------------------------------------------
</Table>
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF
ANY REPORTABLE CASH PAYMENTS. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
THE SUBSTITUTE FORM W-9.
14
CERTIFICATE OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable cash payments made to me thereafter will be withheld until I
provide a taxpayer identification number.
<Table>
<Caption>
SIGNATURE DATE
--------- ----
- ----------------------------------------------------------- ------------------------------
</Table>
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
BY MAIL, HAND DELIVERY OR COURIER:
Wells Fargo Bank Minnesota, National Association
Attn: Corporate Trust Services
213 Court Street - Suite 902
Middletown, CT 06457
BY FACSIMILE FOR ELIGIBLE INSTITUTIONS:
(860) 704-6219
TO CONFIRM BY TELEPHONE:
(860) 704-6216
ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY
BY HAND, OVERNIGHT DELIVERY, OR REGISTERED BY CERTIFIED MAIL.
15
NOTICE OF GUARANTEED DELIVERY
FOR 10 5/8% SENIOR NOTES DUE 2008
OF RES-CARE, INC.
As set forth in the Prospectus dated April 15, 2002 (the "Prospectus") of
Res-Care, Inc. (the "Company") and in the Letter of Transmittal (the "Letter of
Transmittal"), this form or a form substantially equivalent to this form must be
used to accept the Exchange Offer (as defined below) if the certificates for the
outstanding 10 5/8% Senior Notes due 2008 (the "Old Notes") of the Company and
all other documents required by the Letter of Transmittal cannot be delivered to
the Exchange Agent by the expiration of the Exchange Offer or compliance with
book-entry transfer procedures cannot be effected on a timely basis. Such form
may be delivered by hand or transmitted by facsimile transmission, telex or mail
to the Exchange Agent no later than the Expiration Date, and must include a
signature guarantee by an Eligible Institution as set forth below. Capitalized
terms used herein but not defined herein have the meanings ascribed thereto in
the Prospectus.
TO:
WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
BY MAIL, HAND DELIVERY OR COURIER:
Attn: Corporate Trust Services
213 Court Street - Suite 902
Middletown, CT 06457
BY FACSIMILE FOR ELIGIBLE INSTITUTIONS:
(860) 704-6219
TO CONFIRM BY TELEPHONE:
(860) 704-2616
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY. THE METHOD OF DELIVERY OF ALL DOCUMENTS,
INCLUDING CERTIFICATES, IS AT THE RISK OF THE HOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
THE INSTRUCTIONS ACCOMPANYING THE LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY
BEFORE THIS NOTICE OF GUARANTEED DELIVERY IS COMPLETED.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution under the instruction thereto, such
signatures must appear in the applicable space provided on the Letter of
Transmittal for Guarantee of Signature(s).
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus and the related
Letter of Transmittal which describes the Company's offer (the "Exchange Offer")
to exchange $1,000 in principal amount of a new series of 10 5/8% Senior Notes
due 2008 (the "Exchange Notes") for each $1,000 in principal amount of the Old
Notes.
The undersigned hereby tenders to the Company the aggregate principal
amount of Old Notes set forth below on the terms and conditions set forth in the
Prospectus and the related Letter of Transmittal pursuant to the guaranteed
delivery procedure set forth in the "The Exchange Offer -- Guaranteed Delivery
Procedures" section in the Prospectus and the accompanying Letter of
Transmittal.
The undersigned understands that no withdrawal of a tender of Old Notes may
be made on or after the Expiration Date. The undersigned understands that for a
withdrawal of a tender of Old Notes to be effective, a written notice of
withdrawal that complies with the requirements of the Exchange Offer must
1
be timely received by the Exchange Agent at one of its addresses specified on
the cover of this Notice of Guaranteed Delivery prior to the Expiration Date.
The undersigned understands that the exchange of Old Notes for Exchange
Notes pursuant to the Exchange Offer will be made only after timely receipt by
the Exchange Agent of (i) such Old Notes (or Book-Entry Confirmation of the
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Company (the "Depositary" or "DTC")) and (ii) a Letter of Transmittal (or
facsimile thereof) with respect to such Old Notes, properly completed and duly
executed, with any required signature guarantees, this Notice of Guaranteed
Delivery and any other documents required by the Letter of Transmittal or a
properly transmitted Agent's Message. The term "Agent's Message" means a message
transmitted by the Depositary to, and received by, the Exchange Agent and
forming part of the confirmation of a book-entry transfer, which states that the
Depositary has received an express acknowledgment from each participant in the
Depositary tendering the Old Notes and that such participant has received the
Letter of Transmittal and agrees to be bound by the terms of the Letter of
Transmittal and the Company may enforce such agreement against such participant.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
PLEASE SIGN AND COMPLETE
Signature(s) or Registered Owner(s) or Authorized Signatory:
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Principal Amount of Old Notes Tendered:
- ------------------------------------------------------
Certificate No(s) of Old Notes (if available):
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Date:
- -----------------------------------------------
Name(s) of Registered Holder(s)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Address:
- ------------------------------------------------------
- ------------------------------------------------------
Area Code and Telephone No.: -------------------------
If Old Notes will be delivered by book-entry transfer at The Depository Trust
Company, insert Depository Account No.:
- --------------------------------------------------------------------------------
2
This Notice of Guaranteed Delivery must be signed by the registered
Holder(s) of Old Notes exactly as its (their) name(s) appear on certificates for
Old Notes or on a security position listing as the owner of Old Notes, or by
person(s) authorized to become registered Holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): ---------------------------------------------
- ------------------------------------------------------
Capacity: --------------------------------------------
- ------------------------------------------------------
Address(es): -----------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE
EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL.
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States, or
otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, hereby (a) represents
that each holder of Old Notes on whose behalf this tender is being made "own(s)"
the Old Notes covered hereby within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (b) represents
that such tender of Old Notes complies with Rule 14e-4 of the Exchange Act and
(c) guarantees that, within three New York Stock Exchange trading days from the
expiration date of the Exchange Offer, a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof), together with certificates
representing the Old Notes covered hereby in proper form for transfer (or
confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company, pursuant to the procedure for
book-entry transfer set forth in the Prospectus) and required documents will be
deposited by the undersigned with the Exchange Agent.
The undersigned acknowledges that it must deliver the Letter of Transmittal
and Old Notes tendered hereby to the Exchange Agent within the time period set
forth above and the failure to do so could result in financial loss to the
undersigned.
<Table>
Name of Firm: ------------------------------------- -----------------------------------------------------
Address: -------------------------------------------- Authorized Signature
- ----------------------------------------------------- Name: ----------------------------------------------
Area Code and Telephone No.: -------------------- Title:
-----------------------------------------------
Date: -----------------------------------------------
</Table>
3
RES-CARE, INC.
OFFER TO EXCHANGE
10 5/8% SENIOR NOTES DUE 2008
FOR ANY AND ALL OF ITS
10 5/8% SENIOR NOTES DUE 2008
To Our Clients:
Enclosed for your consideration are the Prospectus, dated April 15, 2002
(the "Prospectus") and the related Letter of Transmittal (which together with
the Prospectus constitute the "Exchange Offer") in connection with the offer by
Res-Care, Inc., a Kentucky corporation (the "Company"), to exchange its 10 5/8%
Senior Notes due 2008 (the "Exchange Notes") for any and all of the outstanding
10 5/8% Senior Notes due 2008 (the "Old Notes"), upon the terms and subject to
the conditions set forth in the Exchange Offer.
We are the Registered Holders of Old Notes held for your account. An
exchange of the Old Notes can be made only by us as the Registered Holders and
pursuant to your instructions. The Letter of Transmittal is furnished to you for
your information only and cannot be used by you to exchange the Old Notes held
by us for your account. The Exchange Offer provides a procedure for holders to
tender by means of guaranteed delivery.
We request information as to whether you wish us to exchange any or all of
the Old Notes held by us for your account upon the terms and subject to the
conditions of the Exchange Offer.
Your attention is directed to the following:
1. The Exchange Notes will be issued in exchange for the Old Notes at the
rate of $1,000 principal amount of Exchange Notes for each $1,000 principal
amount of Old Notes. Interest on the Exchange Notes issued pursuant to the
Exchange Offer will accrue from the last interest payment date on which interest
was paid on the Old Notes surrendered in exchange therefor or, if no interest
has been paid, from the original date of issuance of the Old Notes. Interest on
the Exchange Notes is payable semi-annually on each May 15 and November 15,
commencing on May 15, 2002. The Exchange Notes will bear interest (as do the Old
Notes) at a rate equal to 10 5/8% per annum. The form and terms of the Exchange
Notes are identical in all material respects to the form and terms of the Old
Notes, except that (i) the offering of the Exchange Notes has been registered
under the Securities Act of 1933, as amended (the "Securities Act"), (ii) the
Exchange Notes will not be subject to transfer restrictions (except as otherwise
set forth herein) and (iii) certain provisions relating to liquidated damages on
the Old Notes provided for under certain circumstances will be eliminated.
2. Based on an interpretation by the staff of the Securities and Exchange
Commission, Exchange Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by holders
thereof (other than any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act or a "broker" or
"dealer" registered under the Securities Exchange Act of 1934, as amended)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no arrangement
or understanding with any person to participate in the distribution of such
Exchange Notes. See the discussion in the Prospectus under "The Exchange
Offer -- Purpose and Effect of the Exchange Offer."
3. The Exchange Offer is not conditioned on any minimum principal amount of
Old Notes being tendered.
4. Notwithstanding any other term of the Exchange Offer, the Company will
not be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes not theretofore accepted for exchange, and may terminate or amend the
Exchange Offer as provided herein before the acceptance of such Old Notes, if
any of the conditions described in the Prospectus under "The Exchange Offer --
Conditions to the Exchange Offer" exist.
1
5. Tendered Old Notes may be withdrawn at any time before 5:00 p.m., New
York City time, on May 13, 2002.
6. Any transfer taxes applicable to the exchange of the Old Notes pursuant
to the Exchange Offer will be paid by the Company, except as otherwise provided
in the Prospectus under "The Exchange Offer -- Solicitation of Tenders; Fees and
Expenses" and in Instruction 9 of the Letter of Transmittal.
If you wish to have us tender any or all of your Old Notes, please so
instruct us by completing, detaching and returning to us the instruction form
attached hereto. An envelope to return your instructions is enclosed. If you
authorize a tender of your Old Notes, the entire principal amount of Old Notes
held for your account will be tendered unless otherwise specified on the
instruction form. Your instructions should be forwarded to us in ample time to
permit us to submit a tender on your behalf by the Expiration Date.
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, (i) holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance with
any provision of any applicable security law and (ii) holders of Old Notes who
are affiliates of the Company.
2
RES-CARE, INC.
OFFER TO EXCHANGE
10 5/8% SENIOR NOTES DUE 2008
FOR ANY AND ALL OF ITS
10 5/8% SENIOR NOTES DUE 2008
To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
We are enclosing herewith an offer by Res-Care, Inc., a Kentucky
corporation (the "Company"), to exchange its 10 5/8% Senior Notes due 2008 (the
"Exchange Notes") for any and all of its outstanding 10 5/8%% Senior Notes due
2008 (the "Old Notes"), upon the terms and subject to the conditions set forth
in the accompanying Prospectus, dated April 15, 2002 (the "Prospectus"), and
related Letter of Transmittal (which together with the Prospectus constitutes
the "Exchange Offer").
The Exchange Offer provides a procedure for holders to tender the Old Notes
by means of guaranteed delivery.
The Exchange Offer will expire at 5:00 p.m., New York City time, on May 13,
2002, unless extended (the "Expiration Date"). Tendered Old Notes may be
withdrawn at any time before 5:00 p.m., New York City time, on the Expiration
Date.
Based on an interpretation by the staff of the Securities and Exchange
Commission, Exchange Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by holders
thereof (other than any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act or a "broker" or
"dealer" registered under the Securities Exchange Act of 1934, as amended)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no arrangement
with any person to participate in the distribution of such Exchange Notes. See
the discussion in the Prospectus under "The Exchange Offer -- Purpose and Effect
of the Exchange Offer."
The Exchange Offer is not conditioned on any minimum principal amount of
Old Notes being tendered.
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes not theretofore accepted for exchange, and may terminate or amend the
Exchange Offer as provided herein before the acceptance of such Old Notes, if
any of the conditions described in the Prospectus under "The Exchange
Offer -- Terms of the Exchange Offer" exist.
The Company reserves the right not to accept tendered Old Notes from any
tendering holder if the Company determines, in its sole and absolute discretion,
that such acceptance could result in a violation of applicable securities laws.
For your information and for forwarding to your clients for whom you hold
Old Notes registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. A Prospectus dated, April 15, 2002
2. A Letter of Transmittal for your use and for the information of your
clients.
3. A printed form of letter which may be sent to your clients for whose
accounts you hold Old Notes registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer.
4. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 of the Internal Revenue Service.
1
WE URGE YOU TO CONTACT YOUR
CLIENTS AS PROMPTLY AS POSSIBLE.
Any inquiries you may have with respect to the Exchange Offer may be
addressed to, and additional copies of the enclosed materials may be obtained
from the Exchange Agent at the following telephone number: (860) 704-6126.
Very truly yours,
Res-Care, Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
AS THE AGENT OF THE COMPANY, THE EXCHANGE AGENT OR ANY OTHER PERSON OR AUTHORIZE
YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF
ANY OF THEM IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS
ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
2
RES-CARE, INC.
OFFER TO EXCHANGE
10 5/8% SENIOR NOTES DUE 2008
FOR ANY AND ALL OF ITS OUTSTANDING
10 5/8% SENIOR NOTES DUE 2008
INSTRUCTION TO REGISTERED HOLDER FROM BENEFICIAL OWNER
The undersigned acknowledge(s) receipt of your letter and the enclosed
Prospectus and the related Letter of Transmittal, in connection with the offer
by the company to exchange the 10 5/8% Senior Notes due 2008 (the "Old Notes").
This will instruct you to tender the principal amount of Old Notes
indicated below held by you for the account of the undersigned, upon the terms
and subject to the conditions set forth in the Prospectus and the related Letter
of Transmittal.
The undersigned represents that (i) the 10 5/8% Senior Notes due 2008 (the
"Exchange Notes") to be acquired pursuant to the Exchange Offer in exchange for
the Old Notes designated below are being obtained in the ordinary course of
business of the person receiving such Exchange Notes, (ii) neither the
undersigned nor any other person receiving such Exchange Notes is participating,
intends to participate, or has any arrangement or understanding with any person
to participate, in the distribution of such Exchange Notes, and (iii) it is not
an "affiliate," as defined under rule 405 of the Securities Act of 1933 (the
"Securities Act"), of the Company. Affiliates of the Company may not tender
their Old Notes in the Exchange Offer.
If the undersigned is a "broker" or "dealer" registered under the
Securities Exchange Act of 1934 that acquired Old Notes for its own account
pursuant to its market-making or other trading activities (other than Old Notes
acquired directly from the Company), the undersigned understands and
acknowledges that it may be deemed to be an "underwriter" within the meaning of
the Securities Act and, therefore, must deliver a prospectus relating to the
Exchange Notes in connection with any resales by it of Exchange Notes acquired
for its own account in the Exchange Offer. Notwithstanding the foregoing, the
undersigned does not thereby admit that it is an "underwriter" within the
meaning of the Securities Act.
You are hereby instructed to tender all Old Notes held for the account of
the undersigned unless otherwise indicated below.
____________ Do not tender any Old Notes.
____________ Tender Old Notes in the aggregate principal amount of
$__________________
SIGNATURE:
- --------------------------------------------------------------------------------
Name of Beneficial Owner (please print)
By
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
Area Code and Telephone Number
Dated: , 2002
1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--The taxpayer identification number for an individual is the individual's
Social Security number. Social Security numbers have nine digits separated by
two hyphens: e.g., 000-00-0000. The taxpayer identification number for an entity
is the entity's Employer Identification number. Employer Identification numbers
have nine digits separated by only one hyphen: e.g., 00-0000000. The table below
will help determine the number to give the payer.
<Table>
<Caption>
- ------------------------------------------------------------
GIVE THE NAME AND
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ------------------------------------------------------------
1. Individual The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account(1)
3. Husband and wife (joint account) The actual owner of
the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if
the minor is the
only contributor,
the minor(1)
6. Account in the name guardian or The ward, minor, or
committee for a designated ward, incompetent
minor, or incompetent person person(3)
7. a. The usual revocable savings The grantor-
trust (grantor is also trustee) trustee(1)
b. So-called trust account that is The actual owner(1)
not a legal or valid trust
under state law
- ------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------
GIVE THE NAME AND
EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ------------------------------------------------------------
8. Sole proprietorship The owner(4)
9. A valid trust, estate, or pension The legal entity
trust (Do not furnish the
identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated
in the account
title.)(5)
10. Corporate The corporation
11. Association, club, religious, The organization
charitable, educational or other
tax-exempt organization
12. Partnership The partnership
13. A broker or registered nominee The broker or
nominee
14. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state or
local government, school district,
or prison) that receives
agriculture program payments
- ------------------------------------------------------------
</Table>
(1)List first and circle the name of the person whose number you furnish.
(2)Circle the minor's name and furnish the minor's social security number.
(3)Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4)Show the name of the owner.
(5)List first and circle the name of the legal trust, estate, or pension trust.
NOTE:If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
Section references are to the Internal Revenue Code.
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service (the "IRS") and
apply for a number.
To complete the Substitute Form W-9, if you do not have a taxpayer
identification number, write "Applied For" in the space for the taxpayer
identification number in Part 1, sign and date the Form, and give it to the
requester. If the requester does not receive your taxpayer identification number
within 60 days, backup withholding, if applicable, will begin and will continue
until you furnish your taxpayer identification number to the requester.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in (1)
through (13) and a person registered under the Investment Advisers Act of 1940
who regularly acts as a broker are exempt. Payments subject to reporting under
sections 6041 and 6041A are generally exempt from backup withholding only if
made to payees described in items (1) through (7), except that a corporation
that provides medical and health care services or bills and collects payments
for such services is not exempt from backup withholding or information
reporting. Only payees described in items (2) through (6) are exempt from backup
withholding for barter exchange transactions, patronage dividends, and payments
by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an individual
retirement plan ("IRA"), or a custodial account under 403(b)(7), if the
account satisfies the requirements of section 401(f)(2).
(3) The United States or any of its agencies or instrumentalities.
(4) A State, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or
instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a). A financial
institution.
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends generally not subject to backup
withholding also include the following: - Payments to nonresident aliens
subject to withholding under section
1441.
- Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident partner.
- Payments of patronage dividends not paid in money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest generally not subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A and 6050N, and the regulations under such sections.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. ENTER YOUR TAXPAYER IDENTIFICATION NUMBER. WRITE "EXEMPT" ON
THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
PRIVACY ACT NOTICE
Section 6109 requires you to give your correct taxpayer identification number to
persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, cancellation of debt, or
contributions you made to an IRA. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. You must provide
your taxpayer identification number whether or not you are qualified to file a
tax return. Payers must generally withhold 31% of taxable interest, dividend,
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE