OFFER TO PURCHASE
AND CONSENT SOLICITATION STATEMENT
MERIT BEHAVIORAL CARE CORPORATION
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING
11 1/2% SENIOR SUBORDINATED NOTES DUE 2005
AND SOLICITATION OF CONSENTS TO
PROPOSED AMENDMENTS OF RELATED INDENTURE
------------------------
Merit Behavioral Care Corporation, a Delaware corporation ("Purchaser"),
hereby offers to purchase for cash, upon the terms and subject to the conditions
set forth in this Offer to Purchase and Consent Solicitation Statement (as it
may be amended from time to time, the "Statement") and in the accompanying
Consent and Letter of Transmittal (the "Consent and Letter of Transmittal" and,
together with this Statement, the "Offer"), any and all of its outstanding
11 1/2% Senior Subordinated Notes due 2005 (the "Notes") from any and all
Holders (as defined in the Indenture relating to the Notes, the "Holders")
thereof, at a purchase price determined in the manner described herein by
reference to a fixed spread of 50 basis points over the yield to maturity of the
8 1/2% U.S. Treasury Note due November 15, 2000 (of which an amount equal to 2%
of the principal amount ($20 for each $1,000 principal amount) of each Note
purchased shall constitute a consent payment (the "Consent Payment") that will
only be paid for Notes validly tendered (and not withdrawn) on or prior to the
Consent Date) (the "Offer Consideration"). Holders who validly tender their
Notes pursuant to the Offer on or prior to the Consent Date will receive the
Offer Consideration (which includes the Consent Payment), whereas Holders who
validly tender their Notes thereafter will receive an amount equal to the Offer
Consideration less the Consent Payment. In each case, Holders will also receive
accrued and unpaid interest on the Notes up to, but not including, the Payment
Date (as hereinafter defined).
The Offer Consideration (including the Consent Payment) for Notes tendered
pursuant to the Offer shall be the price (calculated as described in Schedule I
to this Statement) equal to the present value on the Payment Date of $1,057.50
per $1,000 principal amount of Notes (the amount payable on November 15, 2000,
which is the first date on which the notes are redeemable (the " Earliest
Redemption Date")), determined on the basis of a yield (the "Tender Offer
Yield") to the Earliest Redemption Date equal to the sum of (x) the yield on the
8 1/2% U.S. Treasury Note due November 15, 2000 (the "Reference Security"), as
calculated by the Dealer Manager in accordance with standard market practice,
based on the bid price for such security as of 2:00 p.m., New York City Time, on
January 26, 1998, the tenth business day immediately preceding the scheduled
Expiration Date (the "Price Determination Date"), as displayed on the Bloomberg
Government Pricing Monitor on "Page PX5" (the "Bloomberg Page") (or, if any
relevant price is not available on a timely basis on the Bloomberg Page or is
manifestly erroneous, such other recognized quotation source as the Dealer
Manager shall elect in its sole discretion) plus (y) 50 basis points (the "Fixed
Spread") (such price being rounded to the nearest cent per $1,000 principal
amount of Notes). In the event the Offer is extended for any period of time
longer than ten (10) business days from the previously scheduled Expiration
Date, a new Price Determination Date will be established.
(CONTINUED ON FOLLOWING PAGE)
THE SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY,
JANUARY 26, 1998 IF ON SUCH DATE PURCHASER HAS RECEIVED THE REQUISITE CONSENTS
(AS HEREINAFTER DEFINED) OR THE FIRST DATE THEREAFTER THAT PURCHASER RECEIVES
THE REQUISITE CONSENTS FROM HOLDERS OF THE NOTES UNLESS EXTENDED (SUCH DATE, AS
THE SAME MAY BE AMENDED, THE "CONSENT DATE"). THE OFFER WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, FEBRUARY 9, 1998 UNLESS EXTENDED (SUCH
DATE, AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE"). HOLDERS WHO DESIRE TO
RECEIVE THE OFFER CONSIDERATION (WHICH INCLUDES THE CONSENT PAYMENT) MUST
VALIDLY TENDER (AND NOT WITHDRAW) THEIR NOTES ON OR PRIOR TO THE CONSENT DATE.
HOLDERS WHO TENDER THEIR NOTES AFTER THE CONSENT DATE WILL RECEIVE THE OFFER
CONSIDERATION LESS THE CONSENT PAYMENT. CONSENTS MAY BE REVOKED AND TENDERS OF
NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE CONSENT DATE.
------------------------
THE DEALER MANAGER FOR THE OFFER AND THE SOLICITATION AGENT FOR THE SOLICITATION
IS:
CHASE SECURITIES INC.
January 12, 1998
(COVER PAGE CONTINUED)
In conjunction with the Offer, Purchaser hereby solicits (the
"Solicitation") consents (the "Consents") of Holders to certain proposed
amendments (the "Proposed Amendments") to the Indenture, dated as of November
22, 1995, as supplemented (the "Indenture"), by and among Purchaser and Marine
Midland Bank, as trustee (the "Trustee"), pursuant to which the Notes were
issued, to, among other things, eliminate substantially all the covenants
contained in the Indenture. The Proposed Amendments require the Consent of the
Holders of at least a majority in aggregate principal amount of the Notes
outstanding (the "Requisite Consents"). The Proposed Amendments will be
implemented by a supplemental indenture (the "Supplemental Indenture"), which is
expected to be executed promptly following receipt of the Requisite Consents.
Although the Supplemental Indenture reflecting the Proposed Amendments will
become effective upon execution by Purchaser and the Trustee, the Proposed
Amendments will not become operative until Notes are accepted for purchase by
Purchaser pursuant to the Offer, which is expected to occur promptly following
the Expiration Date. See Sections 4 and 6.
NOTWITHSTANDING ANY OTHER PROVISION OF THE OFFER OR THE SOLICITATION,
PURCHASER'S OBLIGATION TO ACCEPT FOR PURCHASE, AND TO PAY FOR, NOTES VALIDLY
TENDERED PURSUANT TO THE OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE SECTION 10.
If the Offer is consummated and the Proposed Amendments become operative,
Notes that are not tendered, or are not accepted for purchase pursuant to the
Offer, will remain outstanding, but will be subject to the terms of the
Indenture as modified by the Supplemental Indenture. If a Holder does not
properly tender Notes pursuant to the Offer on or prior to the Consent Date, or
Consents either are not properly delivered or are revoked and not properly
redelivered, on or prior to the Consent Date, such Holder will not receive the
Consent Payment, even though the Proposed Amendments will be effective as to all
Notes. As a result of the adoption of the Proposed Amendments, Holders of such
outstanding Notes will not be entitled to the benefit of substantially all the
covenants presently contained in the Indenture. In addition, if the Offer is
consummated, the trading market for Notes not properly tendered pursuant to the
Offer is likely to be significantly limited. Consequently, the consummation of
the Offer and the adoption of the Proposed Amendments may have adverse
consequences for Holders who do not validly tender Notes pursuant to the Offer.
See Section 3.
If the Notes are accepted for payment pursuant to the Offer, Holders who
validly tender Notes pursuant to the Offer on or prior to the Consent Date and
do not withdraw such tender or revoke such Consent on or prior to the Consent
Date will receive the Offer Consideration (which includes the Consent Payment).
Holders who validly tender Notes and deliver Consents pursuant to the Offer on
or prior to the Consent Date may not revoke such tender of Notes or Consent
after the Consent Date. Holders who validly tender their Notes and deliver
Consents after the Consent Date and on or prior to the Expiration Date will
receive the Offer Consideration less the Consent Payment.
Upon the terms and subject to the conditions of the Offer and the
Solicitation (including, if the Offer or the Solicitation is extended or
amended, the terms and conditions of any such extension or amendment) and
applicable law, Purchaser will (i) purchase, by accepting for payment, and will
pay for, all Notes validly tendered on or prior to the Expiration Date (and not
withdrawn) pursuant to the Offer and (ii) pay for all Consents validly delivered
on or prior to the Consent Date (and not revoked) pursuant to the Solicitation,
in each case promptly after the Expiration Date (the "Payment Date").
HOLDERS WHO TENDER NOTES PURSUANT TO THE OFFER ARE OBLIGATED TO CONSENT TO
THE PROPOSED AMENDMENTS. PURSUANT TO THE TERMS OF THE CONSENT AND LETTER OF
TRANSMITTAL, THE COMPLETION, EXECUTION AND DELIVERY THEREOF BY A HOLDER IN
CONNECTION WITH THE TENDER OF NOTES WILL BE DEEMED TO CONSTITUTE THE CONSENT
WITH RESPECT TO THE NOTES TENDERED. HOLDERS MAY NOT DELIVER CONSENTS WITHOUT
TENDERING THEIR NOTES PURSUANT TO THE OFFER AND MAY NOT REVOKE CONSENTS WITHOUT
WITHDRAWING THE PREVIOUSLY TENDERED NOTES TO WHICH SUCH CONSENTS RELATE.
In the event that the Offer and the Solicitation are withdrawn or otherwise
not completed, the Offer Consideration (including the Consent Payment) will not
be paid or become payable to Holders who have validly tendered their Notes and
delivered Consents in connection with the Offer and the Solicitation. In any
such event, the Notes previously tendered pursuant to the Offer will be promptly
returned to the tendering Holder and the Proposed Amendments will not become
operative.
ii
(COVER PAGE CONTINUED)
CERTAIN OFFER AND SOLICITATION MATTERS
Tenders of Notes may be withdrawn at any time prior to the Consent Date.
Tenders of Notes may also be withdrawn if the Offer is terminated without any
Notes being purchased thereunder or as otherwise provided herein. For a
withdrawal of a tendered Note to be valid, such withdrawal must comply with the
procedures set forth in Section 8 hereof. A valid withdrawal of tendered Notes
prior to the Consent Date shall be deemed a revocation of the related Consent.
In the event of a termination of the Offer, the Notes tendered pursuant to the
Offer will be returned to the tendering Holders promptly. If Purchaser makes a
material change in the terms of the Offer or the information concerning the
Offer or waives a material condition of the Offer, Purchaser will disseminate
additional Offer materials and extend such Offer to the extent required by law.
Other than as set forth herein, once tendered, Notes may not be withdrawn after
the Consent Date. See Section 8.
Consents may be revoked at any time prior to the Consent Date, but a valid
revocation of a Consent will be deemed a withdrawal of the tendered Notes. For a
revocation of a Consent to be valid, such revocation must comply with the
procedures set forth in Section 8 hereof. If, prior to the Consent Date, the
Solicitation is amended in a manner determined by Purchaser, in its sole
discretion, to constitute a material adverse change to the Holders, Purchaser
promptly will disclose such amendment and may, if appropriate, extend the
Solicitation for a period deemed by Purchaser to be adequate to permit Holders
to properly deliver or revoke their Consents. In addition, Purchaser may, if it
deems appropriate, extend the Solicitation for any other reason. Other than as
set forth herein, once delivered, Consents may not be revoked after the Consent
Date. See Section 8.
NOTWITHSTANDING ANY OTHER PROVISION OF THE OFFER OR THE SOLICITATION,
PURCHASER'S OBLIGATION TO ACCEPT FOR PURCHASE, AND TO PAY FOR, NOTES VALIDLY
TENDERED PURSUANT TO THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE
SATISFACTION OR WAIVER OF (I) THE CONSENT CONDITION (AS HEREINAFTER DEFINED),
(II) THE FINANCING CONDITION (AS HEREINAFTER DEFINED), (III) THE PARENT TENDER
OFFER CONDITION (AS HEREINAFTER DEFINED), (IV) THE MERGER CONDITION (AS
HEREINAFTER DEFINED) AND (V) THE GENERAL CONDITIONS (AS HEREINAFTER DEFINED).
PURCHASER, IN ITS SOLE DISCRETION, MAY WAIVE ANY OF THE CONDITIONS OF THE OFFER,
IN WHOLE OR IN PART, AT ANY TIME AND FROM TIME TO TIME. SEE SECTIONS 3 AND 10.
From time to time in the future, Parent, Purchaser or any of their
subsidiaries may acquire any Notes that are not tendered pursuant to the Offer
(through open market purchases, privately negotiated transactions, tender
offers, exchange offers or otherwise), upon such terms and at such prices as
they may determine, which may be more or less than the price to be paid pursuant
to the Offer and could be for cash or other consideration. There can be no
assurance as to which, if any, of these alternatives (or combinations thereof)
Parent, Purchaser or any of their subsidiaries will choose to pursue in the
future.
PURCHASER RESERVES THE RIGHT TO WAIVE ANY AND ALL CONDITIONS TO THE OFFER OR
THE SOLICITATION AND TO ACCEPT FOR PURCHASE ANY NOTE TENDERED PURSUANT TO THE
OFFER, WHETHER OR NOT THE REQUISITE CONSENTS TO THE PROPOSED AMENDMENTS ARE
RECEIVED. SUBJECT TO COMPLIANCE WITH APPLICABLE SECURITIES LAWS AND THE TERMS
SET FORTH IN THIS STATEMENT, PURCHASER RESERVES THE RIGHT TO EXTEND OR TERMINATE
THE OFFER AND THE SOLICITATION, OR TO OTHERWISE AMEND THE OFFER AND THE
SOLICITATION IN ANY RESPECT.
THIS STATEMENT HAS NOT BEEN FILED WITH OR REVIEWED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY OF ANY COUNTRY, NOR HAS ANY SUCH
COMMISSION OR AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL AND MAY BE A CRIMINAL OFFENSE.
SEE "CERTAIN SIGNIFICANT CONSIDERATIONS" AND "CERTAIN U.S. FEDERAL INCOME
TAX CONSIDERATIONS" FOR DISCUSSIONS OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
IN EVALUATING THE OFFER AND THE SOLICITATION.
iii
(COVER PAGE CONTINUED)
IMPORTANT
Any Holder desiring to tender Notes and consent to the Proposed Amendments
should either (a) in the case of a Holder who holds physical certificates
evidencing such Notes, complete and sign the Consent and Letter of Transmittal
(or a manually signed facsimile thereof) in accordance with the Instructions to
the Consent and Letter of Transmittal, have the signature thereon guaranteed (if
required by Instruction 1 to the Consent and Letter of Transmittal) and deliver
it, together with certificates evidencing such Notes being tendered and any
other required documents to Bankers Trust Company ("Bankers Trust"), as
depositary (the "Depositary"), at its address set forth on the back cover of
this Statement or (b) in the case of a beneficial owner who holds Notes in
book-entry form, request its broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such Holder. Beneficial owners whose
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such broker, dealer, commercial bank,
trust company or other nominee if they desire to tender Notes and deliver
Consents with respect to Notes so registered. See Section 7.
Any Holder who desires to tender Notes and whose Notes are not immediately
available, or who cannot complete the procedure set forth herein for tender on a
timely basis, may tender such Notes by following the procedures for guaranteed
delivery set forth in Section 7. The procedures for guaranteed delivery of Notes
may not be used to deliver Consents prior to the Consent Date.
The Depository Trust Company ("DTC") has confirmed that the Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Offer by
causing DTC to transfer Notes to the Depositary in accordance with ATOP
procedures for transfer. DTC will then send an Agent's Message (as defined in
Section 7) to the Depositary. Notwithstanding the tender of Notes by a Holder
pursuant to ATOP, in order to validly deliver a Consent with respect to Notes
transferred pursuant to ATOP on or prior to the Consent Date (and thereby make a
valid tender of such Notes), DTC participants using ATOP must also properly
complete and execute the Consent and Letter of Transmittal and timely deliver it
to the Depositary. See Section 7.
Consents and Letters of Transmittal, the Notes and any other required
documents should be sent to the Depositary only, and the method of delivery of
such documents to the Depositary is at the election and risk of the Holder
tendering such Notes and delivering such Consent and Letter of Transmittal and
any other required documents. Questions and requests for assistance may be
directed to Georgeson & Company Inc. ("Georgeson"), the information agent (the
"Information Agent"), or Chase Securities Inc. ("Chase Securities"), the dealer
manager (the "Dealer Manager"), at their respective addresses and telephone
numbers set forth on the back cover of this Statement. Additional copies of this
Statement, the Consent and Letter of Transmittal, the Notice of Guaranteed
Delivery and other related materials may be obtained from the Information Agent.
Any Holder whose Notes have been mutilated, lost, stolen or destroyed should
contact the Trustee at its address and telephone number set forth in Section 7
for further instructions.
THIS STATEMENT CONSTITUTES NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION
OF CONSENTS IN ANY JURISDICTION IN WHICH, OR TO OR FROM ANY PERSON TO OR FROM
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION UNDER APPLICABLE
SECURITIES OR BLUE SKY LAWS. THE DELIVERY OF THIS STATEMENT SHALL NOT UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN ANY ATTACHMENTS HERETO OR IN
THE AFFAIRS OF PURCHASER OR ANY OF ITS SUBSIDIARIES SINCE THE DATE HEREOF.
NONE OF PURCHASER, THE DEALER MANAGER, THE TRUSTEE, THE DEPOSITARY OR THE
INFORMATION AGENT MAKE ANY RECOMMENDATION AS TO WHETHER HOLDERS SHOULD TENDER
NOTES PURSUANT TO THE OFFER AND DELIVER CONSENTS TO THE PROPOSED AMENDMENTS.
iv
(COVER PAGE CONTINUED)
All information concerning Parent (as hereinafter defined) that is contained
herein (i) has been provided by Parent or (ii) is based on publicly available
information of Parent.
Certain of the statements in the Statement including, without limitation,
statements regarding acquisition opportunities, revenue growth and future
transactions constitute forward-looking statements contemplated under the
Private Securities Litigation Reform Act of 1995. Risk factors such as the
ability to successfully complete and integrate acquisitions and the degree of
new product success could prevent Parent and Purchaser from achieving their
objectives. For a more complete discussion of these and other risks, please see
"Certain Significant Considerations" and Parent's and Purchaser's Annual Reports
on Form 10-K for the year ended September 30, 1997.
v
AVAILABLE INFORMATION
Purchaser and Magellan Health Services, Inc. ("Parent") are subject to the
periodic reporting 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 "SEC"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the SEC's regional offices at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such information may be obtained from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material may also be accessed
electronically by means of the SEC's home page on the Internet at
http:/www.sec.gov.
INCORPORATION BY REFERENCE
The following document filed by Purchaser with the SEC is incorporated
herein by reference and shall be deemed to be a part hereof:
1. Annual Report of Purchaser on Form 10-K for the year ended September 30,
1997.
The following document filed by Parent with the SEC is incorporated herein
by reference and shall be deemed to be a part hereof:
1. Annual Report of Parent on Form 10-K for the year ended September 30,
1997.
All documents and reports filed by Purchaser and Parent with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Statement and prior to the termination of the Offer shall be deemed
incorporated herein by reference and shall be deemed to be a part hereof from
the date of filing of such documents and reports. 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 Statement to the extent
that a statement contained herein or in any subsequently filed document or
report that 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
Statement.
Purchaser will provide without charge, upon written or oral request, to each
person to whom a copy of this Statement is delivered, a copy of any of the
documents of Purchaser (other than exhibits to such documents unless such
exhibits are specifically incorporated by reference) incorporated by reference
herein. Request for documents incorporated by reference herein should be
directed to Mr. John A. Budnick, Chief Financial Officer, Merit Behavioral Care
Corporation, One Maynard Drive, Park Ridge, New Jersey 07656, (201) 391-8700.
The documents may also be accessed electronically by means of the SEC's home
page on the Internet at http:/www.sec.gov.
Parent will provide without charge, upon written or oral request, to each
person to whom a copy of this Statement is delivered, a copy of any of the
documents of Parent (other than exhibits to such documents unless such exhibits
are specifically incorporated by reference) incorporated by reference herein.
Request for documents incorporated by reference herein should be directed to Mr.
Kevin Helmintoller, Vice President - Investor Relations, Magellan Health
Services, Inc., 3414 Peachtree Road, N.E., Suite 1400, Atlanta, Georgia 30326,
(404) 841-9200. The documents may also be accessed electronically by means of
the SEC's home page on the Internet at http:/www.sec.gov.
No person has been authorized to give any information or to make any
representation not contained in this Statement or the Consent and Letter of
Transmittal and, if given or made, such information or representation may not be
relied upon as having been authorized by Purchaser, the Dealer Manager, the
Depositary or the Information Agent. Neither the delivery of this Statement nor
any purchase hereunder shall, under any circumstance, create any implication
that the information herein is correct as of any time subsequent to the date
hereof, or that there has been no change in the affairs of Purchaser or Parent
as of such date.
vi
TABLE OF CONTENTS
PAGE
---------
SUMMARY.................................................................................................... 1
1. CERTAIN INFORMATION CONCERNING PURCHASER, PARENT, THE MERGER AND THE NOTES............................. 5
2. CAPITALIZATION OF PARENT............................................................................... 6
3. CERTAIN SIGNIFICANT CONSIDERATIONS..................................................................... 7
4. PROPOSED AMENDMENTS TO THE INDENTURE................................................................... 15
5. TERMS OF THE OFFER AND THE SOLICITATION................................................................ 17
6. ACCEPTANCE FOR PURCHASE AND PAYMENT FOR NOTES; ACCEPTANCE OF CONSENTS.................................. 20
7. PROCEDURES FOR TENDERING NOTES AND DELIVERING CONSENTS................................................. 21
8. WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS....................................................... 24
9. SOURCE AND AMOUNT OF FUNDS............................................................................. 25
10. CONDITIONS TO THE OFFER AND THE SOLICITATION........................................................... 25
11. CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS......................................................... 27
12. THE DEALER MANAGER, THE INFORMATION AGENT AND THE DEPOSITARY........................................... 28
13. FEES AND EXPENSES...................................................................................... 29
14. MISCELLANEOUS.......................................................................................... 29
SCHEDULE I : FORMULA TO DETERMINE OFFER CONSIDERATION...................................................... I-1
SCHEDULE II: HYPOTHETICAL ILLUSTRATION OF OFFER CONSIDERATION.............................................. II-1
vii
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS STATEMENT
AND THE CONSENT AND LETTER OF TRANSMITTAL. CAPITALIZED TERMS HAVE THE MEANINGS
ASSIGNED TO THEM ELSEWHERE IN THIS STATEMENT.
Purchaser:................... Merit Behavioral Care Corporation, a Delaware corporation,
is a managed behavioral healthcare company.
Parent:...................... Magellan Health Services, Inc., a Delaware corporation, is
one of the nation's largest providers of managed behavioral
healthcare services.
The Notes:................... The Offer and the Solicitation are being made with respect
to the Purchaser's 11 1/2% Senior Subordinated Notes due
2005.
The Merger:.................. On October 24, 1997, Parent announced that it had entered
into a definitive agreement (the "Merger Agreement") to
acquire Purchaser for cash consideration of approximately
$458.3 million, subject to certain adjustments, pursuant to
which Purchaser will become a wholly-owned subsidiary of
Parent (the "Merger"). Consummation of the Merger and the
related financing arrangements would violate certain
covenants contained in the Indenture. In particular, the
Merger and the related financing arrangements would violate
the covenants in the Indenture that prohibit Purchaser from
incurring additional indebtedness in excess of certain
amounts. The Purchaser is making this Offer and soliciting
the Consents to eliminate, among other things, the
restrictions imposed by the Indenture on consummating the
Merger and the related financing arrangements.
The Offer:................... Purchaser is offering to purchase any and all of the
outstanding Notes.
The Solicitation:............ As a condition to consummation of the Offer, Purchaser is
also seeking Consents from Holders to the Proposed
Amendments to the Indenture.
Offer Consideration:......... The Offer Consideration (including the Consent Payment) for
Notes tendered pursuant to the Offer shall be the price
(calculated as described in Schedule I to this Statement)
equal to the present value on the Payment Date of $1,057.50
per $1,000 principal amount of Notes (the amount payable on
November 15, 2000, which is the first date on which the
Notes are redeemable (the "Earliest Redemption Date")),
determined on the basis of a yield (the "Tender Offer
Yield") to the Earliest Redemption Date equal to the sum of
(x) the yield on the 8 1/2% U.S. Treasury Note due November
15, 2000 (the "Reference Security"), as calculated by the
Dealer Manager in accordance with standard market practice,
based on the bid price for such security as of 2:00 p.m.,
New York City Time, on January 26, 1998, the tenth business
day immediately preceding the scheduled Expiration Date (the
"Price Determination Date"), as displayed on the Bloomberg
Government Pricing Monitor on "Page PX5" (the "Bloomberg
Page") (or, if any relevant price is not available on a
timely basis on the Bloomberg Page or is manifestly
erroneous, such other recognized quotation source as the
Dealer Manager shall elect in its sole discretion) plus (y)
50 basis points (the "Fixed Spread") (such price being
rounded to the nearest cent per $1,000 principal
1
amount of Notes), plus accrued and unpaid interest on the
Notes to, but not including, the Payment Date. In the event
the Offer is extended for any period of time longer than ten
(10) business days from the previously scheduled Expiration
Date, a new Price Determination Date will be established.
Holders of Notes tendered after the Consent Date will
receive the Offer Consideration less 2% of the principal
amount of each Note (the "Consent Payment").
Requisite Consents:.......... Approval of the Proposed Amendments to the Indenture
requires the Consent of the Holders of at least a majority
in aggregate principal amount of the Notes outstanding.
Effectiveness of Proposed
Amendments:................ The Supplemental Indenture implementing the Proposed
Amendments will be executed promptly following receipt of
the Requisite Consents. The Proposed Amendments, however,
will not become operative until Purchaser has accepted for
purchase all Notes validly tendered (and not withdrawn)
pursuant to the Offer. See Section 6. If the Proposed
Amendments become operative, all persons who continue to
hold Notes thereafter will be subject to the provisions of
the Indenture as amended by the Proposed Amendments.
Tender of Notes and Delivery
of Consents:............... Upon the terms of the Offer and the Solicitation and upon
satisfaction or waiver of the conditions thereto, Purchaser
will accept for purchase Notes validly tendered on or prior
to the Expiration Date (and not properly withdrawn). Holders
who validly tender their Notes and deliver their Consents on
or prior to the Consent Date (and do not withdraw such
tender or revoke such Consent) will be entitled to receive
the Offer Consideration (which includes the Consent Payment)
plus accrued and unpaid interest up to, but not including,
the Payment Date. Holders that validly tender their Notes
and deliver their Consents after the Consent Date but on or
prior to the Expiration Date will be entitled to receive the
Offer Consideration less the Consent Payment, plus accrued
and unpaid interest up to, but not including, the Payment
Date. Payment for Notes validly tendered and accepted for
payment will be made by deposit of such amounts, as
applicable, with the Depositary who will act as agent for
the tendering and consenting Holders for the purpose of
receiving payments from Purchaser and transmitting such
payments to the tendering and consenting Holders. Such
payments are expected to be made on the Payment Date,
promptly following the Expiration Date. See Sections 5 and
6.
Proposed Amendments:......... The Proposed Amendments would (i) delete Section 3.5 (Asset
Sale Offer); (ii) delete the following covenants contained
in the Indenture: Sections 4.3 (Limitation on Restricted
Payments), 4.4 (Limitation on Incurrence of Indebtedness and
Issuance of Disqualified Stock), 4.5 (Corporate Existence),
4.6 (Payment of Taxes and Other Claims), 4.7 (Maintenance of
Properties and Insurance), 4.8 (Compliance Certificates;
Notice of Default), 4.9 (Compliance with Laws), 4.10(a)
through 4.10(d) (Reports), 4.12 (Limitation on Transactions
with Affiliates), 4.13 (Dividends and Other Payment
Restrictions Affecting
2
Subsidiaries), 4.14 (Limitation on Liens), 4.15 (Change of
Control), 4.16 (Limitation on Asset Sales) and 4.17
(Limitation on Incurrence of Senior Subordinated Debt);
(iii) delete the subsection of Section 5.1 (Merger,
Consolidation and Sale of Assets) that contains a fixed
charge coverage ratio test in connection with permitted
mergers and asset transfers; (iv) delete the events of
default contained in Section 6.1 relating to
cross-acceleration with respect to debt instruments and
final judgments against Purchaser or its subsidiaries and
(v) delete and amend certain definitions contained in the
Indenture, as appropriate.
Source of Funds.............. Assuming 100% of the outstanding principal amount of the
Notes is tendered and accepted for payment and assuming a
Price Determination Date as described on Schedule II,
approximately $120 million will be required to pay the Offer
Consideration in connection with the Offer and the
Solicitation. Such funds will be obtained by Purchaser from
borrowings under Parent's new $900 million senior secured
credit agreement (the "New Credit Agreement"), which will
provide for borrowings by certain subsidiaries of Parent.
See Section 9.
Conditions to the Offer:..... Purchaser's obligation to accept for purchase and to pay for
the Notes validly tendered pursuant to the Offer is subject
to and conditioned upon satisfaction of: (i) the Consent
Condition, (ii) the Financing Condition, (iii) the Parent
Tender Offer Condition; (iv) the Merger Condition and (v)
the General Conditions. See Section 10.
Consent Date:................ The Solicitation will expire at 5:00 p.m., New York City
time, on Monday, January 26, 1998, if on such date Purchaser
has received the Requisite Consents, or on the first date
thereafter that Purchaser receives the Requisite Consents,
unless extended. The Supplemental Indenture will be executed
promptly following the receipt of the Requisite Consents.
Expiration Date:............. The Offer will expire at 12:00 midnight, New York City time,
on Monday, February 9, 1998, unless extended.
Payment Date:................ Payments will be made promptly following the Expiration
Date.
Procedure for Tendering Notes
and Delivering Consents:... Any Holder desiring to tender Notes and deliver Consents to
the Proposed Amendments should (a) in the case of a Holder
who holds physical certificates evidencing such Notes,
complete and sign the Consent and Letter of Transmittal (or
a manually signed facsimile thereof) in accordance with the
Instructions to the Consent and Letter of Transmittal, have
the signature thereon guaranteed (if required by Instruction
1 to the Consent and Letter of Transmittal) and deliver it,
together with certificates evidencing such Notes being
tendered and any other required documents to the Depositary
at its address set forth on the back cover of this Statement
or (b) in the case of a beneficial owner who holds Notes in
book-entry form, request its broker, dealer, commercial
bank, trust company or other nominee to effect the
transaction for such Holder. A Holder who desires to tender
Notes after the Consent Date but cannot comply with the
delivery requirements may tender such Notes by following the
procedures set
3
forth herein for guaranteed delivery. See Section 7. DTC
participants may electronically transmit their acceptance of
the Offer by causing DTC to transfer Notes to the Depositary
in accordance with ATOP procedures for transfer. DTC will
then send an Agent's Message (as defined in Section 7) to
the Depositary. Notwithstanding the tender of Notes by a
Holder pursuant to ATOP, in order to validly deliver a
Consent with respect to Notes transferred pursuant to ATOP
on or prior to the Consent Date (and thereby make a valid
tender of such Notes), DTC participants using ATOP must also
properly complete and execute the Consent and Letter of
Transmittal and timely deliver it to the Depositary.
Revocation of Consents:...... Consents may be revoked at any time prior to the Consent
Date upon compliance with the procedures described herein
but are thereafter irrevocable. A valid revocation of a
Consent will be deemed a withdrawal of tendered Notes. See
Section 8.
Withdrawal of Tenders of
Notes:..................... Tenders of Notes may be withdrawn at any time prior to the
Consent Date upon compliance with the procedures described
herein but are thereafter irrevocable. Tenders of Notes may
also be withdrawn if the Offer is terminated without any
Notes being purchased hereunder. A valid withdrawal of
tendered Notes prior to the Consent Date will be deemed a
revocation of the related Consent. See Section 8.
Certain Significant
Considerations:............ See Section 3 for a discussion of certain factors that
should be considered in evaluating the Offer and the
Solicitation.
Certain Tax Considerations... Holders of Notes should consider certain U.S. Federal income
tax consequences of the Offer and the Solicitation. See
Section 11.
Untendered Notes............. Notes not tendered and purchased pursuant to the Offer will
remain outstanding. If the Requisite Consents are received
and the Proposed Amendments become operative pursuant to the
Supplemental Indenture, such Notes will not have the benefit
of the restrictive covenants that will be eliminated from
the Indenture by the Proposed Amendments. In addition, as a
result of the consummation of the Offer, the aggregate
principal amount of the Notes that are outstanding will be
significantly reduced, which may adversely affect the
liquidity and, consequently, the market price for the Notes,
if any, that remain outstanding after consummation of the
Offer. See Section 3.
Dealer Manager:.............. Chase Securities is serving as Dealer Manager in connection
with the Offer and the Solicitation. Its address and
telephone number are set forth on the back cover of this
Statement.
Depositary:.................. Bankers Trust is serving as Depositary in connection with
the Offer and the Solicitation. Its addresses and telephone
numbers are set forth on the back cover of this Statement.
Information Agent:........... Georgeson is serving as Information Agent in connection with
the Offer and the Solicitation. Its address and telephone
number are set forth on the back cover of this Statement.
4
TO HOLDERS OF THE 11 1/2% SENIOR SUBORDINATED NOTES DUE 2005 OF
MERIT BEHAVIORAL CARE CORPORATION
THIS STATEMENT AND THE RELATED CONSENT AND LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER AND THE SOLICITATION.
1. CERTAIN INFORMATION CONCERNING PURCHASER, PARENT, THE MERGER
AND THE NOTES.
PURCHASER. Purchaser is one of the leading managed behavioral healthcare
companies in the United States, arranging for the provision of a full spectrum
of behavioral healthcare services to approximately 21 million people nationwide.
Purchaser provides managed behavioral healthcare services through a systematic
clinical approach with the objective of diagnosing problems promptly and
designing treatment plans to ensure that patients receive the appropriate level
of care in an efficient and cost-effective manner. Purchaser manages behavioral
healthcare programs across all segments of the healthcare industry, including
health maintenance organizations ("HMOs"), Blue Cross/Blue Shield organizations
and other insurance companies, corporations and labor unions, federal, state and
local governmental agencies, and various state Medicaid programs.
Purchaser's professional care managers coordinate and manage the delivery of
behavioral healthcare treatment services through Purchaser's network of
providers, which includes psychiatrists, psychologists, licensed clinical social
workers, marriage and family therapists and licensed clinical professional
counselors. The treatment services provided by Purchaser's extensive provider
network include outpatient programs (such as counseling and therapy),
intermediate care programs (such as sub-acute emergency care, intensive
outpatient programs and partial hospitalization services), inpatient treatment
services and alternative care services (such as residential treatment, home and
community-based programs and rehabilitative and support services). Purchaser
provides these services through: (i) risk-based products, (ii) employee
assistance programs ("EAPs"), (iii) administrative services-only products ("ASO
products") and (iv) products that combine features of some or all of these
products. Under risk-based products, Purchaser arranges for the provision of a
full range of behavioral healthcare services for beneficiaries of its customers'
healthcare benefit plans through fee arrangements under which Purchaser assumes
all or a portion of the responsibility for the cost of providing such services
in exchange for a fixed per member per month fee. Under EAPs, Purchaser provides
assessment services to employees and dependants of its customers, and if
required, referral services to the appropriate behavioral healthcare service
provider. Under ASO products, Purchaser provides services such as utilization
review, claims administration and network management. Purchaser does not assume
the responsibility for the cost of providing healthcare services pursuant to its
ASO products.
Purchaser was incorporated in 1993 under the laws of the State of Delaware.
Unless the context otherwise requires, references to Purchaser include Merit
Behavioral Care Corporation and its subsidiaries. Purchaser's principal
executive offices are located at One Maynard Drive, Park Ridge, New Jersey
07656, and its telephone number is (201) 391-8700.
PARENT. Parent believes it is one of the nation's largest providers of
managed behavioral healthcare services, offering a broad array of cost-effective
managed behavioral healthcare products. Following the Merger, Parent will have
over 56 million covered lives under managed behavioral healthcare contracts and
will manage behavioral healthcare programs for over 4,000 customers. Through its
current network of over 33,000 providers and 2,000 treatment facilities, Parent
manages behavioral healthcare programs for Blue Cross/Blue Shield organizations,
HMOs and other insurance companies, corporations, federal, state and local
government agencies, labor unions and various state Medicaid programs. Parent
believes it will have the largest and most comprehensive behavioral healthcare
provider network in the United States as a result of the Merger. In addition to
Parent's behavioral healthcare products, Parent offers specialty products
related to the management of certain chronic conditions. Parent also offers a
broad continuum of behavioral healthcare services through National Mentor, Inc.,
its wholly-owned public sector provider, to
5
approximately 2,800 individuals who receive healthcare benefits funded by state
and local governmental agencies. Furthermore, Parent franchises the "CHARTER"
System of behavioral healthcare to the acute-care psychiatric hospitals and
other behavioral care facilities operated by Charter Behavioral Health Systems,
LLC ("CBHS"), an entity in which Parent and an affiliate of Crescent Real Estate
Equities Limited Partnership ("Crescent") each own a 50% equity interest.
Parent is currently in discussions with Crescent Operating, Inc., an
affiliate of Crescent ("COI") regarding the purchase by COI of the franchise
operations and all or part of Parent's interest in CBHS. The cash proceeds
received by Parent upon the consummation of any such transaction would be used
to repay indebtedness. However, there can be no assurance that a definitive
agreement will be executed or that such transaction will occur.
Parent was incorporated in 1969 under the laws of the State of Delaware.
Unless the context otherwise requires, references to Parent include Magellan
Health Services, Inc. and its subsidiaries. Parent's principal executive offices
are located at 3414 Peachtree Road, N.E., Suite 1400, Atlanta, Georgia 30326,
and its telephone number is (404) 841-9200.
THE MERGER. On October 24, 1997, Parent announced that it had entered into
the Merger Agreement to acquire Purchaser for cash consideration of
approximately $458.3 million, subject to certain adjustments, pursuant to which
Purchaser will become a wholly-owned subsidiary of Parent (the "Merger"). In
connection with the Merger, Parent will issue the New Senior Subordinated Notes
(as hereinafter defined) and will enter into the New Credit Agreement with The
Chase Manhattan Bank ("Chase"), an affiliate of Chase Securities Inc., and a
group of other financial institutions. Pursuant to the New Credit Agreement,
Chase and such financial institutions will, subject to the satisfaction of
certain conditions, make available to Parent and Purchaser senior secured credit
facilities of up to $900 million. Consummation of the Offer is subject to
Purchaser's obtaining those funds. Consummation of the Merger and the related
financing arrangements would result in events of default under the Indenture.
The Purchaser is making this Offer and soliciting the Consents to, among other
things, eliminate the restrictions on consummating the Merger and the related
financing arrangements imposed by the Indenture. The issuance by Parent of New
Senior Subordinated Notes, the closing under the New Credit Agreement and the
consummation of the Parent Tender Offer (as hereinafter defined) and the Merger
are expected to occur on or prior to the Payment Date.
THE NOTES. The Notes were issued by Purchaser in 1995 in the aggregate
principal amount of $100,000,000, all of which remain outstanding as of the date
of this Offer. The Notes are unsecured senior subordinated obligations of
Purchaser that mature on November 15, 2005. Pursuant to the Indenture, the Notes
may be redeemed on or after November 15, 2000 at a price equal to 105.75% of the
principal amount outstanding, and at lesser prices in each succeeding year from
that date. Holders may obtain copies of the Indenture without charge from the
Information Agent.
2. CAPITALIZATION OF PARENT.
The following table sets forth the consolidated capitalization of Parent at
September 30, 1997 and on a pro forma basis to give effect to the Merger, the
issuance by Parent of a new series of Senior Subordinated Notes due 2008 (the
"New Senior Subordinated Notes"), borrowings under the New Credit Agreement,
consummation of a simultaneous tender offer for all outstanding 11 1/4% Series A
Senior Subordinated Notes due 2004 of Parent (the "Parent Tender Offer") and the
repurchase of all of the Notes pursuant to the Offer (collectively, the
"Transactions").
6
AS OF SEPTEMBER 30, 1997
-----------------------------------
PURCHASER PARENT PRO FORMA
----------- --------- -----------
(IN MILLIONS)
(UNAUDITED)
Total Debt (including current maturities):
Existing Purchaser credit facilities.......................................... $ 229.5 -- --
Existing Parent credit facilities............................................. -- $0.0 --
New Credit Agreement.......................................................... -- -- 762.8
11 1/4% Series A Senior Subordinated Notes due 2004........................... -- 375.0 --
11 1/2% Senior Subordinated Notes due 2005.................................... 100.0 -- --
New Senior Subordinated Notes due 2008........................................ -- -- 400.0
Other Debt...................................................................... -- 20.3 20.9
----------- --------- -----------
Total Debt.................................................................. $ 329.5 $395.3 $1,183.7
Stockholders' Equity (Deficit).................................................. (25.9) 158.3 214.4
----------- --------- -----------
Total Capitalization............................................................ $ 303.6 $553.6 $1,398.1
----------- --------- -----------
----------- --------- -----------
3. CERTAIN SIGNIFICANT CONSIDERATIONS.
THE FOLLOWING CONSIDERATIONS, IN ADDITION TO THE OTHER INFORMATION DESCRIBED
HEREIN, SHOULD BE CAREFULLY CONSIDERED BY EACH HOLDER OF NOTES BEFORE DECIDING
WHETHER TO TENDER NOTES PURSUANT TO THE OFFER AND DELIVER CONSENTS PURSUANT TO
THE SOLICITATION.
EFFECTS OF THE PROPOSED AMENDMENTS. If the Proposed Amendments become
operative, Notes that are not tendered and purchased pursuant to the Offer will
remain outstanding and will be subject to the terms of the Indenture as modified
by the Supplemental Indenture. As a result of the adoption of the Proposed
Amendments, substantially all the covenants contained in the Indenture will be
deleted and Holders of Notes not tendered will no longer be entitled to the
benefits of such covenants. The deletion of these covenants will permit
Purchaser and the Restricted Subsidiaries (as defined in the Indenture, the
"Subsidiaries") to take certain actions previously prohibited (such as incur
indebtedness, pay dividends or make other restricted payments, incur liens, or
make investments that would otherwise not have been permitted) that could
increase the credit risks with respect to Purchaser, adversely affect the market
price and credit rating of the remaining Notes or otherwise be adverse to the
interests of the Holders. See Section 4.
The New Credit Agreement and the indenture for the New Senior Subordinated
Notes will contain covenants that will restrict Parent's and its subsidiaries'
(including Purchaser's) operations as long as the New Credit Agreement remains
in effect or any of the New Senior Subordinated Notes remain outstanding. See
"--Restrictive Financing Covenants." Holders of Notes who do not tender their
Notes pursuant to the Offer will indirectly benefit from such covenants unless
Parent obtains waivers of or amendments to them. Parent may obtain such waivers
or amendments without regard to, or obtaining the consent of, the Holders of the
Notes.
CONDITIONS TO THE CONSUMMATION OF THE OFFER AND THE SOLICITATION AND RELATED
RISKS. The consummation of the Offer and Solicitation are subject to the
satisfaction of several conditions. See Section 10. There can be no assurance
that such conditions will be met or that, in the event the Offer and the
Solicitation are not consummated, the market value and liquidity of the Notes
will not be materially adversely affected.
TREATMENT OF NOTES NOT TENDERED IN THE OFFER. From time to time in the
future, Parent or Purchaser may acquire Notes, if any, which are not tendered in
response to the Offer through open market purchases, privately negotiated
transactions, tender offers, exchange offers or otherwise, upon such terms and
at such prices as it may determine, which may differ materially from the terms
of the Offer. There can be no assurance as to which, if any, of these
alternatives (or combinations thereof) Parent or Purchaser will choose to pursue
in the future.
7
SUBSTANTIAL LEVERAGE, DEBT SERVICE AND INTANGIBLES After the Merger,
Purchaser and Parent will continue to be highly leveraged with indebtedness that
is substantial in relation to its consolidated stockholders' equity. Further,
upon consummation of the Merger, Purchaser will be required to guarantee
Parent's repayment of amounts advanced to Parent pursuant to the New Credit
Agreement, which amount is expected to be $762.8 million on a pro forma basis,
and Parent's 11 1/4% Series A Senior Subordinated Notes that are not tendered
pursuant to a simultaneous tender offer. Purchaser's guarantee of amounts
advanced to Parent pursuant to the New Credit Agreement will be senior
indebtedness (as defined in the Indenture, "Senior Indebtedness") with respect
to the Notes that are not tendered pursuant to the Offer. Purchaser may incur
additional indebtedness in the future, subject to limitations to be imposed by
the New Credit Agreement.
The degree to which Purchaser will be leveraged following the Offer could
have important consequences to holders of the Notes, including, but not limited
to, the following: (i) a substantial portion of Purchaser's cash flow from
operations will be required to be dedicated to debt service and will not be
available for other purposes; (ii) Purchaser's ability to obtain additional
financing in the future could be limited; (iii) certain of Purchaser's
borrowings under the New Credit Agreement will be at variable rates of interest,
which could result in higher interest expense in the event of increases in
interest rates; and (iv) the New Credit Agreement will contain financial and
restrictive covenants that will limit the ability of Purchaser to, among other
things, borrow additional funds, dispose of assets or pay cash dividends.
Failure by Purchaser to comply with such covenants could result in an event of
default which, if not cured or waived, could have a material adverse effect on
Purchaser. In addition, a substantial portion of Purchaser's assets consist of
intangible assets representing goodwill and other identified intangibles
relating to acquired businesses. Purchaser believes the value represented by
goodwill and other identified intangibles will be realized through the future
contribution of cash flow to Purchaser from acquired businesses; however, there
can be no assurance that such projected cash flow contributions will be
realized.
HISTORY OF UNPROFITABLE OPERATIONS. Parent experienced losses from
continuing operations before extraordinary items in each fiscal year from 1993
through 1995. Such losses amounted to $39.6 million, $47.0 million and $43.0
million for the fiscal years ended September 30, 1993, 1994 and 1995,
respectively. Purchaser experienced a loss before cumulative effect of an
accounting change in fiscal 1996 and 1997 of $16.9 million and $13.9 million,
respectively. Parent reported net revenue and net income of approximately $1.35
billion and $32.4 million, respectively, for fiscal 1996 and net revenue and
income before extraordinary items of approximately $1.2 billion and $4.8
million, respectively, for fiscal 1997. Parent's fiscal 1997 net income included
a loss of $35.9 million, net of taxes, relating to the Crescent transactions.
There can be no assurance that Parent's or Purchaser's profitability will
continue in future periods.
DEFICIT IN STOCKHOLDERS' EQUITY. As of September 30, 1997, Purchaser had a
stockholders' deficit of $25.9 million. The degree to which Purchaser continues
to have low or negative net worth after consummation of the Merger could affect,
among other things, the ability of Purchaser to obtain additional financing in
the future.
SUBORDINATION. The Notes are general unsecured obligations of Purchaser and
are subordinated in right of payment to all Senior Indebtedness of Purchaser
(which will include all indebtedness of Parent and Purchaser under the New
Credit Agreement.) Further, upon consummation of the Merger, Purchaser will be
required to guarantee Parent's repayment of amounts advanced to Parent pursuant
to the New Credit Agreement, which amount is expected to be $762.8 million on a
pro forma basis. Purchaser's guarantee of amounts advanced to Parent pursuant to
the New Credit Agreement will be Senior Indebtedness with respect to the Notes
that are not tendered pursuant to the Offer. In the event of the insolvency,
liquidation, reorganization, dissolution or other winding-up of Purchaser or
upon a default in payment with respect to, or the acceleration of, or if a
judicial proceeding is pending with respect to any default under, any Senior
Indebtedness, any creditors who are holders of Senior Indebtedness must be paid
in full
8
before a holder of Notes may be paid. Accordingly, there may be insufficient
assets remaining after such payments to pay principal of or interest on the
Notes.
HOLDING COMPANY STRUCTURE. Purchaser is currently, and expects to be
following the Merger, a holding company that conducts substantially all of its
business operations through its subsidiaries; therefore, the Notes are
effectively subordinated to all existing and future liabilities (including trade
payables) of Purchaser's subsidiaries. Consequently, Purchaser's operating cash
flow and its ability to service its indebtedness, including the Notes, is
dependent upon the cash flow of its subsidiaries and the payment of funds by
such subsidiaries to Purchaser in the form of loans, dividends or otherwise.
Purchaser's subsidiaries are separate and distinct legal entities apart from
Purchaser and will have no obligation, contingent or otherwise, to pay any
amounts due with respect to the Notes or to make any funds available therefor.
As of September 30, 1997, Purchaser's subsidiaries had aggregate liabilities of
$144.6 million. In addition, the Notes are obligations of Purchaser exclusively
and are not guaranteed by any of its subsidiaries and will not be guaranteed by
Parent. The indebtedness of Parent to be outstanding pursuant to the New Credit
Agreement will be fully guaranteed by each of Parent's direct and indirect
domestic subsidiaries (including Purchaser and substantially all its
subsidiaries), with certain exceptions largely related to regulatory
requirements. The guarantee obligations of Purchaser and its subsidiaries will
be secured by security interests in, or liens on, substantially all tangible and
intangible assets of Purchaser and its subsidiaries (excluding real property).
The lenders pursuant to the New Credit Agreement will have a direct claim
against the assets of Purchaser's subsidiaries that will not be available to
holders of Notes not tendered pursuant to the Offer. Furthermore, certain
amounts of cash deposited or held by Purchaser and its subsidiaries pursuant to
customer contracts or as required by applicable regulatory requirements are not
available to Purchaser without prior approval.
RESTRICTIVE FINANCING COVENANTS. The New Credit Agreement and the indenture
for the New Senior Subordinated Notes will contain a number of covenants that
will restrict the operations of Parent and its subsidiaries (including
Purchaser). In addition, the New Credit Agreement will require Parent (on a
consolidated basis) to comply with specified financial ratios and tests,
including a minimum interest coverage ratio, a maximum leverage ratio and a
minimum net worth test. There can be no assurance that Parent will be able to
comply with such covenants, coverage ratios and tests in the future. Parent's
ability to comply with such covenants, coverage ratios and tests may be affected
by events beyond its control, including prevailing economic, financial and
industry conditions. The breach of any such covenants or restrictions could
result in a default under the New Credit Agreement that would permit the lenders
thereto to declare all amounts outstanding thereunder (including borrowings by
Purchaser) to be immediately due and payable, together with accrued and unpaid
interest, and to prevent Parent from paying principal, premium, interest or
other amounts due on any or all of the Notes until the default is cured or all
Senior Indebtedness is paid or satisfied in full. Furthermore, the commitments
of the lender under the New Credit Agreement to make further extensions of
credit thereunder could be terminated. If Parent or Purchaser are unable to
repay all amounts accelerated, the lenders could proceed against the collateral
securing Parent's and Purchaser's obligations pursuant to the New Credit
Agreement. If the indebtedness outstanding pursuant to the New Credit Agreement
were to be accelerated, there can be no assurance that the assets of Parent or
Purchaser would be sufficient to repay such indebtedness and the other
indebtedness of Parent or Purchaser, including any Notes not tendered pursuant
to the Offer.
RISK-BASED PRODUCTS. Revenues under risk-based contracts will be, following
the consummation of the Merger, the primary source of Purchaser's revenue,
accounting for approximately 77% of Purchaser's total revenue in fiscal 1997. In
order for such contracts to be profitable, Purchaser must accurately estimate
the rate of service utilization by beneficiaries enrolled in programs managed by
Purchaser and control the costs of such services. There can be no assurance that
Purchaser's assumptions as to service utilization rates and costs will
accurately and adequately reflect actual utilization rates and costs, nor can
there be any assurance that increases in behavioral healthcare costs or
higher-than-anticipated utilization rates, significant aspects of which are
outside Purchaser's control, will not cause expenses associated with such
9
contracts to exceed Purchaser's revenue for such contracts. Purchaser will
attempt to increase membership in its risk-based products following the Merger.
If Purchaser is successful in this regard, Purchaser's exposure to potential
losses from its risk-based products will also be increased. Furthermore, certain
of such contracts and certain state regulations require Purchaser or certain of
its subsidiaries to reserve a specified amount of cash as financial assurance
that it can meet its obligations thereunder. As of September 30, 1997, Purchaser
had established cash reserves and investments of $51.3 million pursuant to such
requirements. Such amounts will not be available to Purchaser for general
corporate purposes.
RELIANCE ON CUSTOMER CONTRACTS. Substantially all of Purchaser's revenue is
derived from contracts with payors of behavioral healthcare benefits.
Purchaser's managed care contracts typically have terms of one to five years,
and in certain cases contain renewal provisions providing for successive terms
of between one and two years (unless terminated earlier). Substantially all of
these contracts are immediately terminable with cause and many, including some
of its most significant contracts, are terminable without cause by the customer
upon the provision of requisite notice and the passage of a specified period of
time (typically between 60 and 180 days), or upon the occurrence of certain
other specified events. Purchaser's ten largest managed behavioral healthcare
customers had 37 contracts with Purchaser which accounted for approximately 54%
of Purchaser's revenue for fiscal 1997. One such contract accounted for 12% of
Purchaser's operating revenue for fiscal 1997. There can be no assurance that
such contracts will be extended or successfully renegotiated or that the terms
of any new contracts will be comparable to those of existing contracts. Loss of
all of these contracts or customers would, and loss of any one of these
customers could, have a material adverse effect on Purchaser. In addition, price
competition in bidding for contracts can significantly affect the financial
terms of any new or renegotiated contract. There can be no assurance that
Purchaser's customers will not reevaluate their contractual arrangements with
Purchaser following the consummation of the Merger.
DEPENDENCE ON GOVERNMENT SPENDING FOR MANAGED HEALTHCARE; NEW
LEGISLATION. A significant portion of Purchaser's revenue is derived directly
or indirectly from federal, state and local governmental agencies, including
state Medicaid programs. Reimbursement rates vary from state to state, are
subject to periodic renegotiation and may limit Purchaser's ability to maintain
or increase rates. Purchaser is unable to predict the impact on Purchaser's
operations of future regulations or legislation affecting the Medicaid or
Medicare programs, or the healthcare industry in general, and there can be no
assurance that future regulations or legislation will not have a material
adverse effect on Purchaser. Moreover, any reduction in government spending for
such programs could also have a material adverse effect on Purchaser. In
addition, Purchaser's contracts with federal, state and local governmental
agencies, under both direct contract and subcontract arrangements, generally are
conditioned upon financial appropriations by one or more governmental agencies,
especially with respect to state Medicaid programs. These contracts generally
can be terminated or modified by the customer if such appropriations are not
made. Finally, some of Purchaser's contracts with federal, state and local
governmental agencies, under both direct contract and subcontract arrangements,
require Purchaser to perform additional services if federal, state or local laws
or regulations imposed after the contract is signed so require, in exchange for
additional compensation to be negotiated by the parties in good faith.
Government and other third-party payors are generally seeking to impose lower
reimbursement rates and to renegotiate reduced contract rates with service
providers in a trend toward cost control. In some cases, particularly in the
area of Medicaid carve-out programs, government payors have structured their
behavioral health benefits programs to limit the profits that managed care
vendors may generate under the contracts with such government payors.
Legislation has periodically been introduced at the state and federal level
providing for new regulatory programs and materially revising existing programs.
Any such legislation, if enacted, could materially adversely affect Purchaser.
Purchaser is unable to predict the impact on Purchaser's operations of future
regulations or legislation affecting government healthcare programs, or the
healthcare industry in general.
10
REGULATION. The managed healthcare industry and the provision of behavioral
healthcare services are subject to extensive and evolving state and federal
regulation. Purchaser is subject to certain state laws and regulations,
including those governing: (i) the licensing of insurance companies, HMOs,
prepaid limited health services organizations, preferred provider organizations
("PPOs"), third-party administrators ("TPAs") and companies engaged in
utilization review; (ii) the licensing of healthcare professionals, including
restrictions on business corporations from practicing, controlling or exercising
excessive influence over behavioral healthcare services through the direct
employment of psychiatrists or, in a few states, psychologists and other mental
healthcare professionals; (iii) the establishment and operation of behavioral
healthcare programs, clinics and facilities and (iv) the provision of services
to beneficiaries of federal and state funded healthcare programs, such as
Medicaid.
Purchaser believes its operations are structured to comply with applicable
laws and regulations, in all material respects, and that it has received, or is
in the process of applying for, all licenses and approvals material to the
operation of its business. However, state regulatory agencies responsible for
the administration and enforcement of the laws and regulations to which
Purchaser's operations are subject have broad discretionary powers. A regulatory
agency or a court in states in which Purchaser operates could take a position
under existing or future laws or regulations, or change its interpretation or
enforcement practices with respect thereto, that such laws or regulations apply
to Purchaser differently than Purchaser believes such laws and regulations apply
or should be enforced. The resultant compliance with, or revocation of, or
failure to obtain, required licenses and governmental approvals could result in
significant alteration to Purchaser's business operations, delays in the
expansion of Purchaser's business and lost business opportunities, any of which,
under certain circumstances, could have a material adverse effect on Purchaser.
In many states, entities that assume risk under contracts with licensed
insurance companies or HMOs are not required to be licensed as an insurer or
HMO. As a result, Purchaser has not sought licensure as either an insurer or HMO
in certain states. Regulators in some states, however, have determined that risk
assuming activity by entities that are not themselves providers of care is an
activity that requires some form of licensure. There can be no assurance that
other states in which Purchaser operates will not adopt a similar view, thus
requiring Purchaser to obtain additional licenses. Such additional licensure
might require Purchaser to maintain minimum levels of deposits, net worth,
capital, surplus or reserves, or limit Purchaser's ability to pay dividends,
make investments or repay indebtedness. The imposition of these additional
licensure requirements could increase Purchaser's cost of doing business or
delay Purchaser's conduct or expansion of its business. In addition, utilization
review and TPA activities conducted by Purchaser are regulated by many states,
which impose requirements upon Purchaser that increase its business costs. In
particular, Purchaser believes that its TPA activities performed for its
self-insured employee benefit plan customers are exempt from otherwise
applicable state licensing or registration requirements based upon federal
preemption under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and has relied on this general principle in determining not to seek
licensure for certain of its activities in many states. Existing case law is not
uniform on the applicability of ERISA preemption with respect to state
regulation of TPA activities. There can be no assurance that additional
licensure will not be required with respect to utilization review or TPA
activities in certain states.
Several states in which Purchaser does business have also adopted, or are
expected to adopt, "any willing provider" laws. Such laws typically impose upon
insurance companies, HMOs or other types of third-party payors an obligation to
contract with, or pay for the services of, any healthcare provider willing to
meet the terms of the payor's contracts with similar providers. To management's
knowledge, Purchaser is not subject to such laws in any states in which it
currently does business, although it has undertaken to comply with any willing
provider contracting requirements at the request of certain customers. In
addition, Purchaser could become subject to such laws in the future if they are
adopted by states in which Purchaser is licensed as an insurance company, HMO or
similar entity, or if Purchaser's customers become subject to such laws.
Compliance with any willing provider laws could significantly increase
Purchaser's costs of contracting with providers and have a material adverse
effect on its operations. Several states in which
11
Purchaser operates have also enacted legislation that more directly regulates
the manner in which insurers, HMOs and utilization review companies deliver
their services and process claims for benefits, including in some cases
establishing independent review boards for the denial of services. There can be
no assurance that such laws will not materially increase the cost to Purchaser
of delivering services through increasing the rate of utilization of covered
services.
The provision of behavioral healthcare treatment services by psychiatrists,
psychologists and other providers is subject to state regulation with respect to
the practice of licensed healthcare professionals, limitations on the ability of
business corporations to directly provide, control or exercise excessive
influence over the services of licensed healthcare professionals, and
limitations on fee-splitting and payments for referrals. Although under
Purchaser's programs all direct clinical services other than brief counseling
services typically are provided by licensed professionals who are staff
providers employed by or under contract with one of the professional
corporations providing services exclusively for Purchaser, or are network
providers under independent contractor arrangements with Purchaser, state
regulatory authorities or courts may in certain instances determine that these
relationships between Purchaser and such professional corporations are
unenforceable. Purchaser believes that it could, if necessary, restructure its
operations to comply with changes in the interpretation or enforcement of such
laws and regulations, and that such restructuring would not have a material
adverse effect on its operations. Further, in contrast to certain states,
regulators in several states in which Purchaser does business have adopted
policies that require HMOs or, in some instances, insurance companies, to
contract directly with licensed healthcare providers, entities or provider
groups for the provision of treatment services, rather than with unlicensed
intermediary companies. In such states, Purchaser's customary model of
contracting directly with its customers may need to be modified. Purchaser does
not expect any required changes to have a material adverse effect on its
operations.
Purchaser is also generally affected directly by regulations applicable to
the operation of healthcare programs, clinics and facilities. In some instances,
state laws require ownership of clinics or facilities by licensed practitioners
or individuals (rather than corporations). In such cases, Purchaser maintains
its relationship with the clinic or facility other than through direct
shareholder status. If Purchaser's relationships with the licensed clinics or
facilities are deemed to be improper, changes in Purchaser's operations in the
affected states could be required. Such restrictions could have a material
adverse effect on the Purchaser.
Further, as noted above, certain of Purchaser's services are subject to the
provisions of ERISA. In some circumstances, and under certain customer
contracts, Purchaser may be expressly named as a "fiduciary" under ERISA, or be
deemed to have assumed duties that make it an ERISA fiduciary, and thus be
required to carry out its operations in a manner that complies with ERISA
requirements. Purchaser believes that it complies with ERISA requirements in all
material respects, and that continuing ERISA compliance efforts will not have a
material adverse effect on Purchaser.
Purchaser provides and may in the future provide services to some program
beneficiaries who are also beneficiaries of the Medicaid program, the Medicare
program, other government sponsored healthcare programs, such as CHAMPUS, or the
Federal Employees Health Benefits Program. Purchaser's compensation for services
provided to such beneficiaries has historically been governed by the contracts
with its customers having government program recipients, as applicable, enrolled
in their healthcare benefits plans. The compensation received by Purchaser for
such services under its private customer contracts generally has not been
affected by Medicaid or Medicaid fee schedules or similar cost containment
measures; however, Purchaser's provision of services to Medicaid beneficiaries,
or beneficiaries of other government sponsored healthcare plans, through direct
contracts with federal, state or local government agencies, is affected by such
measures, and there can be no assurance that future legislation will not
materially adversely affect Purchaser's compensation for services provided to
beneficiaries of government sponsored healthcare programs under contracts with
either government agencies or HMOs or other similar entities.
12
The provision of services to beneficiaries of federally funded healthcare
programs may also subject Purchaser to various federal "fraud and abuse" laws,
including "anti-kickback" and "physician self-referral" laws. Similar state laws
could also govern the provision of services to beneficiaries of state funded
healthcare programs such as Medicaid. The federal anti-kickback laws prohibit
the knowing and willful solicitation, receipt or offering of any remuneration or
consideration, directly or indirectly, to induce or in exchange for referrals of
patients or for the ordering of services covered by federally funded healthcare
programs (excluding the Federal Employees Health Benefits Program) and state
funded healthcare programs, including Medicaid. The federal physician
self-referral laws impose restrictions on physician referrals of patients for
certain designated healthcare services to certain entities with which the
physician or any immediate family member has a compensation or investment or
ownership interest, and prevents the entity in question from lawfully being
reimbursed under the Medicaid and Medicare program for patients improperly
referred to it. Thus, these laws could impair Purchaser's ability to enter into
certain types of arrangements with physicians or other healthcare providers.
Certain state self-referral laws might apply to other types of providers as well
as a broader class of payors. With respect to its non-governmental operations,
Purchaser may be subject to similar laws and regulations in a number of states,
and proposed federal legislation would expand the scope of some or all of the
fraud and abuse restrictions to cover many private payors of healthcare
benefits. Penalties for violating existing fraud and abuse laws include civil
monetary penalties, criminal sanctions and exclusion from participation in the
Medicaid and Medicare programs. Purchaser believes that its existing operations
comply with such state and federal laws and regulations based on their current
interpretation and enforcement; however, because the fraud and abuse laws,
particularly anti-kickback provisions, have been broadly construed to prohibit
transactions in which any purpose of the transaction violates the law, many
transactions potentially could be held to be improper. Uncertainty as to the
scope and application of such laws continues; therefore, there can be no
assurance that future regulatory and enforcement actions will not result in an
interpretation of these laws and regulations that would require Purchaser to
materially change its operations or contractual relationships in order to remain
in compliance therewith.
INTEGRATION OF OPERATIONS. As a result of the Merger and certain other
completed acquisitions, Parent expects to be the largest provider of managed
behavioral healthcare services in the United States. Parent's ability to operate
its acquired managed care businesses successfully depends on how well and how
quickly it integrates the acquired businesses with its existing operations. As
Parent implements the integration process, it may need to implement enhanced
operational, financial and informational systems and may require additional
employees and management, operational, financial and informational resources.
There can be no assurance that Parent will be able to implement and maintain
such operational, financial and informational systems successfully or
successfully obtain, integrate and utilize the required employees and
management, operational, financial and informational resources to achieve the
successful integration of the acquired businesses with its existing operations.
Failure to implement such systems successfully and to use such resources
effectively could have a material adverse effect on Parent and Purchaser.
Furthermore, implementing such operational, financial and information systems or
obtaining such employees and management could reduce the cost savings Parent
expects to achieve.
HIGHLY COMPETITIVE INDUSTRY. The industry in which Purchaser conducts its
business is highly competitive. Purchaser competes with large insurance
companies, HMOs, PPOs, TPAs, provider groups and other managed care companies.
Many of Purchaser's competitors are significantly larger and have greater
financial, marketing and other resources than Purchaser, and some of Purchaser's
competitors provide a broader range of services. Purchaser may also encounter
substantial competition in the future from new market entrants. Many of
Purchaser's customers that are managed care companies may, in the future, seek
to provide managed behavioral healthcare services to their employees or
subscribers directly, rather than contracting with Purchaser for such services.
PROFESSIONAL LIABILITY; INSURANCE. The provision, management and
administration of the delivery of managed behavioral healthcare services, like
other healthcare services, entail significant risks of liability.
13
Purchaser is regularly subject to lawsuits alleging malpractice and related
legal theories, some of which involve situations in which participants in
Purchaser's programs have committed suicide. Purchaser is also subject to claims
of professional liability for alleged negligence in performing utilization
review activities, as well as for acts and omissions of independent contractors
participating in Purchaser's third-party provider networks. Purchaser is subject
to claims for the costs of services denied and claims, such as malpractice
claims, arising from acts or omissions of healthcare professionals participating
in Purchaser's managed behavioral healthcare programs. There can be no assurance
that Purchaser's procedures for limiting liability have been or will be
effective, or that one or more lawsuits will not have a material adverse effect
on Purchaser in the future.
Purchaser carries professional liability insurance, subject to certain
deductibles. There can be no assurance that such insurance will be sufficient to
cover any judgments, settlements or costs relating to present or future claims,
suits or complaints or that, upon expiration thereof, sufficient insurance will
be available on favorable terms, if at all. If Purchaser is unable to secure
adequate insurance in the future, or if the insurance carried by Purchaser is
not sufficient to cover any judgments, settlements or costs relating to any
present or future actions or claims, there can be no assurance that Purchaser
will not be subject to a liability that could have a material adverse effect on
Purchaser.
LIMITED TRADING MARKET. Depending on, among other things, the amount of
Notes outstanding after the Offer, the liquidity, market value and price
volatility of Notes may be adversely affected by the consummation of the Offer.
To the extent a market continues to exist for the Notes after the Offer, the
Notes may trade at a discount compared to present trading prices depending on
prevailing interest rates, the market for securities with similar credit
features, the performance of Purchaser and other factors. There can be no
assurance that an active market in the Notes will continue to exist and no
assurance as to the prices at which the Notes may trade.
Typically, a debt security with a smaller outstanding principal amount
available for trading (a smaller "float") commands a lower price than would a
comparable debt security with a larger float. Therefore, the market price for
Notes that are not tendered and accepted for purchase pursuant to the Offer may
be affected adversely to the extent that the principal amount of Notes purchased
pursuant to the Offer reduces the float. A reduced float may also make the
trading price of Notes that are not purchased in the Offer more volatile.
FRAUDULENT TRANSFER CONSIDERATIONS. If, in a bankruptcy or reorganization
case or a lawsuit by or on behalf of unpaid creditors of Purchaser, a court were
to find that, at the time the Notes are accepted for payment (a) Purchaser
purchased the Notes with the intent of hindering, delaying or defrauding current
or future creditors or (b)(i) Purchaser received less than reasonably equivalent
value or fair consideration for the purchase price of the Notes and (ii)
Purchaser (A) was insolvent or was rendered insolvent by reason of such
purchase, (B) was engaged, or about to engage, in a business or transaction for
which its assets constituted unreasonably small capital, (C) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured (as all of the foregoing terms are defined in or interpreted under
the relevant fraudulent transfer or conveyance statutes) or (D) was a defendant
in an action for money damages, or had a judgment for money damages docketed
against it (if, in either case, after final judgment the judgment is
unsatisfied), then such court could find that the payment to tendering Holders
involved the incurring of obligations or the transferring of interests in
property deemed under applicable law to be fraudulent as against creditors (a
"fraudulent conveyance"). To the extent such payment were deemed to be a
fraudulent conveyance, there is a risk that tendering Holders would be ordered
by a court to turn over to Purchaser's trustee in bankruptcy the consideration
paid to them for their Notes.
Separate and apart from any fraudulent conveyance attack, any payment made
to Holders in consideration for their Notes may also be subject to challenge as
a preference if such payment: (i) is made within ninety days prior to a
bankruptcy filing by Purchaser; (ii) is made when Purchaser is insolvent; and
(iii) permits the Holders to receive more than they otherwise might receive in a
liquidation of Purchaser pursuant to Chapter 7 of the United States Bankruptcy
Code. If such payment were deemed to be preference, such payment could be
recovered by Purchaser's trustee in bankruptcy and Holders would be restored to
their previous positions as unsecured creditors of Purchaser.
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4. PROPOSED AMENDMENTS TO THE INDENTURE.
This section sets forth a brief description of the Proposed Amendments to
the Indenture for which Consents are being sought pursuant to the Solicitation.
The Proposed Amendments constitute a single proposal and a tendering and
consenting Holder must consent to the Proposed Amendments in their entirety and
may not consent selectively with respect to certain of the Proposed Amendments.
The Proposed Amendments will be implemented in an amendment to the Indenture in
the form set forth in the Supplemental Indenture. Although the Supplemental
Indenture will become effective upon execution by Purchaser and Trustee, the
Proposed Amendments will not become operative unless and until Notes are
accepted for purchase by Purchaser pursuant to the Offer. Thereafter, all Notes
that are not tendered, or that are not accepted for purchase pursuant to the
Offer, will remain outstanding, but will be subject to the terms of the
Indenture as modified by the Supplemental Indenture.
Pursuant to the terms of the Indenture, the Proposed Amendments require the
written consent of the Holders of at least a majority in aggregate principal
amount of the Notes outstanding.
The valid tender by a Holder of Notes pursuant to the Offer on or prior to
the Consent Date will be deemed to constitute the giving of a Consent by such
Holder to the Proposed Amendments with respect to such Notes. Purchaser is not
soliciting and will not accept Consents from Holders who are not tendering their
Notes pursuant to the Offer.
The summaries of provisions of the Indenture set forth below are qualified
in their entirety by reference to the full and complete terms contained in the
Indenture. Capitalized terms used herein without definition have the same
meanings as set forth in the Indenture. Holders may obtain copies of the
Indenture without charge from the Information Agent.
The Proposed Amendments to the Indenture are as follows:
DELETION OF SECTION 3.5--ASSET SALE OFFER. Section 3.5 requires Purchaser,
in certain situations, to offer to repurchase the Notes following an asset sale.
The Proposed Amendments would delete Section 3.5 in its entirety.
DELETION OF COVENANTS. The Proposed Amendments would delete in their
entireties the following covenants and any references thereto from the
Indenture:
Section 4.3 - LIMITATION ON RESTRICTED PAYMENTS. Restricts the ability of Purchaser and
the Subsidiaries to make Restricted Payments, including payment of
dividends on or purchases of Purchaser's capital stock, making investments
or the payment of subordinated debt.
Section 4.4 - LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED
STOCK. Restricts the ability of Purchaser and the Subsidiaries to create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable for the payment of any Indebtedness or any shares of Disqualified
Stock, unless Purchaser is in compliance with certain financial covenants.
Section 4.5 - CORPORATE EXISTENCE. With some exceptions, requires Purchaser to preserve
and keep in full force and effect its corporate existence and the
corporate, partnership, limited liability or other existence of each
Subsidiary.
Section 4.6 - PAYMENT OF TAXES AND OTHER CLAIMS. Requires Purchaser to pay or discharge
all material taxes, assessments and governmental charges levied or imposed
upon Purchaser or any Subsidiary and all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a material liability or
Lien upon the property of Purchaser or any Subsidiary, before any of such
charges become delinquent.
15
Section 4.7 - MAINTENANCE OF PROPERTIES AND INSURANCE. With some exceptions, requires
Purchaser (a) to cause all material properties owned by or leased to it or
any Subsidiary and necessary to the conduct of its or their business to be
improved or maintained and kept in normal condition, repair and working
order and (b) to maintain, and cause the Subsidiaries to maintain,
insurance as are customarily carried by similar businesses of similar size.
Section 4.8 - COMPLIANCE CERTIFICATES; NOTICE OF DEFAULT. Requires Purchaser to deliver
to the Trustee (i) an annual certificate of Purchaser stating that a review
of the activities of Purchaser and its Subsidiaries has been made and, to
the best knowledge of the officer signing such certificate, Purchaser has
kept, observed, performed and fulfilled, and has caused each Subsidiary to
keep, observe, perform and fulfill each and every covenant in the Indenture
and no default or event of default with respect to the Notes occurred
during the year and (ii) notification of the occurrence of any default or
event of default.
Section 4.9 - COMPLIANCE WITH LAWS. With certain exceptions, requires Purchaser to
comply, and cause the Subsidiaries to comply, with all applicable rules in
respect of the conduct of their respective businesses and the ownership of
their respective properties.
Section 4.10 - REPORTS. Subsections (a) through (d) require Purchaser to furnish certain
information to the Holders and file such information with the SEC
(regardless of whether or not required by the rules and regulations of the
SEC). Subsection (e), which requires Purchaser to comply with Section
314(a) of the Trust Indenture Act of 1939, will not be deleted.
Section 4.12 - LIMITATION ON TRANSACTIONS WITH AFFILIATES. Restricts the ability of
Purchaser and the Subsidiaries to enter into any transaction with any
affiliate of Purchaser involving aggregate consideration in excess of $5.0
million (other than a Subsidiary of Purchaser).
Section 4.13 - DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. Restricts
the ability of Purchaser and the Subsidiaries to directly or indirectly
create or otherwise cause to become effective any consensual encumbrance or
consensual restriction on the ability of any Subsidiary to make certain
payments, including payment of dividends on or purchases of any
Subsidiaries' capital stock, payment of Indebtedness, making loans or
advances, or selling, leasing or transferring properties or assets.
Section 4.14 - LIMITATION ON LIENS. Restricts the ability of Purchaser and the
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien that secures obligations under any subordinated indebtedness
on any asset or property of Purchaser and the Subsidiaries, or any income
or profits therefrom, or assign or convey any right to receive income
therefrom, unless the Notes are equally and ratably secured with such
obligations.
Section 4.15 - CHANGE OF CONTROL. Requires Purchaser to offer to purchase all or any part
of the Notes following a Change of Control.
Section 4.16 - LIMITATION ON ASSET SALES. Restricts the ability of Purchaser and the
Subsidiaries to cause, make or suffer to exist an Asset Sale unless the
consideration received equals a minimum amount as set forth in the
Indenture.
Section 4.17 - LIMITATION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. Restricts the ability
of Purchaser to, directly or indirectly, incur any Indebtedness that is
subordinate in right of payment to any Indebtedness of Purchaser unless
such Indebtedness is PARI PASSU or subordinate in right of payment to the
Notes.
16
AMENDMENT TO SECTION 5.1--MERGER, CONSOLIDATION AND SALE OF ASSETS. Section
5.1 provides that Purchaser will not merge with or into, or transfer all or
substantially all its assets, subject to certain exceptions, including
satisfaction of a specified fixed charge coverage ratio. The Proposed Amendments
would delete the fixed charge coverage ratio test in its entirety.
AMENDMENT TO SECTION 6.1--EVENTS OF DEFAULT. Section 6.1(d) provides for an
event of default of the Notes upon the occurrence of any default by Purchaser or
the Subsidiaries with respect to other indebtedness. Section 6.1(e) provides for
an event of default with respect to the Notes, if Purchaser or any Subsidiary
fails to pay any final judgment in excess of $10 million rendered against it.
The Proposed Amendments would delete Sections 6.1(d) and (e) in their entirety.
AMENDMENT TO DEFINITIONS. The Proposed Amendments would delete certain
definitions from the Indenture when references to such definitions would be
eliminated as a result of the foregoing.
5. TERMS OF THE OFFER AND THE SOLICITATION.
Upon the terms and subject to the conditions of the Offer (including if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), all Notes which are validly tendered in accordance with the
procedures set forth in Section 7 and not withdrawn (and which are accompanied
by validly delivered Consents that have not been revoked) in accordance with the
procedures set forth in Section 8 prior to the Expiration Date will be accepted
for purchase and paid for by Purchaser promptly after the Expiration Date.
Upon the terms and subject to the conditions set forth in this Statement and
in the accompanying Consent and Letter of Transmittal, Purchaser is also
soliciting Consents from Holders with respect to the Proposed Amendments.
DETERMINATION OF OFFER CONSIDERATION. The Offer Consideration (including
the Consent Payment) for each Note being purchased pursuant to the Offer is
equal to the present value on the Payment Date of $1,057.50 per $1,000 principal
amount of Notes (the amount payable on November 15, 2000, which is the first
date on which the Notes are redeemable (the "Earliest Redemption Date")),
determined on the basis of a yield (the "Tender Offer Yield") to the Earliest
Redemption Date equal to the sum of (x) the yield on the 8 1/2% U.S. Treasury
Note due November 15, 2000 (the "Reference Security"), as calculated by the
Dealer Manager in accordance with standard market practice, based on the bid
price for such Reference Security as of 2:00 p.m., New York City Time, on
January 26, 1998, the tenth (10th) business day immediately preceding the
scheduled Expiration Date (the "Price Determination Date"), as displayed on the
Bloomberg Government Pricing Monitor on "Page PX5" (the "Bloomberg Page") (or,
if any relevant price is not available on a timely basis on the Bloomberg Page
or is manifestly erroneous, such other recognized quotation source as the Dealer
Manager shall select in its sole discretion) plus (y) 50 basis points, (the
"Fixed Spread") (such price being rounded to the nearest cent per $1,000
principal amount of Notes), plus accrued and unpaid interest on the Notes to,
but not including, the Payment Date. In the event the Offer is extended for any
period of time longer than ten (10) business days from the previously scheduled
Expiration Date, a new Price Determination Date will be established. Payment of
the Offer Consideration for Notes validly tendered and accepted for payment
shall be made on the Payment Date. Holders of Notes tendered after the Consent
Date will receive the Offer Consideration less the Consent Payment (2% of the
principal amount of each Note).
Although the Tender Offer Yield on the applicable Reference Security on the
Price Determination Date will be determined only from the source noted above,
information regarding the closing yield for the Reference Security may also be
found in THE WALL STREET JOURNAL. The yield on the Reference Security for the
Notes as of 2:00 p.m., New York City time, on January 9, 1998 was 5.22%.
Accordingly, if such yield were determined to be the yield on the Reference
Security at the Price Determination Date, and February 12, 1998 were the Payment
Date for the Notes, the Tender Offer Yield, the Offer Consideration and the
Offer Consideration less the Consent Payment per $1,000 principal amount of
Notes would be 5.72%, $1,194.59 and $1,174.59, respectively. A hypothetical
illustration of the calculation of the Offer
17
Consideration for the Notes demonstrating the application of the assumptions and
methodologies to be used in pricing the Offer is set forth on Schedule II
hereto.
If at any time following a Price Determination Date, Purchaser extends the
Offer for any period of not more than ten (10) business days, the Offer
Consideration for each Note tendered pursuant to the Offer on or prior to the
Consent Date or the Expiration Date, as applicable, shall remain the Offer
Consideration, as applicable, as determined on such Price Determination Date.
If, however, Purchaser extends the Offer for any period longer than ten (10)
business days from the previously scheduled Expiration Date based upon which
such Price Determination Date has been established, a new Price Determination
Date shall be established (such new Price Determination Date to be the tenth
(10th) business day immediately preceding the Expiration Date as so extended)
and the Offer Consideration for each Note tendered pursuant to the Offer on or
prior to the Consent Date or the Expiration Date, as applicable, shall be
calculated based on the Tender Offer Yield as of such new Price Determination
Date. In either case, a Holder who tenders Notes after the Consent Date will be
entitled to receive, if Notes are accepted for payment pursuant to the Offer,
the Offer Consideration less the Consent Payment for the Notes so tendered.
Before 9:00 a.m., New York City time, on the business day following the
Price Determination Date, Purchaser will publicly announce the pricing
information referred to above by press release to the Dow Jones News Service.
Prior to 2:00 p.m., New York City time, on the Price Determination Date,
Holders may obtain hypothetical quotes of the yield on the Reference Security
(calculated as of a then recent time) and the resulting hypothetical Offer
Consideration by contacting the Dealer Manager at its telephone number set forth
on the back cover of this Statement. After such time on the Price Determination
Date, Holders may ascertain the actual yield on the Reference Security as of the
Price Determination Date and the resulting actual Offer Consideration by
contacting the Dealer Manager at its telephone number set forth on the back
cover of this Statement.
Because the Offer Consideration prior to the Price Determination Date is
based on a fixed spread pricing formula that is linked to the yield on a
Reference Security, the actual amount of cash that will be received by a
tendering Holder pursuant to the Offer will be affected by changes in such yield
during the term of the Offer prior to such Price Determination Date. After the
Price Determination Date when the Offer Consideration is no longer linked to the
Reference Security, the actual amount of cash that will be received by a
tendering Holder pursuant to the Offer will be known and Holders will be able to
ascertain the Offer Consideration in the manner described above, unless the
Offer is extended for a period longer than ten (10) business days.
On the Payment Date, the Purchaser will pay each tendering Holder who
validly consented to the Proposed Amendments on or prior to the Consent Date, as
part of the Offer Consideration, a Consent Payment equal to 2% of the principal
amount ($20 per $1,000 principal amount) of such Holder's Notes for which
Consents have been validly delivered and not validly revoked on or prior to the
Consent Date. If a Holder's Notes are not validly tendered and the corresponding
Consents are not validly delivered pursuant to the Offer and Solicitation on or
prior to the Consent Date, or such Holder's Notes and Consents are withdrawn and
revoked and not properly retendered and redelivered at or prior to the Consent
Date, such Holder will not receive that portion of the Offer Consideration which
constitutes the Consent Payment even though the Proposed Amendments may be
effective as to each of such Holder's Notes that are not purchased in the Offer.
If the Notes are accepted for payment pursuant to the Offer, Holders who
validly tender their Notes and deliver Consents pursuant to the Offer on or
prior to the Consent Date will receive the Offer Consideration (which includes
the Consent Payment) plus accrued and unpaid interest up to, but not including,
the Payment Date. Holders who validly tender Notes and deliver Consents and do
not withdraw tenders of Notes pursuant to the Offer on or prior to the Consent
Date may not thereafter revoke such Consent after the Consent Date. Holders who
validly tender their Notes and deliver Consents after the
18
Consent Date will receive the Offer Consideration less the Consent Payment plus
accrued and unpaid interest up to, but not including, the Payment Date.
HOLDERS MAY NOT DELIVER CONSENTS WITHOUT TENDERING THEIR NOTES IN THE OFFER,
AND MAY NOT REVOKE CONSENTS ON OR PRIOR TO THE CONSENT DATE WITHOUT WITHDRAWING
THE PREVIOUSLY TENDERED NOTES TO WHICH SUCH CONSENT RELATES. HOLDERS MAY NOT
WITHDRAW PREVIOUSLY TENDERED NOTES ON OR PRIOR TO THE CONSENT DATE WITHOUT
REVOKING PREVIOUSLY DELIVERED CONSENTS TO WHICH SUCH TENDER RELATES. CONSENTS
MAY NOT BE REVOKED AND TENDERS OF NOTES MAY NOT BE WITHDRAWN AFTER THE CONSENT
DATE.
The Proposed Amendments require the receipt of the Requisite Consents,
defined as consents to the Proposed Amendments from the Holders of at least a
majority in aggregate principal amount of the Notes outstanding. Although the
Supplemental Indenture reflecting the Proposed Amendments will become effective
upon execution by Purchaser and the Trustee, the Proposed Amendments will not
become operative until the Notes have actually been accepted for purchase by
Purchaser.
AFTER THE REQUISITE CONSENTS ARE RECEIVED AND THE PROPOSED AMENDMENTS HAVE
BECOME OPERATIVE, THE PROPOSED AMENDMENTS WILL BE EFFECTIVE AS TO ALL NOTES THAT
ARE NOT PURCHASED PURSUANT TO THE OFFER. CONSEQUENTLY, CONSUMMATION OF THE OFFER
AND THE ADOPTION OF THE PROPOSED AMENDMENTS MAY HAVE ADVERSE CONSEQUENCES FOR
HOLDERS WHO DO NOT VALIDLY TENDER NOTES PURSUANT TO THE OFFER. SEE SECTION 3.
The Offer is conditioned upon, among other things, the satisfaction or
waiver of the Consent Condition, the Financing Condition, the Parent Tender
Offer Condition, the Merger Condition and the General Conditions. See Section
10. If any condition to Purchaser's obligation to purchase Notes under the Offer
is not satisfied prior to the Expiration Date, Purchaser reserves the right (but
shall not be obligated) to (i) decline to purchase any of the Notes tendered and
terminate the Offer, (ii) waive such unsatisfied condition, and purchase all
Notes validly tendered, (iii) extend the Offer and retain the Notes which have
been tendered during the period or periods for which the Offer is extended or
(iv) amend the Offer.
Purchaser expressly reserves the right, subject to the securities laws, at
any time or from time to time, regardless of whether or not any of the events
set forth in Section 10 shall have occurred or shall have been determined by
Purchaser to have occurred, (i) to extend the period of time during which the
Offer is open and thereby delay acceptance for payment of, and the payment for,
any Notes, by giving oral notice of such extension to the Depositary followed by
written notice of such extension to the Depositary, (ii) to extend the period of
time during which the Solicitation is open by giving oral notice of such
extension to the Depositary followed by written notice of such extension to the
Depositary, and (iii) to amend the Offer or the Solicitation in any other
respect by giving oral notice of such amendment to the Depositary. The rights
reserved by Purchaser in this paragraph are in addition to Purchaser's rights to
terminate the Offer described in Section 10. Any extension, amendment or
termination will be followed as promptly as practicable by public announcement
thereof, the announcement in the case of an extension to be issued no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which Purchaser may
choose to make any public announcement, Purchaser currently intends to make
announcements by issuing a release to the Dow Jones News Service or by sending
written notice to each registered Holder of the Notes.
If Purchaser extends the Offer, or if (whether before or after any Notes
have been accepted for purchase) the purchase of or payment for Notes is delayed
or Purchaser is unable to pay for Notes pursuant to the Offer for any reason,
then, without prejudice to Purchaser's rights under the Offer, the Depositary
may retain tendered Notes on behalf of Purchaser, and such Notes may not be
withdrawn. However, the ability of Purchaser to delay the payment for Notes
which Purchaser has accepted for purchase is limited by Rule 14e-1(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of Holders of securities
promptly after the termination of withdrawal of a tender offer.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition to such Offer,
Purchaser will disseminate additional Offer materials and extend such Offer to
the extent required by law. If the Solicitation is amended prior to the Consent
Date in a manner determined by Purchaser to constitute a material adverse change
to the Holders,
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Purchaser promptly will disclose such amendment and, if necessary, extend the
Solicitation for a period deemed by Purchaser to be adequate to permit Holders
to withdraw their Notes and revoke their Consents. See Section 8.
6. ACCEPTANCE FOR PURCHASE AND PAYMENT FOR NOTES; ACCEPTANCE OF CONSENTS.
Upon the terms and subject to the conditions of the Offer and the
Solicitation (including if the Offer or the Solicitation is extended or amended,
the terms and conditions of any such extension or amendment) and applicable law,
Purchaser will purchase, by accepting for payment, and will pay for, all Notes
validly tendered (and not withdrawn) and all Consents validly delivered on or
prior to the Consent Date (and not revoked) pursuant to the Offer and the
Solicitation promptly after the Expiration Date, such payments to be paid by the
deposit with the Depositary of the Offer Consideration (including the Consent
Payment, if applicable) plus accrued and unpaid interest up to, but not
including, the Payment Date in immediately available funds by Purchaser promptly
after the Expiration Date so that payment of the Offer Consideration (including
the Consent Payment, if applicable) may be made to tendering Holders on the
Payment Date. Purchaser expressly reserves the right, in Purchaser's sole
discretion, to delay acceptance for payment of or payment for Notes, subject to
Rule 14e-1(c) under the Exchange Act, in order to comply, in whole or in part,
with any applicable law. See Section 8. In all cases, payment by the Depositary
to Holders of Offer Consideration (including the Consent Payment, if applicable)
for Notes purchased pursuant to the Offer and Consents delivered on or prior to
the Consent Date, if applicable, will be made only after timely receipt by the
Depositary of (i) certificates representing such Notes or timely confirmation of
a book-entry transfer of such Notes into the Depositary's account at a
Book-Entry Transfer Facility (as hereinafter defined) pursuant to the procedures
set forth in Section 7, (ii) a properly completed and duly executed Consent and
Letter of Transmittal (or manually signed facsimile thereof) and (iii) any other
documents required by the Consent and Letter of Transmittal.
For purposes of the Solicitation, Consents received by the Depositary will
be deemed to have been accepted by Purchaser if, as and when Purchaser has given
written notice to the Trustee of the receipt by the Depositary of the Requisite
Consents and the Supplemental Indenture is executed by Purchaser and Trustee.
For purposes of the Offer, tendered Notes will be deemed to have been accepted
for purchase if, as and when Purchaser has given oral or written notice thereof
to the Depositary. In all cases, payment for Notes purchased pursuant to the
Offer and Consents validly delivered and not revoked prior to the Consent Date
will be made by the Depositary, which will act as agent for consenting and
tendering Holders for the purpose of receiving payment from Purchaser and
transmitting such payment to tendering Holders. UNDER NO CIRCUMSTANCE WILL
INTEREST ON THE OFFER CONSIDERATION BE PAID BY PURCHASER BY REASON OF ANY DELAY
OF THE DEPOSITARY IN MAKING PAYMENT.
If any tendered Notes are not purchased pursuant to the Offer for any
reason, such Notes not purchased will be returned, without expense, to the
tendering Holder promptly (or, in the case of Notes tendered by book-entry
transfer into the Depositary's account at a Book-Entry Transfer Facility, such
Notes will be credited to the account maintained at such Book-Entry Transfer
Facility from which such Notes were delivered), unless otherwise requested by
such Holder under "Special Delivery Instructions" in the Consent and Letter of
Transmittal, promptly after the expiration or termination of the Offer.
Tendering Holders will not be obligated to pay brokerage fees or commissions
to the Dealer Manager or, except as set forth in Instruction 7 of the Consent
and Letter of Transmittal, transfer taxes on the purchase of Notes pursuant to
the Offer or the payment of the Consent Payment pursuant to the Solicitation.
Purchaser reserves the right to transfer or assign, in whole or in part, at
any time and from time to time, to one or more of its affiliates, the right to
purchase Notes tendered pursuant to the Offer, but any such transfer or
assignment will not relieve Purchaser of its obligations under the Offer or
prejudice the rights of tendering Holders to receive payment for Notes validly
tendered and accepted for purchase pursuant to the Offer.
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7. PROCEDURES FOR TENDERING NOTES AND DELIVERING CONSENTS.
HOLDERS WILL NOT BE ENTITLED TO RECEIVE THE OFFER CONSIDERATION (WHICH
INCLUDES THE CONSENT PAYMENT) UNLESS THEY BOTH TENDER THEIR NOTES PURSUANT TO
THE OFFER AND DELIVER CONSENTS TO THE PROPOSED AMENDMENTS WITH RESPECT TO SUCH
NOTES ON OR PRIOR TO THE CONSENT DATE. HOLDERS WHO DESIRE TO TENDER THEIR NOTES
PURSUANT TO THE OFFER AND RECEIVE THE OFFER CONSIDERATION ARE REQUIRED TO
CONSENT TO THE PROPOSED AMENDMENTS. HOLDERS WILL NOT RECEIVE ANY SEPARATE
CONSIDERATION IN RESPECT OF THEIR CONSENT TO THE PROPOSED AMENDMENTS (OTHER THAN
THE CONSENT PAYMENT FOR HOLDERS WHO TENDER PRIOR TO THE CONSENT DATE). HOLDERS
OF NOTES TENDERED AFTER THE CONSENT DATE WILL NOT RECEIVE THAT PORTION OF THE
OFFER CONSIDERATION WHICH CONSTITUTES THE CONSENT PAYMENT. HOLDERS MAY NOT
CONSENT TO THE PROPOSED AMENDMENTS WITHOUT TENDERING THEIR NOTES PURSUANT TO THE
OFFER.
The method of delivery of Notes and Consents and Letters of Transmittal, any
required signature guarantees and all other required documents, including
delivery through DTC and any acceptance of an Agent's Message transmitted
through ATOP, is at the election and risk of the person tendering Notes and
delivering Consents and Letters of Transmittal and, except as otherwise provided
in the Consent and Letter of Transmittal, delivery will be deemed made only when
actually received by the Depositary. If delivery is by mail, it is suggested
that the Holder use properly insured, registered mail with return receipt
requested, and that the mailing be made sufficiently in advance of the Consent
Date or the Expiration Date, as applicable, to permit delivery to the Depositary
on or prior to such date.
TENDERS OF NOTES AND DELIVERY OF CONSENTS. The tender by a Holder of Notes
and delivery of Consents (and subsequent acceptance of such tender by Purchaser)
pursuant to one of the procedures set forth below will constitute an agreement
between such Holder and Purchaser in accordance with the terms and subject to
the conditions set forth herein, in the Consent and Letter of Transmittal and,
if applicable, in the Notice of Guaranteed Delivery.
The procedures by which Notes may be tendered and Consents may be given by
beneficial owners that are not Holders will depend upon the manner in which the
Notes are held.
TENDER OF NOTES HELD IN PHYSICAL FORM. For a Holder validly to tender Notes
held in physical form pursuant to the Offer (and deliver the related Consents),
a properly completed and duly executed Consent and Letter of Transmittal (or a
manually signed facsimile thereof), together with any signature guarantees and
any other documents required by the Instructions to the Consent and Letter of
Transmittal, must be received by the Depositary at its address set forth on the
back cover of this Statement and certificates representing such Notes must be
received by the Depositary at such address, prior to the Consent Date or the
Expiration Date, as applicable. A tender of Notes may also be effected through
the deposit of Notes with DTC and making book-entry delivery as described below;
however, a completed and executed Consent and Letter of Transmittal is still
required to effectuate the valid delivery of related Consents with respect to
such Notes. A Holder who desires to tender Notes and who cannot comply with the
procedures set forth herein for tender on a timely basis or whose Notes are not
immediately available must comply with the procedures for guaranteed delivery
set forth below. HOWEVER, THE GUARANTEED DELIVERY PROCEDURE SET FORTH BELOW MAY
NOT BE USED TO TENDER NOTES OR DELIVER CONSENTS ON OR PRIOR TO THE CONSENT DATE.
CONSENTS AND LETTERS OF TRANSMITTAL AND ANY NOTES TENDERED PURSUANT TO THE OFFER
SHOULD BE SENT ONLY TO THE DEPOSITARY, NOT TO PURCHASER, THE INFORMATION AGENT
OR THE DEALER MANAGER.
THE PROPER COMPLETION, EXECUTION AND DELIVERY OF A CONSENT AND LETTER OF
TRANSMITTAL BY A REGISTERED HOLDER WITH RESPECT TO NOTES WILL CONSTITUTE THE
GIVING OF A CONSENT BY SUCH HOLDER TO THE PROPOSED AMENDMENTS WITH RESPECT TO
SUCH NOTES, AND NO SEPARATE CONSENT OR PROXY WILL BE REQUIRED.
If the Notes are registered in the name of a person other than the signer of
a Consent and Letter of Transmittal, then, in order to tender such Notes
pursuant to the Offer, the Notes must be endorsed or accompanied by an
appropriate written instrument or instruments of transfer signed exactly as the
name or names of such Holder or Holders appear on the Notes, with the
signature(s) on the Notes or instruments
21
of transfer guaranteed as provided below. In the event such procedures are
followed by a beneficial owner tendering Notes, the Holder or Holders of such
Notes must sign a valid proxy pursuant to the Consent and Letter of Transmittal,
because Notes may not be tendered without also consenting to the Proposed
Amendments, and only registered Holders as of the date of delivery of the
Consent and Letter of Transmittal are entitled to deliver Consents.
TENDER OF NOTES HELD THROUGH A CUSTODIAN. Any beneficial owner whose Notes
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender Notes and deliver Consents should
contact such registered Holder promptly and instruct such Holder to tender Notes
and deliver Consents on such beneficial owner's behalf. A Letter of Instructions
is enclosed in the solicitation materials provided along with this Statement,
which may be used by a beneficial owner in this process to instruct the
registered Holder to tender Notes and deliver Consents. If such beneficial owner
wishes to tender such Notes and deliver Consents himself, such beneficial owner
must, prior to completing and executing the Consent and Letter of Transmittal
and delivering such Notes, either make appropriate arrangements to register
ownership of the Notes in such beneficial owner's name or follow the procedures
described in the immediately preceding paragraph. The transfer of record
ownership may take considerable time.
TENDER OF NOTES HELD THROUGH DTC. DTC has confirmed that the Offer is
eligible for ATOP. Accordingly, DTC participants may electronically transmit
their acceptance of the Offer by causing DTC to transfer Notes to the Depositary
in accordance with ATOP procedures for transfer (and thereby tender Notes),
followed by a properly completed and duly executed Consent and Letter of
Transmittal delivered to the Depositary to effectuate the delivery of the
related Consent. Upon receipt of such Holder's acceptance through ATOP, DTC will
send an Agent's Message to the Depositary. The term "Agent's Message" means a
message transmitted by DTC, received by the Depositary and forming part of the
Confirmation of book-entry transfer, which states that DTC has received an
express acknowledgment from the participant in DTC tendering Notes and
delivering Consents which are the subject of such confirmation of book-entry
transfer, that such participant has received and agreed to be bound by the terms
of the Consent and Letter of Transmittal and that Purchaser may enforce such
agreement against such participant. Delivery of tendered Notes must be made to
the Depositary pursuant to the book-entry delivery procedures set forth below or
the tendering DTC participant must comply with the guaranteed delivery
procedures set forth below but such guaranteed delivery procedures may only be
used for tenders of Notes after the Consent Date.
Except as provided below, unless the Notes being tendered are deposited with
the Depositary on or prior to the Consent Date or on or prior to the Expiration
Date, as the case may be (accompanied by a properly completed and duly executed
Consent and Letter of Transmittal), Purchaser may, at its option, treat such
tender as defective for purposes of the right to receive the Offer
Consideration. Payment for the Notes will be made only against deposit of the
tendered Notes and delivery of any other required documents.
Pursuant to authority granted by DTC, any DTC participant which has Notes
credited to its DTC account at any time (and thereby held of record by DTC's
nominee) may directly provide a Consent to the Proposed Amendments as though it
were the registered Holder by so completing, executing and delivering the
Consent and Letter of Transmittal.
BOOK-ENTRY DELIVERY PROCEDURES. The Depositary will establish accounts with
respect to the Notes at DTC and the Philadelphia Depository Trust Company
("Philadep") (each a "Book-Entry Transfer Facility" and collectively, the
"Book-Entry Transfer Facilities") for purposes of the Offer within two business
days after the date hereof, and any financial institution that is a participant
in either of the Book-Entry Transfer Facilities systems may make book-entry
delivery of the Notes by causing DTC or Philadep to transfer such Notes into the
Depositary's account in accordance with such Book-Entry Transfer Facility's
procedure for such transfer. Timely book-entry delivery of Notes pursuant to the
Offer, however, requires receipt of a
22
confirmation of book-entry transfer prior to the Consent Date or the Expiration
Date, as the case may be. In addition, although delivery of Notes may be
effected through book-entry transfer into the Depositary's account at a
Book-Entry Transfer Facility, the Consent and Letter of Transmittal (or a
facsimile thereof), together with any required signature guarantees and any
other required documents, must, in any case, be delivered or transmitted to and
received by the Depositary at its address set forth on the back cover of this
Statement prior to the Consent Date or the Expiration Date, as the case may be,
in connection with the tender of such Notes. Tender will not be deemed made
until such documents are received by the Depositary. DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE VALID DELIVERY TO THE
DEPOSITARY.
SIGNATURE GUARANTEES. Signatures on all Consents and Letters of Transmittal
must be guaranteed by a participant in the Security Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchange Medallion Program (each of the foregoing being referred to as a
"Medallion Signature Guarantor"), unless the Notes tendered thereby are tendered
(i) by a registered Holder of Notes (or by a participant in one of the
Book-Entry Transfer Facilities whose name appears on a security position listing
as the owner of such Notes) who has not completed either the box entitled
"Special Delivery Instructions" or "Special Issuance Instructions" on the
Consent and Letter of Transmittal or (ii) for the account of a member firm of a
registered national securities exchange, a member of the National Association of
Securities Dealers, Inc. ("NASD") or a commercial bank or trust company having
an office or correspondent in the United States (each of the foregoing being
referred to as an "Eligible Institution"). See Instruction 1 of the Consent and
Letter of Transmittal. If the Notes are registered in the name of a person other
than the signer of the Consent and Letter of Transmittal or if Notes not
accepted for purchase or not tendered are to be returned to a person other than
the registered Holder, then the signatures on the Consents and Letters of
Transmittal accompanying the tendered Notes must be guaranteed by a Medallion
Signature Guarantor as described above. See Instructions 1 and 5 of the Consent
and Letter of Transmittal.
MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. If a Holder desires to
tender Notes, but the certificates evidencing such Notes have been mutilated,
lost, stolen or destroyed, such Holder should contact the Trustee to receive
information about the procedures for obtaining replacement certificates for
Notes at the following address or telephone number: Marine Midland Bank, 140
Broadway, 12th Floor, New York, New York 10005, Attention: Corporate Trust
Department, Telephone No. (212) 658-6433.
GUARANTEED DELIVERY. If a Holder desires to tender Notes pursuant to the
Offer after the Consent Date and time will not permit the Consent and Letter of
Transmittal, certificates representing such Notes and all other required
documents to reach the Depositary, or the procedures for book-entry transfer
cannot be completed, prior to the Expiration Date, such Holder may nevertheless
tender such Notes if all the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser herewith or an
Agent's Message with respect to guaranteed delivery that is accepted by
Purchaser, is received by the Depositary after the Consent Date and on or
prior to the Expiration Date, as provided below; and
(iii) the certificates of the tendered Notes, in proper form for
transfer (or confirmation of a book-entry transfer of such Notes, into the
Depositary's account at a Book-Entry Transfer Facility as described above),
together with a Consent and Letter of Transmittal (or a manually signed
facsimile thereof), properly completed and duly executed, with any required
signature guarantees and any other documents required by the Instructions to
the Consent and Letter of Transmittal are received by the Depositary within
two New York Stock Exchange, Inc. trading days after the date of execution
of the Notice of Guaranteed Delivery.
23
The Notice of Guaranteed Delivery may be sent by hand delivery, facsimile
transmission or mail to the Depositary and must include a guarantee by an
Eligible Institution in the form set forth in the Notice of Guaranteed Delivery.
UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY PURCHASER BY REASON OF ANY
DELAY IN MAKING PAYMENT TO ANY PERSON RESULTING FROM SUCH PERSON'S USE OF THE
GUARANTEED DELIVERY PROCEDURES, AND THE OFFER CONSIDERATION FOR NOTES TENDERED
PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES WILL BE THE SAME AS THAT FOR
NOTES DELIVERED TO THE DEPOSITARY AFTER THE CONSENT DATE AND ON OR PRIOR TO THE
EXPIRATION DATE. HOLDERS SHOULD BE AWARE THAT, ON OR PRIOR TO THE CONSENT DATE,
TENDERS OF NOTES AND THE RELATED CONSENTS CANNOT BE DELIVERED USING THE
GUARANTEED DELIVERY PROCESS AND THAT USE OF THE GUARANTEED DELIVERY PROCESS
COULD RESULT IN A TENDER OF NOTES AND THE RELATED CONSENT BEING DEFECTIVE.
Notwithstanding any other provisions hereof, payment for Notes tendered and
accepted for purchase pursuant to the Offer will, in all cases, be made only
after timely receipt by the Depositary of such Notes (or confirmation of a
book-entry transfer of such Notes into the Depositary's account at a Book-Entry
Transfer Facility as described above), and a Consent and Letter of Transmittal
(or manually signed facsimile thereof) with respect to such Notes properly
completed and duly executed, with any required signature guarantees and any
other documents required by the Consent and Letter of Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE CONSENT AND LETTER OF TRANSMITTAL,
ANY REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING
DELIVERY THROUGH A BOOK-ENTRY TRANSFER FACILITY AND ANY ACCEPTANCE OR AGENT'S
MESSAGE TRANSMITTED THROUGH ATOP, IS AT THE ELECTION AND RISK OF THE HOLDER
TENDERING NOTES AND DELIVERING A CONSENT AND LETTER OF TRANSMITTAL AND, EXCEPT
AS OTHERWISE PROVIDED IN THE CONSENT AND LETTER OF TRANSMITTAL, DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF SUCH DELIVERY IS
BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL
WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN
ADVANCE OF THE CONSENT DATE OR THE EXPIRATION DATE, AS THE CASE MAY BE, TO
PERMIT DELIVERY TO THE DEPOSITARY PRIOR TO SUCH DATE.
BACKUP FEDERAL INCOME TAX WITHHOLDING. To prevent backup U.S. Federal
income tax withholding, each tendering Holder of Notes must provide the
Depositary with such Holder's correct taxpayer identification number and certify
that such Holder is not subject to backup U.S. Federal income tax withholding by
completing the Substitute Form W-9 included in the Consent and Letter of
Transmittal. See Section 11.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tendered Notes or
delivered Consents pursuant to any of the procedures described above will be
determined by Purchaser, in Purchaser's sole discretion (whose determination
shall be final and binding). Purchaser reserves the absolute right, in its sole
discretion, subject to applicable law, to reject any and all tenders of Notes or
deliveries of Consents determined by it not to be in proper form or, in the case
of Notes, if the acceptance for payment of, or payment for, such Notes may, in
the opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the
absolute right, in its sole discretion, subject to applicable law, to waive any
of the conditions of the Offer or the Solicitation or to waive any defect or
irregularity in any tender with respect to Notes or Consents of any particular
Holder, whether or not similar defects or irregularities are waived in the case
of other Holders. Purchaser's interpretation of the terms and conditions of the
Offer and the Solicitation (including the Consent and Letter of Transmittal and
the Instructions thereto) will be final and binding. None of Purchaser, the
Depositary, the Trustee or any other person will be under any duty to give
notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification. If Purchaser waives its
right to reject a defective tender of Notes, the Holder will be entitled to the
Offer Consideration including the Consent Payment, if applicable.
8. WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS.
Notes tendered pursuant to the Offer may be withdrawn at any time prior to
the Consent Date (but not thereafter if the Purchaser accepts the Notes for
payment). A valid withdrawal of tendered Notes prior
24
to the Consent Date will constitute the concurrent valid revocation of such
Holder's related Consent. In order for a Holder to revoke a Consent, such Holder
must withdraw the related tendered Notes. Tendered Notes may not be withdrawn
and delivered Consents may not be revoked subsequent to the Consent Date. In
addition, tenders of Notes may be validly withdrawn if the Offer is terminated
without any Notes being purchased hereunder. In the event of a termination of
the Offer, the Notes tendered pursuant to the Offer will be promptly returned to
the tendering Holder.
For a withdrawal of a tender of Notes or revocation of a Consent to be
effective, a written or facsimile transmission notice of withdrawal or
revocation must be timely received by the Depositary at its address set forth on
the back cover of this Statement on or prior to the Consent Date. Any such
notice of withdrawal or revocation must (i) specify the name of the person who
tendered the Notes to be withdrawn or to which the revocation of Consents
relates, (ii) contain a description of the Notes to be withdrawn and identify
the certificate number or numbers shown on the particular certificates
evidencing such Notes (unless such Notes were tendered by book-entry transfer)
and the aggregate principal amount represented by such Notes, and (iii) be
signed by the Holder of such Notes in the same manner as the original signature
on the Consent and Letter of Transmittal by which such Notes were tendered
(including any required signature guarantees) or related Consent was given or be
accompanied by (x) documents of transfer sufficient to have the Trustee register
the transfer of the Notes into the name of the person withdrawing such Notes
and/or revoking such related Consent and (y) a properly completed irrevocable
proxy that authorized such person to effect such revocation on behalf of such
Holder. If the Notes to be withdrawn have been delivered or otherwise identified
to the Depositary, a properly completed and signed notice of withdrawal shall be
effective immediately upon receipt thereof even if physical release is not yet
effected. A withdrawal of Notes or revocation of Consents can only be
accomplished in accordance with the foregoing procedures.
ALL QUESTIONS AS TO THE FORM AND VALIDITY (INCLUDING TIME OF RECEIPT) OF
NOTICES OF WITHDRAWAL OR REVOCATION WILL BE DETERMINED BY PURCHASER, IN
PURCHASER'S SOLE DISCRETION (WHOSE DETERMINATION WILL BE FINAL AND BINDING).
NONE OF PURCHASER, THE DEPOSITARY, THE DEALER MANAGER, THE INFORMATION AGENT,
THE TRUSTEE OR ANY OTHER PERSON WILL BE UNDER ANY DUTY TO GIVE NOTIFICATION OF
ANY DEFECTS OR IRREGULARITIES IN ANY NOTICE OF WITHDRAWAL OR REVOCATION OR INCUR
ANY LIABILITY FOR FAILURE TO GIVE ANY SUCH NOTIFICATION.
Any Notes properly withdrawn or with respect to which Consents have been
properly revoked will be deemed to be not validly tendered for purposes of the
Offer. Withdrawn Notes may be retendered and revoked Consents may be redelivered
by following one of the procedures described in Section 7 at any time prior to
the Consent Date or the Expiration Date, as the case may be.
9. SOURCE AND AMOUNT OF FUNDS.
The total amount of funds required by Purchaser to purchase all of the Notes
pursuant to the Offer will be obtained from borrowings under the New Credit
Agreement. See Section 2.
10. CONDITIONS TO THE OFFER AND THE SOLICITATION.
Notwithstanding any other provisions of the Offer and the Solicitation and
in addition to (and not in limitation of) Purchaser's rights to extend and/or
amend the Offer and the Solicitation at any time in its sole discretion,
Purchaser shall not be required to accept for payment, purchase or pay for, and
may delay the acceptance for payment of, any tendered Notes, in each event
subject to Rule 14e-1(c) under the Exchange Act, and may terminate the Offer and
the Solicitation, if there shall not have been satisfied the following
conditions:
The "Consent Condition" shall mean the receipt of the Requisite Consents
with respect to the Proposed Amendments and the execution by Purchaser and the
Trustee of the Supplemental Indenture implementing the Proposed Amendments.
25
The "Financing Condition" shall mean the receipt (on terms and conditions
satisfactory to Parent in its sole discretion) (i) by Parent of proceeds from
the issuance of the New Senior Subordinated Notes and (ii) by Purchaser of
borrowings under the New Credit Agreement or such other credit facilities as
Parent determines are appropriate in an aggregate amount that is sufficient for
Purchaser to consummate the Offer. Although Purchaser believes, based on its
current financial condition, that the Financing Condition will be satisfied,
there can be no assurance that the Financing Condition will in fact be satisfied
on the Expiration Date.
The "Parent Tender Offer Condition" shall mean the consummation by Parent of
its offer to purchase any or all of its 11 1/4% Series A Senior Subordinated
Notes due 2004 (the "Parent Notes") and the elimination of substantially all the
covenants contained in the indenture relating to the Parent Notes, in each case
in accordance with the terms of Parent's Offer to Purchase and Consent
Solicitation Statement dated as of the date of this Statement, as amended or
supplemented from time to time. Although Purchaser believes that the Parent
Tender Offer Condition will be satisfied, there can be no assurance that the
Parent Tender Offer Condition will in fact be satisfied on the Expiration Date.
The "Merger Condition" shall mean the consummation of the Merger and the
receipt by Parent of all approvals or consents to the Merger from all requisite
governmental authorities. Although Purchaser believes that the Merger Condition
will be satisfied, there can be no assurance that the Merger Condition will in
fact be satisfied on the Expiration Date.
The "General Conditions" shall mean the conditions set forth below in
paragraphs (a) through (d). The General Conditions shall be deemed to have been
satisfied unless any of the following conditions shall occur on or prior to the
Expiration Date:
(a) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities in the United States
securities or financial markets, (ii) a material impairment in the trading
market for debt securities, (iii) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States (whether
or not mandatory), (iv) any limitation (whether or not mandatory) by any
governmental authority on, or other event having a reasonable likelihood of
affecting, the extension of credit by banks or other lending institutions in
the United States, (v) a commencement of a war, armed hostilities or other
national or international crisis involving the United States or (vi) any
significant adverse change in the United States securities or financial
markets generally or in the case of any of the foregoing existing on the
date hereof, a material acceleration or worsening thereof;
(b) there exists an order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction that shall have been enacted, entered,
issued, promulgated, enforced or deemed applicable by any court or
governmental, regulatory or administrative agency or instrumentality that,
in the reasonable judgment of Purchaser, would or would be reasonably likely
to prohibit, prevent or materially restrict or delay consummation of the
Offer or the Solicitation or that is, or is reasonably likely to be,
materially adverse to the business, operations, properties, condition
(financial or otherwise), assets, liabilities or prospects of Purchaser or
its subsidiaries;
(c) there shall have been instituted or be pending any action or
proceeding before or by any court or governmental, regulatory or
administrative agency or instrumentality, or by any other person, which
challenges the making of the Offer or the Solicitation or the Proposed
Amendments or is reasonably likely to directly or indirectly prohibit,
prevent, restrict or delay the consummation of the Offer or the Solicitation
or the Proposed Amendments or otherwise adversely affect in any material
manner the Offer, the Solicitation or the Proposed Amendments; or
(d) the Trustee under the Indenture shall have objected in any respect
to, or taken any action that would be reasonably likely to materially and
adversely affect the consummation of the Offer or the Solicitation or
Purchaser's ability to effect the Proposed Amendments, or shall have taken
any
26
action that challenges the validity or effectiveness of the procedures used
by Purchaser in soliciting the Consents (including the form thereof) or in
the making of the Offer or the acceptance of the Notes or the Consents or
the payment for the Notes.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition (including any action or inaction by Purchaser) and may be waived by
Purchaser, in whole or in part, at any time and from time to time, in the sole
discretion of Purchaser. The failure by Purchaser at any time to exercise any of
the foregoing rights will not be deemed a waiver of any other right and each
right will be deemed an ongoing right which may be asserted at any time and from
time to time.
11. CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS.
THE FOLLOWING IS A GENERAL SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS OF THE SALE OF NOTES TO PURCHASER PURSUANT TO THE OFFER AND THE
RETENTION OF NOTES AFTER THE ADOPTION OF THE PROPOSED AMENDMENTS. THE DISCUSSION
IS BASED ON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"),
REGULATIONS PROMULGATED THEREUNDER (INCLUDING RECENTLY ISSUED REGULATIONS) AND
JUDICIAL DECISIONS AND ADMINISTRATIVE RULINGS, ALL OF WHICH ARE SUBJECT TO
CHANGE (POSSIBLY WITH RETROACTIVE EFFECT). THE FOLLOWING DOES NOT ADDRESS THE
U.S. FEDERAL INCOME TAX CONSIDERATIONS TO HOLDERS THAT MAY BE SUBJECT TO SPECIAL
RULES (E.G., FOREIGN HOLDERS, INSURANCE COMPANIES AND TAX-EXEMPT ORGANIZATIONS),
NOR DOES IT ADDRESS THE U.S. FEDERAL INCOME TAX CONSIDERATIONS TO HOLDERS WHO DO
NOT HOLD THE NOTES AS "CAPITAL ASSETS" WITHIN THE MEANING OF SECTION 1221 OF THE
CODE (GENERALLY, PROPERTY HELD FOR INVESTMENT).
The receipt of cash for Notes pursuant to the Offer will be a taxable
transaction for U.S. Federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign tax laws. The tax
consequences of such receipt pursuant to the Offer may vary depending upon,
among other things, the particular circumstances of the Holder. In general, a
Holder who receives cash for Notes pursuant to the Offer will recognize gain or
loss, if any, for U.S. Federal income tax purposes equal to the difference
between the amount realized in exchange for the Notes sold (the amount of cash
received by such Holder less any cash received in respect of accrued and unpaid
interest on the Notes) and such Holder's adjusted tax basis in such Notes. A
Holder's adjusted tax basis for a Note generally is the price such Holder paid
for the Note increased by the market discount, if any, previously included in
such Holder's income and reduced (but not below zero) by any amortized premium.
Except as provided below, any gain or loss recognized on a sale of a Note will
give rise to capital gain or loss if the Note is held as a capital asset. A
Holder who has acquired a Note with market discount generally will be required
to treat a portion of any gain on a sale of the Note as ordinary income to the
extent of the market discount accrued to the date of the disposition, less any
accrued market discount income previously reported as ordinary income. Amounts
received by a Holder in respect of accrued interest on the Notes will be taxable
as ordinary income. If the Consent Payment is treated as a separate fee for
consenting to the Proposed Amendments, it is possible that such amount would be
taxable as ordinary income to such Holder (rather than as sale proceeds,
discussed above). The Purchaser intends to treat the Consent Payments for U.S.
Federal income tax purposes as additional cash paid in exchange for a Holder's
Note.
Although the matter is not free from doubt, the adoption of the Proposed
Amendments to the Indenture should not constitute a "significant modification"
in the terms of the Notes within the meaning of applicable United States
Department of Treasury regulations. Accordingly, for U.S. Federal income tax
purposes, the adoption of the Proposed Amendments should not result in a deemed
exchange of Notes by any Holder that does not sell in the Offer and should have
no U.S. Federal income tax consequences to such Holders. Even if the Proposed
Amendments were to constitute a deemed exchange of the Notes, Holders who do not
sell their Notes pursuant to the Offer should not recognize gain or loss on such
deemed exchange since such deemed exchange should qualify as a tax-free
recapitalization. There can be no assurance, however, that the IRS would not
take a contrary view. If an exchange were deemed to have occurred and such
exchange did not qualify as a recapitalization, Holders who did not sell their
Notes
27
would recognize gain or loss, if any, on such deemed exchange and would have a
new holding period for the Notes.
BACKUP FEDERAL INCOME TAX WITHHOLDING. In order to avoid backup
withholding, a Holder (other than exempt Holders which include, among others,
all corporations and certain foreign individuals and entities) whose tendered
Notes are accepted for purchase must provide the Depositary (as payer) with its
correct taxpayer identification number, which, in the case of a Holder who is an
individual, is his social security number, or otherwise establish a basis for
exemption from backup withholding. The Depositary will be required to file
information returns with the IRS reporting the gross proceeds of the Offer.
Exempt Holders are not subject to these backup withholding and reporting
requirements. To prevent backup withholding, each nonexempt Holder must provide
his correct taxpayer identification number by completing the Substitute Form W-9
included in the Consent and Letter of Transmittal, certifying that the taxpayer
identification number provided is correct (or that such Holder is awaiting a
taxpayer identification number) and that (i) the Holder is exempt from backup
withholding, (ii) the Holder has not been notified by the IRS that he is subject
to backup withholding as a result of failure to report all interest or dividends
or (iii) the IRS has notified the Holder that he is no longer subject to backup
withholding.
If the Depositary is not provided with the correct taxpayer identification
number and certificate of no loss of exemption from backup withholding or other
adequate basis for exemption, the Holder may be subject to a $50 penalty imposed
by the IRS, and gross proceeds of the Offer paid to the Holder may be subject to
a 31% backup withholding tax. Any amount withheld under these rules will be
creditable against the Holder's Federal income tax liability and, if withholding
results in an overpayment of taxes, a refund may be applied for.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW. HOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
OFFER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM
TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS.
12. THE DEALER MANAGER, THE INFORMATION AGENT AND THE DEPOSITARY.
Chase Securities has been engaged to act as the Dealer Manager in connection
with the Offer and the Solicitation. In its capacity as Dealer Manager, Chase
Securities may contact Holders regarding the Offer and the Solicitation and may
request brokers, dealers, commercial banks, trust companies and other nominees
to forward the Statement and related materials to beneficial owners of the
Notes. At any given time, Chase Securities or its affiliates may trade Notes for
its own account or for the accounts of customers, and, accordingly, may hold a
long or short position in the Notes. Purchaser has agreed to indemnify the
Dealer Manager and its affiliates against certain liabilities, including
liabilities caused by, arising out of or in connection with the Offer, the
Solicitation or the engagement of Chase Securities as Dealer Manager. From time
to time, Chase Securities and its affiliates have performed investment banking
and commercial banking services for Purchaser. In addition, Chase Securities has
been engaged to act as an underwriter of, or Placement Agent for, the New Senior
Subordinated Notes, and Chase has agreed, subject to the satisfaction of certain
conditions to make available to Parent and its subsidiaries senior secured
credit facilities pursuant to the New Credit Agreement.
Any Holder that has questions concerning the terms of the Offer or the
Solicitation may contact the Dealer Manager at its address and telephone number
set forth on the back cover page of this Statement.
Georgeson has been appointed as Information Agent for the Offer and the
Solicitation. Questions and requests for assistance or additional copies of this
Statement, the Consent and Letter of Transmittal or the Notice of Guaranteed
Delivery may be directed to the Information Agent at its address and telephone
number set forth on the back cover page of this Statement. Holders of Notes may
also contact their broker, dealer, commercial bank or trust company for
assistance concerning the Offer or the Solicitation.
28
Bankers Trust has been appointed as Depositary for the Offer. The
Solicitation, Consent and Letter of Transmittal and all correspondence in
connection with the Offer and the Solicitation should be sent or delivered by
each Holder or a beneficial owner's broker, dealer, commercial bank, trust
company or other nominee to the Depositary at the address and telephone number
set forth on the back cover of this Statement. Any Holder or beneficial owner
that has questions concerning the procedures for tendering Notes or whose Notes
have been mutilated, lost, stolen or destroyed should contact the Depositary at
the address and telephone number set forth on the back cover of this Statement.
13. FEES AND EXPENSES.
The Dealer Manager will receive customary fees for its services in
connection with the Offer and the Solicitation. The Information Agent and the
Depositary will also receive reasonable and customary fees for their services
and reimbursement for their reasonable out-of-pocket expenses in connection
therewith. Brokerage houses and other custodians, nominees and fiduciaries will
be reimbursed for their reasonable out-of-pocket expenses incurred in forwarding
copies of this Statement and related documents to the beneficial owners of
Notes. All such fees and expenses will be paid by Purchaser.
14. MISCELLANEOUS.
Purchaser is not aware of any jurisdiction in which the making of the Offer
and the Solicitation is not in compliance with applicable law. If Purchaser
becomes aware of any jurisdiction in which the making of the Offer and the
Solicitation would not be in compliance with applicable law, Purchaser will make
a good faith effort to comply with any such law. If, after such good faith
effort, Purchaser cannot comply with any such law, the Offer and the
Solicitation will not be made to (nor will tenders of Notes and Consents be
accepted from or on behalf of) the Holders residing in such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER NOT CONTAINED IN THIS STATEMENT OR IN THE
CONSENT AND LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Manually signed, properly completed facsimile copies of the Consent and
Letter of Transmittal will be accepted. The Consent and Letter of Transmittal,
Notes and any other required documents should be sent or delivered by each
Holder or its broker, dealer, commercial bank or other nominee to the Depositary
at its addresses set forth on the backcover of this Statement.
29
SCHEDULE I
FORMULA TO DETERMINE OFFER CONSIDERATION
YLD = The Tender Offer Yield equals the sum of the Yield on the
8 1/2% U.S. Treasury Note due November 15, 2000 (the
"Reference Security"), as calculated by the Dealer Manager in
accordance with standard market practice, based on the bid
price for such Reference Security as of 2:00 p.m., New York
City time, on the Price Determination Date, as displayed on
the Bloomberg Government Pricing Monitor on "Page PX5" (the
"Bloomberg Page") (or, if any relevant price is not available
on a timely basis on the Bloomberg Page or is manifestly
erroneous, such other recognized quotation source as the
Dealer Manager shall select in its sole discretion), plus 50
basis points, expressed as a decimal number.
CPN = the contractual rate of interest payable on a Note expressed
as a decimal number.
N = the number of semi-annual interest payments, based on the
Earliest Redemption Date, from (but not including) the
expected Payment Date to (and including) the Earliest
Redemption Date.
S = the number of days from and including the semi-annual
interest payment date immediately preceding the expected
Payment Date up to, but not including, the expected Payment
Date. The number of days is computed using the 30/360
day-count method.
exp = Exponentiate. The term to the left of "exp" is raised to the
power indicated by the term to the right of "exp."
CP = $20 per $1,000 principal amount per Note, which is equal to
the Consent Payment.
RV = the assumed redemption amount based, on the Earliest
Redemption Date, for each Note per $1,000 principal amount of
a Note (as rounded to the nearest one hundredth of one
percent).
Offer Consideration = the Offer Consideration of a Note per $1,000 principal amount
of a Note if tender is made on or prior to 5:00 p.m., New
York City time, on the Consent Date. The Offer Consideration
is rounded to the nearest cent.
Offer Consideration Less
Consent Payment = the applicable purchase price of a Note per $1,000 principal
amount of a Note if tender is made after 5:00 p.m. New York
City time, on the Consent Date.
Offer Consideration =
N
RV + S $1,000 (CPN/2) - $1,000 (CPN/2)(S/180)
(1 + YLD/2) exp (N - S/180) k=1 (1 + YLD/2) exp (k - S/180)
Offer Consideration Less
Consent Payment =
N
RV + S $1,000 (CPN/2) - $1,000 (CPN/2)(S/180) - CP
(1 + YLD/2) exp (N - S/180) k=1 (1 + YLD/2) exp (k - S/180)
I-1
SCHEDULE II
HYPOTHETICAL ILLUSTRATION OF OFFER CONSIDERATION
This Schedule provides a hypothetical illustration of the Offer
Consideration of the 11 1/2% Senior Subordinated Notes due 2005 based on
hypothetical data, and should, therefore, be used solely for the purpose of
obtaining an understanding of the calculation of the Offer Consideraton, as
quoted at hypothetical rates and times, and should not be used or relied upon
for any other purpose:
11 1/2% SENIOR SUBORDINATED NOTES DUE 2005
Earliest Redemption Date = November 15, 2000
Reference Security = 8 1/2% U.S. Treasury Note due November 15, 2000 as
displayed on the Bloomberg Government Pricing Monitor
on "Page PX5"
Fixed Spread = 0.50% (50 basis points)
EXAMPLE
Assumed Price Determination
Date and Time = 2:00 p.m., New York City time, on January 26, 1998
Assumed Payment Date = February 12, 1998
Assumed Reference Security
Yield as of Assumed Price
Determination Date and Time = 5.22%
Fixed Spread = 0.50%
YLD = .0572
CPN = .1150
N = 6
S = 87
RV = $1,057.50
CP = $20.00
Offer Consideration = $1,194.59
$1,057.50 N $1,000 (.1150/2)
(1 + .0572/2) exp (6 - + S (1 + .0572/2) exp (k - - $1,000 (.1150/2)(87/180)
87/180) k=1 87/180)
Offer Consideration Less
Consent Payment = $1,174.59
$1,057.50 N $1,000 (.1150/2) $1,000 (.1150/2)(87/180) -
(1 + .0572/2) exp (6 - + S (1 + .0572/2) exp (k - - $20.00
87/180) k=1 87/180)
II-1
THE DEPOSITARY FOR THE OFFER AND THE SOLICITATION IS:
BANKERS TRUST COMPANY
BY MAIL: BY HAND: BY OVERNIGHT MAIL OR
COURIER:
BT Services Tennessee, Inc. Bankers Trust Company BT Services Tennessee, Inc.
Reorganization Unit Corporate Trust & Corporate Trust &
P.O. Box 292737 Agency Group Agency Group
Nashville, TN 37229-2737 Receipt & Delivery Window Reorganization Unit
123 Washington Street, 1st 648 Grassmere Park Road
Floor Nashville, TN 37211
New York, NY 10006
FOR INFORMATION CALL:
(800) 735-7777
Confirm: (615) 835-3572
Facsimile: (615) 835-3701
Any questions or requests for assistance or additional copies of this
Statement, the Consent and Letter of Transmittal or the Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone numbers and
location listed below. You may also contact your broker, dealer, commercial bank
or trust company or nominee for assistance concerning the Offer and the
Solicitation.
THE INFORMATION AGENT IS:
ABCDEF
Wall Street Plaza
New York, New York 10005
BANKERS AND BROKERS CALL COLLECT:
(212) 440-9800
ALL OTHERS CALL TOLL-FREE:
(800) 223-2064
THE DEALER MANAGER FOR THE OFFER AND THE SOLICITATION AGENT FOR THE SOLICITATION
IS:
CHASE SECURITIES INC.
270 Park Avenue, 4th Floor
New York, New York 10017
Attention: Robert Berk
Telephone: (212) 270-1100 (collect)