UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THEx
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 01-14358
Harborside Healthcare Corporation
Delaware 04-3307188
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
470 Atlantic Avenue, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(617) 556-1515
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes No X
Number of shares of common stock, par value $0.01 per share outstanding as
of August 12, 1996: 8,000,000.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Combined prior to June 14, 1996)
(dollars in thousands, except per share amounts)
December 31, June 30,
1995 1996
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $40,157 $20,736
Accounts receivable, net of allowances
for doubtful accounts of $978 and $1,783,
respectively 9,967 13,609
Prepaid expenses and other 1,790 3,878
Demand note due from limited partnership 1,255 1,312
Facility acquisition deposits 3,000 --
Deferred income taxes -- 843
Total current assets 56,169 40,378
Restricted cash 2,755 3,597
Investment in limited partnership 519 152
Property and equipment, net 30,139 30,696
Intangible assets, net 3,050 3,263
Deferred income taxes -- 400
Total assets $92,632 $78,486
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 428 $ 172
Accounts payable 4,034 5,317
Employee compensation and benefits 4,495 6,358
Other accrued liabilities 959 2,916
Note payable to affiliate 2,000 --
Accrued interest 25 263
Current portion of deferred income -- 360
Distribution payable to minority interest 33,493 --
Total current liabilities 45,434 15,386
Long-term portion of deferred income -- 3,144
Long-term debt 43,068 18,149
Total liabilities 88,502 36,679
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 30,000,000 shares
authorized, 4,400,000 and 8,000,000 shares
issued and outstanding, respectively 44 80
Additional paid-in capital 10,328 48,911
Accumulated deficit (6,242) (7,184)
Total stockholders' equity 4,130 41,807
<PAGE>
Total liabilities and stockholders' equity $92,632 $78,486
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Combined prior to June 14, 1996)
(Unaudited)
(dollars in thousands, except per share amounts)
For the three For the six
months ended months ended
June 30, June 30,
1995 1996 1995 1996
Total net revenues $26,737 $36,872 $50,514 $71,803
Expenses:
Facility operating 22,185 29,806 41,919 57,926
General and administrative 1,144 1,710 2,285 3,430
Service charges paid to
affiliate 177 180 354 365
Special compensation and other -- 1,201 -- 1,716
Depreciation and amortization 1,065 576 2,108 1,115
Facility rent 495 2,553 887 5,098
Total expenses 25,066 36,026 47,553 69,650
Income from operations 1,671 846 2,961 2,153
Other:
Interest expense, net 1,225 835 2,489 1,810
Loss (income) on investment in
limited partnership (140) 240 (59) 367
Minority interest in net income
of subsidiaries 333 -- 518 --
Income (loss) before income
taxes and extraordinary loss 253 (229) 13 (24)
Income taxes (benefit) -- (400) -- (400)
Income before extraordinary
loss 253 171 13 376
Extraordinary loss on early
retirement of debt, net
of taxes of $843 -- (1,318) -- (1,318)
Net income (loss) $ 253 $(1,147) $ 13 $ (942)
Pro forma data:
Historical income (loss)
before income taxes and
extraordinary loss $ 253 $ (229) $ 13 $ (24)
Pro forma income taxes (benefit) 99 (489) 5 (409)
Pro forma income before
extraordinary loss 154 260 8 385
Extraordinary loss, net -- (1,318) -- (1,318)
Pro forma net income (loss) $ 154 $(1,058) $ 8 $ (933)
Pro forma net income (loss) per share:
Pro forma income before
extraordinary loss $ 0.03 $ 0.05 $ 0.00 $ 0.08
<PAGE>
Extraordinary loss, net -- (0.26) -- (0.28)
Pro forma net income (loss) $ 0.03 $ (0.21) $ 0.00 $ (0.20)
Weighted average number of
common and common equivalent
shares used in pro forma net
income (loss) per share 4,425,000 5,092,000 4,425,000 4,760,000
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Combined prior to June 14, 1996)
(Unaudited)
(dollars in thousands)
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
Stockholders' equity,
December 31, 1995 $ 44 $10,328 $(6,242) $ 4,130
Net loss -- -- (942) (942)
Purchase of equity interests -- 1,028 -- 1,028
Distributions -- (140) -- (140)
Proceeds of initial public
offering, net 36 37,695 -- 37,731
Stockholders' equity,
June 30, 1996 $ 80 $48,911 $(7,184) $41,807
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Combined prior to June 14, 1996)
(Unaudited)
(dollars in thousands)
For the six months
ended June 30,
1995 1996
Operating activities:
Net income (loss) $ 13 $ (942)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Minority interest 518 234
Extraordinary loss, net -- 1,318
Depreciation of property and equipment 1,885 940
Amortization of intangible assets 223 175
Amortization of deferred income -- (181)
Loss from investment in limited partnership (59) 367
Amortization of loan costs and fees 55 67
Deferred interest -- (57)
Common stock grant -- 225
Other (1) 2
2,634 2,148
Changes in operating assets and liabilities:
(Increase) in accounts receivable (2,265) (3,642)
(Increase) in prepaid expenses and other (131) (2,088)
(Increase) in deferred income taxes -- (400)
Increase in accounts payable 827 1,283
Increase in employee compensation and benefits 716 1,863
Increase in accrued interest -- 238
Increase in other accrued liabilities 528 1,857
Net cash provided by operating activities 2,309 1,259
Investing activities:
Additions to property and equipment (1,412) (1,497)
Facility acquisition deposits -- 3,000
Additions to intangibles (170) (1,001)
Transfers (from) restricted cash, net (191) (842)
Net cash used by investing activities (1,773) (340)
Financing activities:
Payment of long-term debt (195) (25,175)
Debt prepayment penalty -- (1,517)
Note payable to an affiliate -- (2,000)
Receipt of lease inducement -- 3,685
Dividend distribution (63) (140)
Liquidating distribution to minority interest (1,818) (33,727)
Purchase of equity interests -- 803
Proceeds of initial public offering, net -- 37,731
Net cash used by financing activities (2,076) (20,340)
<PAGE>
Net (decrease) in cash and cash equivalents (1,540) (19,421)
Cash and cash equivalents, beginning of period 14,013 40,157
Cash and cash equivalents, end of period $ 12,473 $ 20,736
Supplemental Disclosure:
Interest paid $ 2,855 $ 2,023
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Combined prior to June 14, 1996)
(Unaudited)
A. General
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company s registration statement on Form
S-1. In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the Company s financial position as
of June 30, 1996 and the results of its operations and its cash flows for
the three-month and six-month periods ended June 30, 1996 and 1995. The
results of operations for the three-month and six-month periods ended June
30, 1996 are not necessarily indicative of the results which may be
expected for the full year. See Management s Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
report.
B. Basis of Presentation
The Company was incorporated as a Delaware corporation on March 19, 1996
and was formed as a holding company, in anticipation of an initial public
offering (the Offering ), to combine under the control of a single
corporation the operations of various business entities (the Predecessor
Entities ) which were all under the majority control of several related
stockholders. Immediately prior to the Offering, the Company executed an
agreement (the Reorganization Agreement ) which resulted in the transfer
of ownership of the Predecessor Entities to the Company prior to completion
of the Offering in exchange for 4,400,000 shares of the Company s common
stock. The presentation of stockholders equity as of December 31, 1995
has been adjusted to retroactively reflect this exchange of shares. The
Company s financial statements for periods prior to the Offering have been
prepared by combining the historical financial statements of the
Predecessor Entities, similar to a pooling of interests presentation. On
June 14, 1996, the Company completed the issuance of 3,600,000 shares of
common stock through the Offering resulting in net proceeds to the Company
(after deducting underwriters commissions and other offering expenses) of
$37,731,000. A portion of the proceeds was used to repay some of the
Company s long-term debt (see Note F). The consolidated financial
statements include the accounts of Harborside Healthcare Corporation and
its wholly-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
C. Investment in Limited Partnership
The Company holds a 75% partnership interest in Bowie Center Limited
Partnership (the Partnership ) which the Company accounts for using the
equity method. Although the Company owns a majority interest in the
<PAGE>
Partnership, the Company only holds a 50% voting interest in the
Partnership and accordingly, it does not exercise control over the
operations of the Partnership.
The results of operations of the Partnership are summarized below:
For the six months ended June 30,
1995 1996
Net operating revenues $3,633,000 $3,806,000
Net operating expenses 3,221,000 4,053,000
Net income (loss) 79,000 (490,000)
The financial position of the Partnership is as follows:
As of June 30, 1996
Current assets $2,488,000
Non-current assets 4,919,000
Current liabilities 2,420,000
Non-current liabilities 4,783,000
Partners equity 204,000
D. Special Compensation and Other
During the first half of 1996, the Company incurred $1,716,000 of non-
recurring expenses associated with its corporate reorganization and its
initial public offering. Substantially all of these non-recurring
expenses related to special compensation arrangements with key members of
management in connection with the reorganization of the Company s ownership
structure and the completion of its initial public offering.
E. Income Taxes
Prior to the implementation of the Reorganization Agreement, the
Predecessor Entities (primarily partnerships and subchapter S corporations)
operated under common control but were not directly subject to federal or
state income taxes and, accordingly, no provision for income taxes was made
in the Company s historical financial statements prior to the
implementation date of the Reorganization Agreement. A pro forma income
tax expense has been reflected for each period presented prior to the
reorganization date, as if the Company had always owned the Predecessor
Entities. The pro forma income tax expense was computed using an estimated
effective tax rate of 39%. The rate was derived by using the statutory
federal income tax rate of 34% plus an average of the various state
statutory income tax rates (net of federal benefits) where the Company
operates.
With the implementation of the Reorganization Agreement, the Company
inherited the tax basis of the Predecessor Entities and recognized a
deferred tax asset of $400,000. This amount resulted from the expected
future tax consequences of temporary differences between the carrying
amounts of the transferred assets and liabilities used for financial
<PAGE>
reporting purposes and the inherited tax bases and was reflected as an
income tax benefit in the three month period ended June 30, 1996.
F. Long Term Debt
Using proceeds from the Offering, on June 14, 1996 the Company repaid
$25,000,000 of its long-term debt, incurring a prepayment penalty of
$1,517,000. Additionally, the Company wrote-off $544,000 of deferred
financing costs related to the retired debt and incurred $100,000 of
additional transaction costs. The loss on early retirement of debt
totalled $2,161,000 and has been presented as an extraordinary loss in the
statement of operations for the quarter ended June 30, 1996 net of the
related estimated income tax benefit of $843,000.
As of June 30, 1996, the reduced future maturities associated with all of
the Company s long-term debt are as follows:
1996 (remainder of year) $ 113,000
1997 169,000
1998 186,000
1999 205,000
2000 225,000
Thereafter 17,423,000
$18,321,000
G. Recent Acquisitions
One of the Predecessor Entities was the general partner of the Krupp Yield
Plus Limited Partnership ( KYP ), which owned seven facilities (the Seven
Facilities ) until December 31, 1995. The Company held a 5% interest in
KYP while the remaining 95% was owned by the limited partners of KYP (the
Unitholders ). Effective December 31, 1995, KYP sold the Seven Facilities
and a subsidiary of the Company began leasing the facilities from the
buyer. Prior to December 31, 1995 the accounts of KYP were included in the
Company s consolidated financial statements and the interest of the
Unitholders was reflected as minority interest. In March of 1996, a
liquidating distribution was paid to the Unitholders.
Effective January 1, 1996, a subsidiary of the Company entered into an
agreement to lease six long-term care facilities in New Hampshire (the New
Hampshire Facilities ).
The following unaudited pro forma condensed consolidated statements of
earnings present the condensed results of operations of the Company after
giving effect to the acquisition of the Seven Facilities and the New
Hampshire Facilities for the six month period ended June 30, 1995, as if
these acquisitions had occurred as of January 1, 1995. The pro forma
financial results are not necessarily indicative of the actual results of
operations which might have occurred or of the results of operation which
may occur in the future.
For the six months
<PAGE>
ended June 30, 1995
Total net revenues $61,455,000
Income before income taxes and extraordinary loss 8,000
Pro forma net income 5,000
Pro forma net income per common share
using 4,425,000 common and common
equivalent shares $ 0.00
H. Subsequent Event--Acquisition of Ohio Facilities
As of July 1, 1996, a subsidiary of the Company began leasing four long-
term care facilities in Ohio (the Ohio Facilities ). This transaction
(the Ohio Transaction ) will be accounted for as a capital lease as a
result of a bargain purchase option which may be exercised at the end of
the lease. The initial term of the lease is five years and during the
final six months of the initial term, the Company may exercise an option
to purchase the four facilities for a total price of $57,125,000. If the
Company exercises the purchase option but is unable to obtain financing for
the acquisition, the lease may be extended for up to two additional years,
during which time the Company must obtain financing and complete the
purchase of the facilities. The annual rent under the agreement is
$5,000,000 during the initial term and $5,500,000 during the extension
term. The Company is also responsible for facility expenses such as taxes,
maintenance and repairs. The Company agreed to pay $8,000,000 for the
option to purchase the Ohio Facilities. Of this amount, $1,200,000 was
paid prior to June 30, 1996, $3,800,000 was paid at the closing on July 1,
1996, and the remainder, $3,000,000, is due at the end of the initial lease
term whether or not the Company exercises its purchase option.
The following pro forma condensed consolidated balance sheet of the Company
at June 30, 1996 has been prepared to reflect the consummation of the Ohio
Transaction as if it had occurred on June 30, 1996. The following pro
forma condensed consolidated statement of operations for the six month
period ended June 30, 1996 has been prepared to reflect the consummation of
the Ohio Transaction as if it had occurred on January 1, 1996. The
following pro forma condensed consolidated financial statements are not
necessarily indicative of the actual results that would have been achieved
if the pro forma transaction had actually been completed as of the dates
indicated, or which may be realized in the future.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
as of June 30, 1996
(dollars in thousands)
Harborside
Healthcare Ohio Ohio
Corporation Facilities Transaction
(A) (B) Adjustments Pro Forma
Assets
Current assets:
Cash and cash equivalents $20,736 $ 4,833 $ (4,833) (C) $ 17,296
(3,440) (D)
Accounts receivable, net 13,609 560 (560) (C) 13,609
Prepaid expenses and other 3,878 408 (408) (C) 3,199
(1,395) (D)
716 (D)
Demand note due from
limited partnership 1,312 -- 1,312
Deferred income taxes 843 -- 843
Total current assets 40,378 5,801 (9,920) 36,259
Restricted cash 3,597 1,298 (1,298) (C) 3,614
17 (D)
Investment in limited
partnership 152 -- 152
Property and equipment, net 30,696 12,899 (12,899) (C) 93,821
63,125 (D)
Intangible assets, net 3,263 549 (549) (C) 3,263
Deferred income taxes 400 -- -- 400
Total assets $78,486 $20,547 $38,476 $137,509
Liabilities and Stockholders Equity
Current liabilities:
Current maturities of
long-term debt $ 172 $ 291 $ (291) (C) $ 172
Current portion of
obligations under
capital lease -- -- 3,482 (D) 3,482
Accounts payable 5,317 742 (742) (C) 5,317
Employee compensation
and benefits 6,358 1,894 (1,894) (C) 7,437
1,079 (D)
Other accrued liabilities 2,916 603 (603) (C) 3,235
319 (D)
Advances from affiliates -- 586 (586) (C) --
Accrued interest 263 130 (130) (C) 263
Current portion of deferred
income 360 -- 360
Total current liabilities 15,386 4,246 634 20,266
Long-term portion of deferred
income 3,144 -- 3,144
Loan payable--affiliate -- 412 (412) (C) --
<PAGE>
Long-term debt 18,149 18,121 (18,121) (C) 18,149
Long-term obligations under
capital lease -- -- 54,143 (D) 54,143
Total liabilities 36,679 22,779 36,244 95,702
Stockholders equity:
Common stock 80 -- 80
Additional paid-in capital 48,911 -- 48,911
Accumulated deficit (7,184) -- (7,184)
Partners deficit -- (2,232) 2,232 (C) --
Total stockholders' equity 41,807 (2,232) 2,232 41,807
Total liabilities and
stockholders' equity $78,486 $20,547 $38,476 $137,509
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the six months ended June 30, 1996
(dollars in thousands, except per share data)
Harborside
Healthcare Ohio Ohio
Corporation Facilities Transaction
(E) (F) Adjustments Pro Forma
Total net revenues $71,803 $16,292 $88,095
Expenses:
Facility operating 57,926 13,096 71,022
General and administrative 3,430 -- $ 340 (G) 3,770
Management fees -- 1,221 (1,221) (H)
Service charges paid to
affiliate 365 -- 365
Special compensation
and other 1,716 -- 1,716
Depreciation and
amortization 1,115 643 (643) (H) 1,713
598 (I)
Facility rent 5,098 -- 5,098
Total expenses 69,650 14,960 (926) 83,684
Income from operations 2,153 1,332 926 4,411
Other:
Interest expense, net 1,810 483 (483) (H) 3,988
2,178 (I)
Loss (income) on investment
in limited partnership 367 -- 367
Income (loss) before income
taxes and extraordinary
loss (24) 849 (769) 56
Income taxes (benefit) (400) -- (400)
Income before extraordinary
loss 376 849 (769) 456
Extraordinary loss on early
retirement of debt, net (1,318) -- (1,318)
Net income (loss) $ (942) $ 849 $ (769) $ (862)
Pro forma data:
Historical income (loss)
before income taxes and
extraordinary loss $ (24) $ 849 $ (769) $ 56
Pro forma income taxes
(benefit) (409) -- 31 (378)
Pro forma income before
extraordinary loss 385 849 (800) 434
Extraordinary loss, net (1,318) -- (1,318)
Pro forma net income (loss)$ (933) $ 849 $ (800) $ (884)
Pro forma net income (loss) per share:
Pro forma income before
<PAGE>
extraordinary loss $ 0.08 $ 0.09
Extraordinary loss, net (0.28) (0.28)
Pro forma net income (loss) $ (0.20) $ (0.19)
Weighted average number of
common and common
equivalent shares used
in pro forma net
income (loss) per share 4,760,000 4,760,000
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
A. Historical condensed consolidated balance sheet of the Company as of
June 30, 1996.
B. Historical combined balance sheet of the Ohio Facilities as of June
30, 1996.
C. Represents the elimination of all the historical combined balances of
the Ohio Facilities as of June 30, 1996. The Company has recorded
the lease of the Ohio Facilities as a capital lease as a result of
the bargain purchase option at the end of the lease term. However,
the Company will not purchase the eliminated assets or assume the
eliminated liabilities in connection with such lease.
D. Represents the recording of the Ohio Facilities as a capital lease
with a capitalized asset value of $63,125,000, including closing
costs of $2,100,000. The lease agreement requires an up-front
payment of $5,000,000 which is a portion of the price of an option to
purchase the Ohio Facilities at the end of the lease term. Of such
$5,000,000, $1,200,000 was previously paid and the remaining
$3,800,000 was paid at closing on July 1, 1996. The capital lease
obligation has been apportioned between current liabilities of
$3,482,000 and long-term debt of $54,143,000. The following
adjustments reflect the July 1, 1996 closing: net cash paid of
$3,440,000, prepaid rent and other expenses of $716,000, restricted
cash of $17,000, accrued vacation of $1,079,000, accrued lease costs
and fees of $319,000. Prepaid expenses of $1,395,000 representing
lease costs and fees paid by the Company were reclassified and are
included in the capitalized asset value of the lease.
E. Historical condensed consolidated statements of operations of the
Company for the six months ended June 30, 1996.
F. Historical combined statements of operations of the Ohio Facilities
for the six months ended June 30, 1996.
G. Represents $340,000 of historical general and administrative expenses
associated with the operation of the Ohio Facilities as if the Ohio
Transaction had occurred on January 1, 1996. These costs are
provided in lieu of management fees paid to the seller which included
predecessor owners compensation, related costs and profit.
H. Represents the elimination of historical combined amounts recorded by
the Ohio Facilities for management fee expenses of $1,221,000,
depreciation and amortization of $643,000, and interest expense, net,
of $483,000.
I. Represents depreciation and amortization expense of $598,000
(recorded on a straight-line basis over the estimated useful life of
40 years) and interest expense of $2,178,000 (recorded at an assumed
interest rate of 8% based on quotations received by the Company from
<PAGE>
recognized lending institutions) which the Company would have
recorded if the Ohio Transaction had occurred on January 1, 1996.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management s Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements including those
concerning Management s expectations regarding future financial performance
and future events. These forward-looking statements involve significant
risk and uncertainties, including those described herein and included under
Special Note Regarding Forward-Looking Statements below. Actual results
may differ materially from those anticipated by such forward-looking
statements.
OVERVIEW
Harborside Healthcare provides high quality long-term care, subacute care
and other specialty medical services in four principal regions: the
Southeast (Florida), the Midwest (Ohio and Indiana), New England (New
Hampshire) and the Mid-Atlantic (New Jersey and Maryland). After giving
effect to the acquisition of four facilities in Ohio (the Ohio
Facilities ) on July 1, 1996, the Company will operate 30 facilities (13
owned and 17 leased) with a total of 3,700 licensed beds. The Company
provides traditional skilled nursing care, a wide range of subacute care
programs (such as orthopedic, CVA/stroke, cardiac, pulmonary and wound
care), as well as distinct programs for the provision of care to
Alzheimer's and hospice patients. In addition, the Company provides
rehabilitation therapy at Company-operated and non-affiliated facilities.
As of June 30, 1996, the Company provided rehabilitation therapy services
to patients at 35 non-affiliated long-term care facilities. The Company
seeks to position itself as the long-term care provider of choice to
managed care and other private referral sources in its target markets by
achieving a strong regional presence and by providing a full range of high
quality, cost effective nursing and specialty medical services.
The Company was created in March 1996, in anticipation of an initial public
offering (the Offering ), in order to combine under its control the
operations of various long-term care facilities and ancillary businesses
(the "Predecessor Entities") which had operated since 1988. The Company
completed the Offering on June 14, 1996 and issued 3,600,000 shares of
common stock at $11.75 per share. The owners of the Predecessor Entities
contributed their interests in such Predecessor Entities to the Company and
received 4,400,000 shares of the Company s common stock.
The Company's financial statements for periods prior to the Offering have
been prepared by combining the historical financial statements of the
Predecessor Entities, similar to a pooling of interests presentation. The
Company's financial statements prior to the date of the Offering do not
include a provision for Federal or state income taxes because the
Predecessor Entities (primarily partnerships and subchapter S corporations)
were not directly subject to Federal or state income taxation. The
Company's consolidated financial statements for periods prior to the date
<PAGE>
of the Offering include a pro forma income tax expense for each period
presented, as if the Company had always owned the Predecessor Entities.
See Note E to the financial statements included elsewhere in this report.
One of the Predecessor Entities was the general partner of the Krupp Yield
Plus Limited Partnership ( KYP ), which owned seven facilities (the Seven
Facilities ) until December 31, 1995. The Company held a 5% interest in
KYP while the remaining 95% was owned by the limited partners of KYP (the
Unitholders ). Effective December 31, 1995, KYP sold the Seven Facilities
and a subsidiary of the Company began leasing the facilities from the
buyer. Prior to December 31, 1995 the accounts of KYP were included in the
Company s consolidated financial statements and the interest of the
Unitholders was reflected as minority interest. In March of 1996, a
liquidating distribution was paid to the Unitholders.
<PAGE>
The following table sets forth the number of facilities owned and leased by
the Company and the number of licensed beds operated by the Company:
As of June 30,
Pro Forma
1995 1996 1996 (3)
Facilities:
Owned (1) 16 9 13
Leased (2) 4 17 17
Total 20 26 30
Licensed beds:
Owned (1) 1,976 1,028 1,720
Leased (2) 489 1,980 1,980
Total 2,465 3,008 3,700
(1) Includes the Larkin Chase Center, which is owned by Bowie Center
Limited Partnership, a joint venture in which the Company has a 75%
ownership interest and a non-affiliated investor has a 25% ownership
interest.
(2) On December 31, 1995, the Seven Facilities were reclassified as
leased following their sale and concurrent leasing by a subsidiary
of the Company.
(3) Gives effect to the consummation of the Ohio Transaction which
increases the number of owned properties by four facilities and 692
licensed beds.
The following table sets forth certain operating data for the periods
indicated:
For the three months For the six months
ended June 30, ended June 30,
Pro Forma Pro Forma
1995 1996 1996(3) 1995 1996 1996 (3)
Patient days:
Private and other 64,221 75,085 93,493 126,517 149,450 187,521
Medicare 23,038 23,721 30,259 45,261 47,217 60,465
Medicaid 109,687 143,208 175,980 210,574 285,434 350,909
Total 196,946 242,014 299,732 382,352 482,101 598,895
Average Occupancy
rate(1) 91.6% 92.0% 91.9% 91.3% 91.7% 91.9%
Net patient service
revenue(2):
Private and other 32.6% 31.1% 31.8% 33.4% 31.4% 31.8%
Medicare 32.6% 28.4% 26.4% 31.6% 28.4% 26.9%
Medicaid 34.8% 40.5% 41.8% 35.0% 40.2% 41.3%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
(1) "Average occupancy rate" is computed by dividing the number of
<PAGE>
occupied licensed beds by the total number of available licensed beds
during each of the periods indicated.
(2) Net patient service revenues exclude all rehabilitation therapy
service revenues from non-affiliate contracts.
(3) Gives effect to the consummation of the Ohio Transaction which
increases the number of owned properties by four facilities and 692
licensed beds.
RESULTS OF OPERATIONS
The Company's total net revenues include net patient service revenues, and
beginning in 1995, rehabilitation therapy service revenues from contracts
with non-affiliated long-term care facilities. Private net patient service
revenues are recorded at established per diem billing rates. Net patient
service revenues to be reimbursed under contracts with third-party payors,
primarily the Medicare and Medicaid programs, are recorded at amounts
estimated to be realized under these contractual arrangements.
The Company's facility operating expenses consist primarily of payroll and
employee benefits related to nursing, housekeeping and dietary services
provided to patients, as well as maintenance and administration of the
facilities. Other significant facility operating expenses include the cost
of rehabilitation therapy services, medical and pharmacy supplies, food,
utilities, insurance and taxes. The Company's facility operating expenses
also include the general and administrative costs associated with the
operation of the Company's rehabilitation therapy business. The Company's
general and administrative expenses include all costs associated with its
regional and corporate operations.
The following table presents certain consolidated financial data of the
Company expressed as a percentage of total net revenues for the periods
presented:
For the three For the six
months ended months ended
June 30, June 30,
1995 1996 1995 1996
Total net revenues 100.0% 100.0% 100.0% 100.0%
Expenses:
Facility operating 83.0 80.8 83.0 80.7
General and administrative 4.3 4.6 4.5 4.8
Service charges paid to affiliate 0.7 0.5 0.7 0.5
Special compensation and other -- 3.3 -- 2.4
Depreciation and amortization 4.0 1.6 4.2 1.6
Facility rent 1.8 6.9 1.8 7.1
Total expenses 93.8 97.7 94.2 97.1
Income from operations 6.2 2.3 5.8 2.9
Other:
Interest expense, net 4.6 2.3 4.9 2.5
Loss on investment in limited
partnership (0.5) 0.6 (0.1) 0.5
Minority interest in net income
<PAGE>
of subsidiaries 1.2 -- 1.0 --
Income before income taxes and
extraordinary loss 0.9 (0.6) 0.0 (0.1)
Income taxes (benefit) -- (1.1) 0.0 (0.6)
Income before extraordinary loss 0.9 0.5 0.0 0.5
Extraordinary loss -- (3.6) -- (1.8)
Net income (loss) 0.9% (3.1)% 0.0% (1.3)%
<PAGE>
Three Months Ended June 30, 1995 Compared to Three Months Ended June 30,
1996
Total Net Revenues. Total net revenues increased by $10,135,000, or
37.9%, from $26,737,000 in the second quarter of 1995 to $36, 872,000 in
the second quarter of 1996. This increase resulted primarily from the
acquisition of six New Hampshire Facilities on January 1, 1996, the
generation of revenues from rehabilitation therapy services provided to
additional non-affiliated long-term care facilities, and increased net
patient service revenues per patient day at the Company's same store
facilities. Of such increase, $5,730,000, or 56.5% of the increase,
resulted from the operation of the New Hampshire Facilities, which the
Company began leasing in January. In 1995 the Company began providing
rehabilitation therapy services at non-affiliated long-term care
facilities. Revenues generated by providing these services increased by
$1,844,000, from $860,000 in the second quarter of 1995 to $2,704,000 in
the second quarter of 1996. The remaining $2,561,000, or 25.3% of such
increase, is attributable to higher average net patient service revenues
per patient day at the Company's same store facilities, primarily
resulting from increased levels of care provided to patients with medically
complex conditions. Average net patient service revenues per patient day
at same store facilities increased by approximately 10% from $131.26
during the second quarter of 1995 to $144.74 during the second quarter of
1996. Partially offsetting this increase was a reduction in occupancy at
same store facilities from 92.1% during the second quarter of 1995 to
91.8% during the second quarter of 1996. The average occupancy rate at all
of the Company's facilities increased from 91.6% during the second quarter
of 1995 to 92.0% during the second quarter of 1996. The Company s quality
mix of private, Medicare and insurance revenues was 59.5% for the three
months ended June 30, 1996 as compared to 65.2% in the similar period of
1995. The decrease in the quality mix percentage was primarily due to the
leasing of the New Hampshire facilities. Prior to April 1, 1996, none of
the New Hampshire facilities were eligible for participation in the
Medicare program.
Facility Operating Expenses. The increase in the number of facilities
operated by the Company and the expansion of the Company's rehabilitation
therapy services at non-affiliated facilities, as well as the greater
percentage of patients receiving higher levels of care, resulted in an
increase in facility operating expenses of $7,621,000, or 34.4%, from
$22,185,000 in the second quarter of 1995 to $29,806,000 in the second
quarter of 1996. The acquisition of the New Hampshire Facilities accounted
for $4,431,000, or 58.1% of the increase in facility operating expenses.
Operating expenses associated with additional non-affiliate therapy
contracts increased from $997,000 during the second quarter of 1995 to
$2,508,000 during the second quarter of 1996 and accounted for 19.8% of the
increased costs. The remainder of the increase in facility operating
expenses, approximately $1,679,000, is due to increases in the costs of
labor, medical supplies and rehabilitation therapy services purchased from
third parties at same store facilities.
General and Administrative; Service Charges Paid to Affiliate. Expenses
associated with the Company's regional and corporate offices increased by
$566,000, or 49.5%, from $1,144,000 in the second quarter of 1995 to
<PAGE>
$1,710,000 during the second quarter of 1996. Approximately 32% of this
increase resulted from the acquisition of the New Hampshire Facilities.
Most of the remainder was associated with expansion of regional and
corporate support, increases in salaries, and additional travel and
consulting expenses associated with the Company s growth. The Company
reimburses an affiliate for rent and other expenses related to its
corporate headquarters, as well as for certain data processing and
administrative services provided to the Company. During the second
quarter of 1995, such reimbursements totaled $177,000, compared to
$180,000 during the second quarter of 1996.
Special Compensation and other. In connection with the Offering and
corporate reorganization, the Company recorded $1,201,000 of non-recurring
charges in the second quarter of 1996. Of this amount, $1,086,000
consisted of compensation earned by key members of management as a result
of the successful Offering.
Depreciation and Amortization. Depreciation and amortization decreased
from $1,065,000 during the second quarter of 1995 to $576,000 during the
second quarter of 1996 as a result of the sale of the Seven Facilities
effective December 31, 1995 (see Note G to the financial statements
included elsewhere in this report).
Facility Rent. Facility rent expense for the second quarter increased by
$2,058,000 from $495,000 in 1995 to $2,553,000 in 1996. The increase in
rent expense is the result of the sale and subsequent leaseback of the
Seven Facilities effective December 31, 1995 and the acquisition of the six
New Hampshire Facilities on January 1, 1996.
Interest Expense, net. Interest expense, net, decreased from $1,225,000
in the second quarter of 1995 to $835,000 in the second quarter of 1996.
This decrease of $390,000, or 31.8% is primarily the result of the pay down
of the KYP Medium-Term Notes on December 31, 1995 which occurred in
connection with the sale and subsequent leaseback of the Seven Facilities.
Loss on Investment in Limited Partnership. The Company accounts for its
investment in the Bowie Center Limited Partnership using the equity method.
The Company recognized income of $140,000 in the second quarter of 1995 as
compared to a loss of $240,000 during the second quarter of 1996 in
connection with this investment.
Minority Interest in Net Income of Subsidiaries. The Company recorded a
minority interest charge of $333,000 during the second quarter of 1995.
This charge reflected the allocation of 95% of the net income of KYP to the
Unitholders. The Seven Facilities were sold effective December 31, 1995
and the proceeds of the sale were distributed to the Unitholders in March
1996.
Extraordinary Loss on Early Retirement of Debt. During the second
quarter of 1996, the Company repaid $25,000,000 of long-term debt using
proceeds from the Offering. In connection with this early repayment, the
Company recorded an extraordinary loss of $2,161,000 ($1,318,000 net of
related tax benefit) as the result of a prepayment penalty paid to the
lender and the write-off of deferred financing costs (see Note F to the
<PAGE>
financial statements included elsewhere in this report).
Income Tax Benefit. Prior to the date of the Offering, the Company's
financial statements do not include a provision for Federal or state income
taxes because the Predecessor Entities (primarily partnerships and
subchapter S corporations) were not subject to Federal or state income
taxation. The contribution of the Predecessor Entities interests which
occurred as part of a corporate reorganization contemporaneously with the
Offering, caused the Company to recognize a non-recurring tax benefit of
$400,000 as a result of inherited book-tax differences. The Company's
consolidated financial statements for periods prior to the date of the
Offering include a pro forma income tax expense (calculated as 39% of
historical income before taxes) for each period presented, as if the
Predecessor Entities had previously been tax-paying entities.
Net Income. Net income was $253,000 in the second quarter of 1995 as
compared to a loss of $1,147,000 in the second quarter of 1996. The
decrease in net income and the loss were the result of the non-recurring
expenses and the extraordinary loss recognized in 1996.
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1996
Total Net Revenues. Total net revenues increased by $21,289,000, or
42.1%, from $50,514,000 in the first half of 1995 to $71,803,000 in the
first half of 1996. This increase resulted primarily from the acquisition
of six New Hampshire Facilities on January 1, 1996, the generation of
revenues from rehabilitation therapy services provided to additional
non-affiliated long-term care facilities and increased net patient service
revenues per patient day at the Company's same store facilities. Of such
increase, $11,010,000 or 51.7% of the increase, resulted from the operation
of the New Hampshire Facilities, which the Company began leasing in
January. Additionally, approximately $1,064,000 of the increase was due to
the operation of one facility acquired on April 1, 1995. The Company began
providing rehabilitation therapy services at non-affiliated long-term care
facilities during 1995. Revenues generated by providing these services
increased by $3,824,000, from $1,261,000 in the first half of 1995 to
$5,085,000 in the first half of 1996. The remaining $5,391,000, or 25.3%
of such increase, is attributable to higher average net patient service
revenues per patient day at the Company's same store facilities,
primarily resulting from increased levels of care provided to patients with
medically complex conditions. Average net patient service revenues per
patient day at same store facilities increased by approximately 10% from
$128.64 during the first six months of 1995 to $141.20 during the first six
months of 1996. Partially offsetting this increase was a reduction in
occupancy at same store facilities from 91.9% during the first half of
1995 to 91.5% during the first half of 1996. The average occupancy rate at
all of the Company's facilities increased from 91.3% during the first half
of 1995 to 91.7% during the first half of 1996. The Company s quality mix
of private, Medicare and insurance revenues was 59.8% for the six months
ended June 30, 1996 as compared to 65.0% in the similar period of 1995.
The decrease in the quality mix percentage was primarily due to the leasing
of the New Hampshire facilities. Prior to April 1, 1996, none of the New
Hampshire facilities were eligible for participation in the Medicare
<PAGE>
program.
Facility Operating Expenses. Facility operating expenses increased by
$16,007,000, or 38.2%, from $41,919,000 in the first half of 1995 to
$57,926,000 in the first half of 1996. The acquisition of the New
Hampshire Facilities accounted for $8,552,000, or 53.4% of the increase in
facility operating expenses. Additionally, approximately $812,000 of the
increase in facility operating expenses was due to the operation of one
facility acquired on April 1, 1995. Operating expenses associated with
additional non-affiliate therapy contracts increased from $1,355,000 during
the first half of 1995 to $4,479,000 during the first half of 1996 and
accounted for 19.5% of the increased costs. The remainder of the increase
in facility operating expenses, approximately $3,519,000, is due to
increases in the costs of labor, medical supplies and rehabilitation
therapy services purchased from third parties at same store facilities.
General and Administrative; Service Charges Paid to Affiliate. General
and administrative expenses increased by $1,145,000, or 50.1%, from
$2,285,000 in the first half of 1995 to $3,430,000 in the first half of
1996. Approximately 33% of this increase resulted from the acquisition of
the New Hampshire Facilities. Most of the remainder was associated with
expansion of regional and corporate support, increases in salaries, and
additional travel and consulting expenses associated with the Company s
growth. The Company reimburses an affiliate for rent and other expenses
related to its corporate headquarters as well as for certain data
processing and administrative services provided to the Company. During the
first half of 1995, such reimbursements totalled $354,000 as compared to
$365,000 in the first half of 1996.
Special Compensation and Other. In connection with the Offering and
corporate reorganization, the Company recorded $1,716,000 of non-recurring
charges in the first half of 1996. Of this amount, $1,524,000 consisted of
compensation earned by key members of management as a result of the
successful Offering and the corporate restructuring which preceded the
Offering.
Depreciation and Amortization. Depreciation and amortization decreased
from $2,108,000 in the first half of 1995 to $1,115,000 in the first half
of 1996 as a result of the sale of the Seven Facilities effective December
31, 1995.
Facility Rent. Facility rent expense for the first half increased by
$4,211,000 from $887,000 in 1995 to $5,098,000 in 1996. The increase in
rent expense is the result of the sale and subsequent leaseback of the
Seven Facilities effective December 31, 1995 and the acquisition of the six
New Hampshire Facilities (which are leased properties) on January 1, 1996.
Interest Expense, net. Interest expense, net, decreased from
$2,489,000 in the first half of 1995 to $1,810,000 in the first half of
1996. This decrease of $679,000 is primarily the result of the pay down of
the KYP Medium-Term Notes on December 31, 1995 which occurred in connection
with the sale and subsequent leaseback of the Seven Facilities.
Loss on Investment in Limited Partnership. The Company accounts for its
<PAGE>
investment in Bowie Center Limited Partnership using the equity method.
The Company recorded a loss of $367,000 in the first half of 1996 as
compared to income of $59,000 in the first half of 1995 in connection with
this investment.
Minority Interest in Net Income of Subsidiaries. The Company recorded a
minority interest charge of $518,000 in the first half of 1995. This charge
reflected the allocation of 95% of the net income of KYP to the
Unitholders. The Seven Facilities were sold effective December 31, 1995
and the proceeds of the sale were distributed to the Unitholders in March
1996.
Extraordinary Loss on Early Retirement of Debt. During the second
quarter of 1996, the Company repaid $25,000,000 of long-term debt using
proceeds from the Offering. In connection with this early repayment, the
Company recorded an extraordinary loss of $2,161,000 ($1,318,000 net of
related tax benefit) as the result of a prepayment penalty paid to the
lender and the write-off of deferred financing costs.
Income Tax Benefit. Prior to the date of the Offering, the Company's
financial statements do not include a provision for Federal or state income
taxes because the Predecessor Entities were not subject to Federal or state
income taxation. The contribution of the Predecessor Entities interests
as part of the Company s corporate reorganization caused the Company to
recognize a non-recurring tax benefit of $400,000 as a result of inherited
book-tax differences.
Net Income. Net income was $13,000 in the first half of 1995 as compared
to a loss of $942,000 in the first half of 1996. The decrease in net income
and the loss were the result of the non-recurring expenses and the
extraordinary loss recognized in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Predecessor Entities historically financed their operations and
acquisitions growth primarily through a combination of mortgage financing,
operating leases, and capital contributed by the Unitholders. As of
December 31, 1995, the Company had cash and cash equivalents totalling
$40,157,000; however, approximately $33,493,000 of this cash was held
pending a liquidating distribution to the Unitholders, which occurred in
March 1996. On June 14, 1996, the Company completed the Offering and
received proceeds (net of underwriters commissions and offering expenses)
of approximately $37,700,000. As of June, 30, 1996 the Company had cash
and cash equivalents totaling $20,736,000.
The Company had two mortgage loans outstanding as of December 31, 1995.
One mortgage loan had an outstanding principal balance of $41,877,000 and
bearing interest at an annual rate of 10.65% plus additional interest equal
to 0.3% of the difference between the annual operating revenues of the
mortgaged facilities and actual revenues during the twelve-month base
period commencing October 1, 1995. Such additional interest begins to
accrue on October 1, 1996. In June 1996 the Company used $25,000,000 of
the net proceeds of the Offering to prepay a portion of this debt. In
<PAGE>
connection with this prepayment, the Company incurred a penalty of
approximately $1,517,000. As of June 30, 1996, the Company s outstanding
principal due at maturity in 2004 in connection with this loan was
$14,907,000. The Company's other mortgage loan, which encumbers a single
facility, had an outstanding principal balance of $1,608,000 as of June 30,
1996 and bears interest at 14% per annum. This mortgage matures in the year
2010.
The Company's existing facility leases generally require it to make monthly
lease payments, establish escrow funds to serve as debt service reserve
accounts, and pay all property operating costs. The Company generally
negotiates leases which provide for extensions beyond the initial lease
term and an option to purchase the leased facility. The Company expects
that various forms of leasing arrangements will continue to provide it with
an attractive form of financing to support its growth.
The Company is currently involved in discussions with several financial
institutions to obtain acquisition financing and to establish a working
capital line of credit secured by its receivables. There can be no
assurances that such financing will be available to the Company on
acceptable economic terms, or at all. The Company has been and will
continue to be dependent on third-party financing to fund its acquisition
strategy. The Company expects that cash on hand and funds expected to be
available under a line of credit will be sufficient to meet its operating
requirements and to finance anticipated growth through the remainder of
1996.
From time to time, the Company expects to pursue certain expansion and new
development opportunities associated with existing facilities. In
connection with a Certificate of Need received by its Ocala facility in
March 1996, the Company expects to commence construction of a sixty-bed
addition and a rehabilitation therapy area during 1996. The costs of this
project are estimated to be approximately $2,800,000. In addition, in
connection with a Certificate of Need held by its Larkin Chase facility,
the Company expects to commence construction of a sixty-bed addition during
1996. The costs associated with the Larkin Chase project are estimated to
be approximately $2,500,000. The Company intends to seek separate financing
for each of these projects. There can be no assurances that financing of
either project will be available to the Company on acceptable terms.
The Company's operating activities during the first half of 1996 generated
net cash of $1,259,000 as compared to $2,309,000 in 1995, a decrease of
$1,050,000. Most of the reduction in cash provided by operations was the
result of a reduction in net income resulting from the non-recurring
expenses.
Net cash used by investing activities was $340,000 during the first half of
1996 as compared to $1,773,000 in 1995. In each period the primary use of
invested cash related to additions to property and equipment ($1,497,000 in
1996 compared to $1,412,000 in 1995), the establishment of escrow account
balances in connection with new facility leases ($842,000 in 1996 compared
to $191,000 in 1995), and additions to deferred financing costs associated
with these leases ($1,001,000 in 1996 compared to $170,000 in 1995). In
the first half of 1996 the Company received $3,000,000 in refunded
<PAGE>
acquisition deposits in connection with two groups of facilities which it
was negotiating to acquire. The Company began leasing the first group (the
New Hampshire Facilities) on January 1, 1996 and received its $1,000,000
deposit back upon the closing of the transaction. The Company's offer to
lease the second group of facilities was rescinded by the Company and it
received its $2,000,000 deposit back in March 1996. The Company borrowed
$2,000,000 from an affiliate to pay this acquisition deposit and repaid the
affiliate in March 1996.
Net cash used by financing activities was $20,340,000 in 1996 as compared
to $2,076,000 in 1995. The early retirement of debt and the incurrence of a
related prepayment penalty required the use of $26,517,000 in 1996. During
the first half of 1996, the Company received approximately $37,700,000 in
net proceeds from the Offering and a cash lease inducement from the
landlord of $3,685,000 in connection with the leasing of the New Hampshire
Facilities. During 1996 the Company also received $803,000 from the sale
of equity interests to an officer and a director of the Company. In March
of 1996 a liquidating distribution of $33,727,000 was paid to the
Unitholders.
SEASONALITY
The Company s earnings generally fluctuate from quarter to quarter. This
seasonality is related to a combination of factors which include the timing
and amount of Medicaid rate increases, seasonal census cycles, and the
number of days in a given fiscal quarter.
INFLATION
The healthcare industry is labor intensive. Wages and other labor related
costs are especially sensitive to inflation. Certain of the Company's other
expense items, such as supplies and real estate costs are also sensitive to
inflationary pressures. Shortages in the labor market or general
inflationary pressure could have a significant effect on the Company. In
addition, suppliers pass along rising costs to the Company in the form of
higher prices. When faced with increases in operating costs, the Company
has sought to increase its charges for services and its requests for
reimbursement from government programs. The Company's private pay customers
and third party reimbursement sources may be less able to absorb increased
prices for the Company's services. The Company's operations could be
adversely affected if it is unable to recover future cost increases or
experiences significant delays in increasing rates of reimbursement of its
labor or other costs from Medicare and Medicaid revenue sources.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q, including information set forth under
the caption Management s Discussion and Analysis of Financial Condition
and Results of Operations , constitute Forward-Looking Statements within
the meaning of the Private Securities Litigation Reform Act of 1995 (the
Reform Act ). The Company desires to take advantage of certain safe
harbor provisions of the Reform Act and is including this special note to
<PAGE>
enable the Company to do so. Forward-looking statements included in this
Form 10-Q, or hereafter included in other publicly available documents
filed with the Securities and Exchange Commission, reports to the Company s
stockholders and other publicly available statements issued or released by
the Company involve known and unknown risks, uncertainties, and other
factors which could cause the Company s actual results, performance
(financial or operating) or achievements to differ materially from the
future results, performance (financial or operating) or achievements
expressed or implied by such forward-looking statements. The Company
believes the following important factors could cause such a material
difference to occur:
1. The Company's ability to grow through the acquisition and development
of long-term care facilities or the acquisition of ancillary
businesses.
2. The Company's ability to identify suitable acquisition candidates, to
consummate or complete construction projects, or to profitably
operate or successfully integrate enterprises into the Company s
other operations.
3. The occurrence of changes in the mix of payment sources utilized by
the Company's patients to pay for the Company's services.
4. The adoption of cost containment measures by private pay sources such
as commercial insurers and managed care organizations, as well as
efforts by governmental reimbursement sources to impose cost
containment measures.
5. Changes in the United States healthcare system, including changes in
reimbursement levels under Medicaid and Medicare, and other changes
in applicable government regulations that might affect the
profitability of the Company.
6. The Company s continued ability to operate in a heavily regulated
environment and to satisfy regulatory authorities, thereby avoiding a
number of potentially adverse consequences, such as the imposition of
fines, temporary suspension of admission of patients, restrictions on
the ability to acquire new facilities, suspension or decertification
from Medicaid or Medicare programs, and in extreme cases, revocation
of a facility s license or the closure of a facility, including as a
result of unauthorized activities by employees.
7. The Company s ability to secure the capital and the related cost of
such capital necessary to fund its future growth through acquisition
and development, as well as internal growth.
8. Changes in certificate of need laws that might increase competition
in the Company s industry, including, particularly, in the states in
which the Company currently operates or anticipates operating in the
future.
9. The Company s ability to staff its facilities appropriately with
qualified healthcare personnel, including in times of shortages of
<PAGE>
such personnel and to maintain a satisfactory relationship with labor
unions.
10. The level of competition in the Company s industry, including without
limitation, increased competition from acute care hospitals,
providers of assisted and independent living and providers of home
healthcare and changes in the regulatory system in the state in which
the Company operates that facilitate such competition.
11. The continued availability of insurance for the inherent risks of
liability in the healthcare industry.
12. Price increases in pharmaceuticals, durable medical equipment and
other items.
13. The Company s reputation for delivering high-quality care and its
ability to attract and retain patients, including patients with
relatively high acuity levels.
14. Changes in general economic conditions, including changes that
pressure governmental reimbursement sources to reduce the amount and
scope of healthcare coverage.
The foregoing review of significant factors should not be construed as
exhaustive or as an admission regarding the adequacy of disclosures
previously made by the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
3.1 Amended and Restated Articles of
Incorporation
3.2 Amended and Restated By-Laws
11.1 Earnings Per Share Calculation
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Harborside Healthcare Corporation
By: /s/Stephen L. Guillard
Stephen L. Guillard
Chairman, President, and Chief Executive
Officer
By: /s/William H. Stephan
William H. Stephan
Senior Vice President and Chief
Financial Officer
DATE: August 14, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet and statement of operations and is qualified in its entirety to such
financial statements.
</LEGEND>
<CIK> 0001011693
<NAME> HARBORSIDE HEALTHCARE CORP.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 20,736
<SECURITIES> 0
<RECEIVABLES> 13,609
<ALLOWANCES> 0
<INVENTORY> 9,567<F1>
<CURRENT-ASSETS> 40,378
<PP&E> 30,696
<DEPRECIATION> 0
<TOTAL-ASSETS> 78,486
<CURRENT-LIABILITIES> 15,386
<BONDS> 21,293<F2>
0
0
<COMMON> 80
<OTHER-SE> 41,727<F3>
<TOTAL-LIABILITY-AND-EQUITY> 78,486
<SALES> 0
<TOTAL-REVENUES> 71,803
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 69,650
<LOSS-PROVISION> 367<F4>
<INTEREST-EXPENSE> 1,810
<INCOME-PRETAX> (24)
<INCOME-TAX> (400)
<INCOME-CONTINUING> 376
<DISCONTINUED> 0
<EXTRAORDINARY> (1,318)
<CHANGES> 0
<NET-INCOME> (942)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
<FN>
<F1>Includes the following assets: demand note of $1,312, deferred income
taxes--current of $843, deferred income taxes--long-term of $400, restricted
cash of $3,597, investment in limited partnership of $152, and intangible
assets, net of $3,263.
<F2>Includes the following long-term liabilities: deferred income of $3,144, and
long-term debt of $18,149.
<F3>Includes the following equity accounts: additional paid-in capital of $48,911,
and accumulated deficit of $(7,184).
<F4>Includes loss on investment in limited partnership of $367.
</FN>
</TABLE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
COMPARATIVE NET INCOME (LOSS) PER SHARE CALCUALTION
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
June 30, June 30,
1995 1996 1995 1996
Pro forma income before
<S> <C> <C> <C> <C>
extraordinary loss $ 154 $ 260 $ 8 $ 385
Extraordinary loss, net -- (1,318) -- (1,318)
Pro forma net income (loss) $ 154 $(1,058) $ 8 $ (933)
Weighted average number of
common and common equivalent
shares 4,425,000 5,092,000 4,425,000 4,760,000
Primary and Fully Diluted Amounts
Per Share:
Pro forma net income
before extraordinary loss $ 0.03 $ 0.05 $ 0.00 $ 0.08
Extraordinary loss, net -- (0.26) -- (0.28)
Pro forma net income (loss) $ 0.03 $ (0.21) $ 0.00 $ (0.20)
Weighted average number of shares
and common stock equivalents:
Weighted average number of
common shares 4,400,000 5,073,000 4,400,000 4,738,000
Additional shares from assumed
exercise of stock options
granted with exercise price
below initial public
offering price 25,000 19,000 25,000 22,000
Total number of shares used to
calculate Primary and Fully
Diluted Net Income (Loss)
per Share 4,425,000 5,092,000 4,425,000 4,760,000
</TABLE>
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
HARBORSIDE HEALTHCARE CORPORATION
1. Name. The name of the corporation is Harborside
Healthcare Corporation (the "Corporation").
2. Address; Registered Office and Agent. The address of the
Corporation's registered office is 1013 Centre Road, City of Wilmington,
County of New Castle, State of Delaware; and its registered agent at such
address is
The Prentice-Hall Corporation System, Inc.
3. Purpose. The purpose of the Corporation is to engage in,
carry on and conduct any lawful act or activity for which corporations may
be organized under the Delaware General Corporation Law.
4. Number of Shares. The total number of shares of stock
that the Corporation shall have authority to issue is 31,000,000, divided
as follows: 1,000,000 shares of Preferred Stock, of the par value of $.01
per share (the "Preferred Stock") and 30,000,000 shares of Common Stock, of
the par value of $.01 per share (the "Common Stock").
5. Designation of Classes; Relative Rights, Etc. The
designation, relative rights, preferences and limitations of the shares of
each class are as follows:
<PAGE>
2
5.1 Preferred Stock. The shares of Preferred Stock may
be issued from time to time in one or more series of any number of shares,
provided that the aggregate number of shares issued and not canceled of any
and all such series shall not exceed the total number of shares of
Preferred Stock hereinabove authorized, and with such powers, preferences,
rights and qualifications, limitations or restrictions thereof, and such
distinctive serial designations, all as shall hereafter be stated and
expressed in the resolution or resolutions adopted by the Board of
Directors of the Corporation (the "Board of Directors") providing for the
issue of such shares of Preferred Stock from time to time pursuant to
authority to do so which is hereby vested in the Board of Directors. Each
series of shares of Preferred Stock (a) may have such voting rights or
powers, full or limited, or may be without voting rights or powers; (b) may
be subject to redemption at such time or times and at such prices; (c) may
be entitled to receive dividends (which may be cumulative or non-
cumulative) at such rate or rates, on such conditions and at such times,
and payable in preference to, or in such relation to, the dividends payable
on any other class or classes or series of stock; (d) may have such rights
upon the voluntary or involuntary liquidation, winding up or dissolution
of, or upon any distribution of the assets of, the Corporation; (e) may be
made convertible into or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes of
stock of the Corporation at such price or prices or at such rates of
exchange and with such adjustments; (f) may be entitled to the benefit of a
sinking fund to be applied to the purchase or redemption of shares of such
series in such amount or amounts; (g) may be entitled to the benefit of
conditions and restrictions upon the creation of indebtedness of the
<PAGE>
3
Corporation or any subsidiary, upon the issue of any additional shares
(including additional shares of such series or of any other series) and
upon the payment of dividends or the making of other distributions on, and
the purchase, redemption or other acquisition by the Corporation or any
subsidiary of, any outstanding shares of the Corporation and (h) may have
such other relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof; all as shall be stated
in said resolution or resolutions providing for the issue of such shares of
Preferred Stock. Any of the voting powers, designations, preferences,
rights and qualifications, limitations or restrictions of any such series
of Preferred Stock may be made dependent upon facts ascertainable outside
of the resolution or resolutions adopted by the Board of Directors
providing for the issue of such Preferred Stock pursuant to the authority
vested in the Board by this Section 5.1, provided that the manner in which
such facts shall operate upon the voting powers, designations, preferences,
rights and qualifications, limitations or restrictions of such series of
Preferred Stock is clearly and expressly set forth in the resolution or
resolutions providing for the issue of such Preferred Stock. The term
"facts" as used in the preceding sentence shall have the meaning given to
it in section 151(a) of the Delaware General Corporation Law. Shares of
Preferred Stock of any series that have been redeemed (whether through the
operation of a sinking fund or otherwise) or that if convertible or
exchangeable have been converted into or exchanged for shares of any other
class or classes, shall have the status of authorized and unissued shares
of Preferred Stock undesignated as to series and may be reissued as a part
of the series of which they were originally a part or as part of a new
series of shares of Preferred Stock to be created by resolution or
<PAGE>
4
resolutions of the Board of Directors or as part of any other series of
shares of Preferred Stock, all subject to any conditions or restrictions on
issuance set forth in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of shares of Preferred
Stock.
5.2 Common Stock. Subject to the provisions of any
applicable law or of the By-laws of the Corporation, as from time to time
amended, with respect to the closing of the transfer books or the fixing of
a record date for the determination of stockholders entitled to vote and
except as otherwise provided by law or by the resolution or resolutions
providing for the issue of any series of shares of Preferred Stock, the
holders of outstanding shares of Common Stock shall exclusively possess
voting power for the election of directors and for all other purposes, each
holder of record of shares of Common Stock being entitled to one vote for
each share of Common Stock standing in his or her name on the books of the
Corporation. Except as otherwise provided by the resolution or resolutions
providing for the issue of any series of shares of Preferred Stock, the
holders of shares of Common Stock shall be entitled, to the exclusion of
the holders of shares of Preferred Stock of any and all series, to receive
such dividends as from time to time may be declared by the Board of
Directors. In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, after payment shall have
been made to the holders of shares of Preferred Stock of the full amount to
which they shall be entitled pursuant to the resolution or resolutions
providing for the issue of any series of shares of Preferred Stock, the
holders of shares of Common Stock shall be entitled, to the exclusion of
the holders of shares of Preferred Stock of any and all series, to share,
<PAGE>
5
ratably according to the number of shares of Common Stock held by them, in
all remaining assets of the Corporation available for distribution to its
stockholders.
5.3 Consideration. Subject to the provisions of this
Certificate of Incorporation and except as otherwise provided by law, the
stock of the Corporation, regardless of class, may be issued for such
consideration and for such corporate purposes as the Board of Directors may
from time to time determine.
6. Compromise, Arrangement or Reorganization. Whenever a
compromise or arrangement is proposed between this Corporation and its
creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of
this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on
the application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title
8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value
of the creditors or class of creditors, and/or of the stockholders or class
of stockholders of this Corporation, as the case may be, agrees to any
compromise or arrangement and to any reorganization of this Corporation as
a consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court
<PAGE>
6
to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
7. Limitation of Liability. No director of the Corporation
shall be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, including
breaches resulting from such director s grossly negligent behavior, except
for liability (a) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the Delaware General Corporation Law or (d)
for any transaction from which the director derived any improper personal
benefits. If the Delaware General Corporation Law is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
8. Indemnification.
8.1 To the extent not prohibited by law, the Corporation
shall indemnify any person who is or was made, or threatened to be made, a
party to any threatened, pending or completed action, suit or proceeding (a
<PAGE>
7
"Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the
Corporation to procure a judgment in its favor, by reason of the fact that
such person, or a person of whom such person is the legal representative,
is or was a director or officer of the Corporation, or is or was serving as
a director, officer, employee or agent or in any other capacity at the
request of the Corporation, for any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise (an "Other
Entity") while serving as a director or officer of the Corporation, against
judgments, fines, penalties, excise taxes, amounts paid in settlement and
costs, charges and expenses (including attorneys' fees and disbursements)
actually and reasonably incurred by such person in connection with such
Proceeding, if such person acted in good faith and in a manner such person
believed to be in or not opposed to the best interests of the Corporation
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was unlawful. To the extent specified
by the Board of Directors of the Corporation at any time and to the extent
not prohibited by law, the Corporation may indemnify any person who is or
was made, or threatened to be made, a party to any threatened, pending or
completed Proceeding, whether civil, criminal, administrative or
investigative, including, without limitation, an action by or in the right
of the Corporation to procure a judgment in its favor, by reason of the
fact that such person is or was an employee or agent of the Corporation, or
is or was serving as a director, officer, employee or agent or in any other
capacity at the request of the Corporation, for any Other Entity, against
judgment, fines, penalties, excise taxes, amounts paid in settlement and
costs, charges and expenses (including attorneys' fees and disbursements)
<PAGE>
8
actually and reasonably incurred by such person in connection with such
Proceeding, if such person acted in good faith and in a manner such person
believed to be in or not opposed to the best interests of the Corporation
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was unlawful.
8.2 The Corporation shall, from time to time, reimburse
or advance to any director or officer or other person entitled to
indemnification hereunder the funds necessary for payment of expenses,
including attorneys' fees and disbursements, incurred in connection with
any Proceeding, in advance of the final disposition of such Proceeding;
provided, however, that, if required by the Delaware General Corporation
Law, such expenses incurred by or on behalf of any director or officer or
other person may be paid in advance of the final disposition of a
Proceeding only upon receipt by the Corporation of an undertaking, by or on
behalf of such director or officer (or other person indemnified hereunder),
to repay any such amount so advanced if it shall ultimately be determined
by final judicial decision from which there is no further right of appeal
that such director, officer or other person is not entitled to be
indemnified for such expenses.
8.3 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 8
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, this Amended and Restated
Certificate of Incorporation, the By-laws of the Corporation (the "By-
laws"), any agreement (including any policy of insurance purchased or
provided by the Corporation under which directors, officers, employees and
<PAGE>
9
other agents of the Corporation are covered), any vote of stockholders or
disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office.
8.4 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 8
shall continue as to a person who has ceased to be a director or officer
(or other person indemnified hereunder) and shall inure to the benefit of
the executors, administrators, legatees and distributees of such person.
8.5 The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of an
Other Entity, against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions
of this Section 8, the By-laws or under Section 145 of the Delaware General
Corporation Law or any other provision of law.
8.6 The provisions of this Section 8 shall be a
contract between the Corporation, on the one hand, and each director and
officer who serves in such capacity at any time while this Section 8 is in
effect and any other person indemnified hereunder, on the other hand,
pursuant to which the Corporation and each such director, officer, or other
person intend to be legally bound. No repeal or modification of this
Section 8 shall affect any rights or obligations with respect to any state
of facts then or theretofore existing or thereafter arising or any
<PAGE>
10
proceeding theretofore or thereafter brought or threatened based in whole
or in part upon any such state of facts.
8.7 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 8
shall be enforceable by any person entitled to such indemnification or
reimbursement or advancement of expenses in any court of competent jurisdic
tion. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel and its stockholders) to have made
a determination prior to the commencement of such action that such
indemnification or reimbursement or advancement of expenses is proper in
the circumstances nor an actual determination by the Corporation (including
its Board of Directors, its independent legal counsel and its stockholders)
that such person is not entitled to such indemnification or reimbursement
or advancement of expenses shall constitute a defense to the action or
create a presumption that such person is not so entitled. Such a person
shall also be indemnified for any expenses incurred in connection with
successfully establishing his or her right to such indemnification or
reimburse-ment or advancement of expenses, in whole or in part, in any such
proceeding.
8.8 Any director or officer of the Corporation serving
in any capacity in (i) another corporation of which a majority of the
shares entitled to vote in the election of its directors is held, directly
or indirectly, by the Corporation or (ii) any employee benefit plan of the
Corporation or any corporation referred to in clause (i) shall be deemed to
be doing so at the request of the Corporation.
8.9 Any person entitled to be indemnified or to
reimbursement or advancement of expenses as a matter of right pursuant to
<PAGE>
11
this Section 8 may elect to have the right to indemnification or
reimbursement or advancement of expenses interpreted on the basis of the
applicable law in effect at the time of the occurrence of the event or
events giving rise to the applicable Proceeding, to the extent permitted by
law, or on the basis of the applicable law in effect at the time such
indemnification or reimbursement or advancement of expenses is sought.
Such election shall be made, by a notice in writing to the Corporation, at
the time indemnification or reimbursement or advancement of expenses is
sought; provided, however, that if no such notice is given, the right to
indemnification or reimbursement or advancement of expenses shall be
determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.
9. Directors. This Section is inserted for the management
of the business and for the conduct of the affairs of the Corporation and
it is expressly provided that it is intended to be in furtherance of and
not in limitation or exclusion of the powers conferred by applicable law.
9.1 Number, Election, and Terms of Office of Board of
Directors. The business of the Corporation shall be managed by a Board of
Directors consisting of not less than 3 or more than 15 members. The exact
number of directors within the minimum and maximum limitations specified in
the preceding sentence shall be fixed from time to time by resolution
adopted by a majority of the entire Board of Directors then in office,
whether or not present at a meeting. Directors may be elected by written
ballot or by voice vote. The directors shall be divided into three classes
with the term of office of the first class to expire at the first annual
meeting of stockholders of the Corporation next following the end of the
Corporation's fiscal year ending December 31, 1996, the term of office of
<PAGE>
12
the second class to expire at the first annual meeting of stockholders of
the Corporation next following the end of the Corporation's fiscal year
ending December 31, 1997, and the term of office of the third class to
expire at the annual meeting of stockholders of the Corporation next
following the end of the Corporation's fiscal year ending December 31,
1998. At each annual meeting of stockholders following such initial
election as specified above, directors elected to succeed those directors
whose terms expire shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after their election.
9.2 Tenure. Notwithstanding any provisions to the
contrary contained herein, each director shall hold office until his
successor is elected and qualified, or until his earlier death, resignation
or removal.
9.3 Newly Created Directorships and Vacancies. Subject
to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal
from office or other cause shall be filled by a majority vote of the
remaining directors then in office although less than a quorum, or by a
sole remaining director, and directors so chosen shall hold office for a
term expiring at the annual meeting of stockholders at which the term of
the class to which they have been elected expires or, in each case, until
their respective successors are duly elected and qualified. No decrease in
the number of directors constituting the Board of Directors shall shorten
the term of any incumbent director. When any director shall give notice of
<PAGE>
13
resignation effective at a future date, the Board of Directors may fill
such vacancy to take effect when such resignation shall become effective.
9.4 Removal of Directors. Any one or more or all of
the directors may be removed, at any time, but only for cause by the
stockholders having at least a majority in voting power of the then issued
and outstanding shares of capital stock of the Corporation.
10. Action by Stockholders. Notwithstanding the provisions
of section 228 of the Delaware General Corporation Law (or any successor
statute), any action required or permitted by the Delaware General
Corporation Law to be taken at any annual or special meeting of
stockholders of the Corporation may be taken only at such an annual or
special meeting of stockholders and cannot be taken by written consent
without a meeting. At any annual meeting or special meeting of
stockholders of the Corporation, only such business shall be conducted as
shall have been brought before such meeting in the manner provided by the
By-laws of the Corporation.
11. Special Meetings of Stockholders. Special meetings of
stockholders for any purpose may be called at any time by the Board of
Directors, the Chairman of the Board of Directors or by the President of
the Corporation. Special meetings shall be held at such place or places
within or without the State of Delaware as shall from time to time be
designated by the Board of Directors and stated in the notice of such
meeting or in the waiver of notice thereof.
12. Adoption, Amendment and/or Repeal of By-Laws. The Board
of Directors may from time to time adopt, amend or repeal the By-laws of
the Corporation; provided, however, that any By-laws adopted or amended by
<PAGE>
14
the Board of Directors may be amended or repealed, and any By-laws may be
adopted, by a vote of the stockholders having at least a majority in voting
power of the then issued and outstanding shares of capital stock of the
Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation, which restates and amends the
Corporation s Certificate of Incorporation, after having been duly adopted,
recommended and approved by the Board of Directors and adopted by the
written consent of the holders of all of the outstanding shares of Common
Stock in accordance with sections 228, 242 and 245 of the Delaware General
Corporation Law, to be signed by its duly authorized officer this ___ day
of May, 1996.
/s/ Bruce Beardsley
Name: Bruce Beardsley
Title: Senior Vice President
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
HARBORSIDE HEALTHCARE CORPORATION
A Delaware Corporation
Adopted by the Board of Directors: May 24, 1996
Approved by Stockholders: June 6, 1996
<PAGE>
AMENDED AND RESTATED BY-LAWS
of
Harborside Healthcare Corporation
(A Delaware Corporation)
________________________
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise
requires, the term:
1.1 "Assistant Secretary" means an Assistant Secretary of the
Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the
Corporation.
1.3 "Audit Committee" means the Audit Committee of the Board.
1.4 "Board" means the Board of Directors of the Corporation.
1.5 "Business Day" means any day which is not a Saturday, a
Sunday or a day on which banks are authorized to close in the City of
Boston.
1.6 "By-laws" means the by-laws of the Corporation, as
amended from time to time.
1.7 "Certificate of Incorporation" means the amended and
restated certificate of incorporation of the Corporation, as amended,
supplemented or restated from time to time.
1.8 "Chairman" means the Chairman of the Board of Directors
of the Corporation.
<PAGE>
2
1.9 "Chief Financial Officer" means the Chief Financial
Officer of the Corporation.
1.10 "Corporation" means Harborside Healthcare Corporation.
1.11 "Directors" means directors of the Corpora-tion.
1.12 "Entire Board" means all directors of the Corporation in
office, whether or not present at a meeting of the Board, but disregarding
vacancies.
1.13 "Executive Committee" means the Executive Committee of the
Board.
1.14 "General Corporation Law" means the General Corporation
Law of the State of Delaware, as amended from time to time.
1.15 "Office of the Corporation" means the executive office of
the Corporation, anything in Section 131 of the General Corporation Law to
the contrary notwithstanding.
1.16 "President" means the President of the Corporation.
1.17 "Secretary" means the Secretary of the Corporation.
1.18 "Stockholders" means stockholders of the Corporation.
1.19 "Treasurer" means the Treasurer of the Corporation.
1.20 "Vice President" means a Vice President of the
Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 Place of Meetings. Every meeting of stockholders shall
be held at the office of the Corporation or at such other place within or
without the State of Delaware as shall be specified or fixed in the notice
of such meeting or in the waiver of notice thereof.
<PAGE>
3
2.2 Annual Meeting. A meeting of stockholders shall be held
annually for the election of Directors and the transaction of other
business at such hour and on such business day in each year as may be
determined by resolution adopted by affirmative vote of a majority vote of
the Entire Board and designated in the notice of meeting.
2.3 Deferred Meeting for Election of Directors, Etc. If the
annual meeting of stockholders for the election of Directors and the
transaction of other business is not held on the date designated therefor
or at any adjournment of a meeting convened on such date, the Board by
resolution adopted by affirmative vote of a majority vote of the Entire
Board, shall call a meeting of stockholders for the election of Directors
and the transaction of other business as soon thereafter as convenient.
2.4 Special Meetings. A special meeting of stockholders,
unless otherwise prescribed by statute, may be called at any time by the
Board, the Chairman of the Board or by the President. At any special
meeting of stockholders, no business may be transacted other than (i) such
business stated in the notice thereof given pursuant to Section 2.6 hereof
or in any waiver of notice thereof given pursuant to Section 2.7 hereof (in
a form prepared by the Secretary) or (ii) such business as is related to
the purpose or purposes of such meeting and which is properly brought
before the meeting by or at the direction of the Board.
2.5 Fixing Record Date. For the purpose of (a) determining
the Stockholders entitled (i) to notice of or to vote at any meeting of
Stockholders or any adjournment thereof or (ii) to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise
any rights in respect of any change, conversion or exchange of stock; or
(b) any other lawful action, the Board may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record
<PAGE>
4
date was adopted by the Board and which record date shall not be (x) in the
case of clause (a)(i) above, more than sixty nor less than ten days before
the date of such meeting and (y) in the case of clause (a)(ii) or (b)
above, more than sixty days prior to such action. If no such record date
is fixed:
2.5.1 the record date for determining Stockholders
entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on
which notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is
held; and
2.5.2 the record date for determining stockholders
for any purpose other than those specified in Section 2.5.1 shall be
at the close of business on the day on which the Board adopts the
resolution relating thereto.
When a determination of Stockholders entitled to notice of or to vote at
any meeting of Stockholders has been made as provided in this Section 2.5,
such determination shall apply to any adjournment thereof unless the Board
fixes a new record date for the adjourned meeting.
2.6 Notice of Meetings of Stockholders. Except as otherwise
provided in Section 2.7 hereof, whenever under the provisions of any
statute, the Certificate of Incorporation or these By-laws, Stockholders
are required or permitted to take any action at a meeting, written notice
shall be given stating the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by any statute, the Certificate of
Incorporation or these By-laws, a copy of the notice of any meeting shall
be given, personally or by mail, not less than ten nor more than sixty days
<PAGE>
5
before the date of the meeting, to each Stockholder entitled to notice of
or to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, with postage prepaid,
directed to the Stockholder at his or her address as it appears on the
records of the Corporation. An affidavit of the Secretary or an Assistant
Secretary or of the transfer agent of the Corporation that the notice
required by this Section 2.6 has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. When a meeting is
adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken, and at the adjourned meeting any
business may be transacted that might have been transacted at the meeting
as originally called. If, however, the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder of record entitled to vote at the meeting.
2.7 Waivers of Notice. Whenever the giving of any notice is
required by statute, the Certificate of Incorporation or these By-laws, a
waiver thereof, in writing, signed by the Stockholder or Stockholders en-
titled to said notice, whether before or after the event as to which such
notice is required, shall be deemed equivalent to notice. Attendance by a
Stockholder at a meeting shall constitute a waiver of notice of such
meeting except when the Stockholder attends a meeting for the express pur-
pose of objecting, at the beginning of the meeting, to the transaction of
any business on the ground that the meeting has not been lawfully called or
convened.
2.8 List of Stockholders. The Secretary shall prepare and
make, or cause to be prepared and made, at least ten days before every
<PAGE>
6
meeting of Stockholders, a complete list of the Stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the
address of each Stockholder and the number of shares registered in the name
of each Stockholder. Such list shall be open to the examination of any
Stockholder, the Stockholder's agent or attorney, at the Stockholder's
expense, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof,
and may be inspected by any Stockholder who is present. The Corporation
shall maintain the list of Stockholders in written form or in another form
capable of conversion into written form within a reasonable time. The
stock ledger shall be the only evidence as to who are the Stockholders
entitled to examine the stock ledger, the list of Stockholders or the books
of the Corporation, or to vote in person or by proxy at any meeting of
Stockholders.
2.9 Quorum of Stockholders; Adjournment. Except as otherwise
provided by any statute, the Certificate of Incorporation or these By-laws,
the holders of a majority of all outstanding shares of stock entitled to
vote at any meeting of Stockholders, present in person or represented by
proxy, shall constitute a quorum for the transaction of any business at
such meeting. When a quorum is once present to organize a meeting of
Stockholders, it is not broken by the subsequent withdrawal of any
Stockholders. The holders of a majority of the shares of stock present in
person or represented by proxy at any meeting of Stockholders, including an
adjourned meeting, whether or not a quorum is present, may adjourn such
<PAGE>
7
meeting to another time and place. Shares of its own stock belonging to
the Corporation or to another corporation, if a majority of the shares
entitled to vote in the election of directors of such other corporation is
held, directly or indirectly, by the Corporation, shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary
capacity.
2.10 Voting; Proxies. Unless otherwise provided in the
Certificate of Incorporation, every Stockholder of record shall be entitled
at every meeting of Stockholders to one vote for each share of capital
stock standing in his or her name on the record of Stockholders determined
in accordance with Section 2.5 hereof. If the Certificate of Incorporation
provides for more or less than one vote for any share on any matter, each
reference in the By-laws or the General Corporation Law to a majority or
other proportion of stock shall refer to such majority or other proportion
of the votes of such stock. The provisions of Sections 212 and 217 of the
General Corporation Law shall apply in determining whether any shares of
capital stock may be voted and the persons, if any, entitled to vote such
shares; but the Corporation shall be protected in assuming that the persons
in whose names shares of capital stock stand on the stock ledger of the
Corporation are entitled to vote such shares. Holders of redeemable shares
of stock are not entitled to vote after the notice of redemption is mailed
to such holders and a sum sufficient to redeem the stocks has been
deposited with a bank, trust company, or other financial institution under
an irrevocable obligation to pay the holders the redemption price on
surrender of the shares of stock. At any meeting of Stockholders (at which
a quorum was present to organize the meeting), all matters which may be
<PAGE>
8
properly considered at such meeting, except as otherwise provided by
statute or by the Certificate of Incorporation or by these By-laws, shall
be decided by a majority of the votes cast at such meeting by the holders
of shares present in person or represented by proxy and entitled to vote
thereon, whether or not a quorum is present when the vote is taken.
Directors may be elected either by written ballot or by voice vote. In
voting on any other question on which a vote by ballot is required by law
or is demanded by any Stockholder entitled to vote, the voting shall be by
ballot. Each ballot shall be signed by the Stockholder voting or the
Stockholder's proxy and shall state the number of shares voted. On all
other questions, the voting may be by voice vote. Each Stockholder
entitled to vote at a meeting of Stockholders may authorize another person
or persons to act for such Stockholder by proxy. The validity and
enforceability of any proxy shall be determined in accordance with Section
212 of the General Corporation Law. A Stockholder may revoke any proxy
that is not irrevocable by attending the meeting and voting in person or by
filing an instrument in writing revoking the proxy or by delivering a proxy
in accordance with applicable law bearing a later date to the Secretary.
2.11 Voting Procedures and Inspectors of Election at Meetings
of Stockholders. The Corporation, in advance of any meeting of
Stockholders, shall appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
<PAGE>
9
ability. The inspectors shall (a) ascertain the number of shares
outstanding and the voting power of each, (b) determine the shares
represented at the meeting and the validity of proxies and ballots,
(c) count all votes and ballots, (d) determine and retain for a reasonable
period a record of the disposition of any challenges made to any
determination by the inspectors, and (e) certify their determination of the
number of shares represented at the meeting and their count of all votes
and ballots. The inspectors may appoint or retain other persons or
entities to assist the inspectors in the performance of their duties. The
date and time of the opening and the closing of the polls for each matter
upon which the Stockholders will vote at a meeting shall be determined by
the person presiding at the meeting and shall be announced at the meeting.
No ballot, proxies or votes, or any revocation thereof or change thereto,
shall be accepted by the inspectors after the closing of the polls unless
the Court of Chancery of the State of Delaware upon application by a
Stockholder shall determine otherwise.
2.12 Conduct of Meetings. (a) At each meeting of
Stockholders, the President, or in the absence of the President, the
Chairman, or if there is no Chairman or if there be one and the Chairman is
absent, a Vice President, and in case more than one Vice President shall be
present, that Vice President designated by the Board (or in the absence of
any such designation, the most senior Vice President, based on seniority,
present), shall act as chairman of the meeting. The Secretary, or in his
or her absence one of the Assistant Secretaries, shall act as secretary of
the meeting. In case none of the officers above designated to act as
chairman or secretary of the meeting, respectively, shall be present, a
chairman or a secretary of the meeting, as the case may be, shall be chosen
by a majority of the votes cast at such meeting by the holders of shares of
<PAGE>
10
capital stock present in person or represented by proxy and entitled to
vote at the meeting.
(a) Only persons who are nominated in accordance with
the following procedures shall be eligible for election as Directors.
Nominations of persons for election to the Board may be made at an annual
meeting or special meeting of Stockholders (i) by or at the direction of
the Board, (ii) by any nominating committee or person appointed by the
Board or (iii) by any Stockholder of the Corporation entitled to vote for
the election of Directors at the meeting who complies with the provisions
of the following paragraph (persons nominated in accordance with (iii)
above are referred to herein as "Stockholder nominees").
In addition to any other applicable requirements, all
nominations of Stockholder nominees must be made by written notice given by
or on behalf of a Stockholder of record of the Corporation (the "Notice of
Nomination"). The Notice of Nomination must be delivered personally to, or
mailed to, and received at the principal executive offices of the
Corporation, addressed to the attention of the Secretary. To be timely,
Notice of Nomination must have been received by the Secretary of the
Corporation (a) in the case of an annual meeting, not less than 60, nor
more than 90 days in advance of the first anniversary of the previous
year s annual meeting; provided, however, that in the event that the date
on which the annual meeting is held is more than 30 days prior to or
60 days later than such anniversary date, the Notice of Nomination to be
timely must have been received by the Secretary of the Corporation no later
than the close of business on the 10th day following the day on which
public announcement of the date of such meeting is first made; and (b) in
the case of a special meeting at which directors are to be elected, not
later than the close of business on the fifth day following such public
<PAGE>
11
announcement. For purposes of this section, in the case of the first
annual meeting following the initial public offering of the Corporation s
Common Stock, the date of the previous annual meeting will be deemed to be
May 15, 1996. Each such notice shall set forth: (i) the name and address,
as they appear on the Corporation s books, of the stockholder who intends
to make the nomination and the name(s) and address(es) of the person or
persons to be nominated; (ii) a representation that the stockholder is a
holder of record of shares of the Corporation and the number and class so
held and will be entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting and nominate the person or persons
specified in the notice; (iii) the class and number of shares of the
Corporation that are beneficially owned by the stockholder; (iv) a
description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (v) such other information regarding each nominee proposed
by such stockholder as would be required to be included in a definitive
proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be
nominated, by the Board of Directors; and (vi) the consent of each nominee
to serve as a director of the Corporation, if so elected. In addition, the
stockholder making such nomination shall promptly provide any other
information reasonably requested by the Corporation. Notwithstanding
anything in these By-laws to the contrary, no person shall be eligible for
election as a director of the Corporation unless nominated in accordance
with the procedures set forth in this Section 12.2(b). Notwithstanding the
foregoing provisions of this By-law, a stockholder shall also comply with
all applicable requirements of the Exchange Act and the rules and
<PAGE>
12
regulations thereunder with respect to the matters set forth in this
By-law. Nothing in this By-law shall be deemed to affect any rights of the
holders of any series of Preferred Stock to elect directors under specified
circumstances. Except as otherwise required by law, the chairman of any
meeting of stockholders shall have the power and duty (i) to determine
whether a nomination was made in accordance with the requirements set forth
in this By-law and (ii) if any proposed nomination was not made in
compliance with this By-law, to declare that such defective nomination
shall be disregarded.
(a) At any annual meeting of Stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting of Stockholders,
(i) business must be specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board, (ii) otherwise properly
brought before the meeting by or at the direction of the Board or (iii)
otherwise properly brought before the meeting by a Stockholder in
accordance with the terms of the following paragraph (business brought
before the meeting in accordance with (iii) above is referred to as
"Stockholder business").
In addition to any other applicable requirements, all proposals
of Stockholder business must be made by written notice given by or on
behalf of a Stockholder of record of the Corporation (the "Notice of
Business"). To be timely, a stockholder s notice must have been received
by the Secretary of the Corporation not less than 60 nor more than 90 days
in advance of the first anniversary of the previous year's annual meeting;
provided, however, that in the event that the date on which the annual
meeting is held is more than 30 days prior to or 60 days later than such
anniversary date, notice by the shareholder to be timely must have been
<PAGE>
13
received no later than the close of business on the 10th day following the
day on which public announcement of the date of such meeting is first made.
For purposes of this section, in the case of the first annual meeting
following the initial public offering of the Corporation s Common Stock,
the date of the previous year s annual meeting shall be deemed to be May
15, 1996. Such Notice of Business shall set forth (i) the name and record
address of the Stockholder proposing such Stockholder business; (ii) a
representation that the Stockholder is a holder of record of shares of the
Corporation and the number and class so held and will be entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting;
(iii) the class and number of shares of the Corporation that are
beneficially owned by the Stockholder; (iv) a brief description of the
Stockholder business desired to be brought before the annual meeting and
the reasons for conducting such Stockholder business at the annual meeting,
and; (v) any material interest of the Stockholder in such Stockholder
business. Notwithstanding anything in these By-laws to the contrary, no
business shall be conducted at the annual meeting of Stockholders except in
accordance with the procedures set forth in this Section 2.12(c), provided,
however, that nothing in this Section 2.12(c) shall be deemed to preclude
discussion by any Stockholder of any business properly brought before the
annual meeting in accordance with said procedure. In addition, the share-
holder making such proposal shall promptly provide any other information
reasonably requested by the Corporation. Only such business shall be
conducted at any annual meeting of stockholders as shall have been brought
before such meeting in accordance with the requirements set forth in this
By-law.
Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the
<PAGE>
14
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this By-law. Nothing
in this By-law shall be deemed to affect any rights of any stockholder to
request inclusion of a proposal in the Corporation s proxy statement
pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Except as otherwise required by law, the
chairman of any annual meeting of stockholders shall have the power and
duty (i) to determine whether any business proposed to be brought before
the meeting was brought in accordance with the requirements set forth in
this By-law and (ii) if any proposed business was not brought in compliance
with this By-law to declare that such defective proposal shall be
disregarded. For purposes of this By-law and the next preceding By-law,
"public announcement" shall mean disclosure in a press release reported by
the Dow Jones News Service, the Associated Press or any comparable national
news service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Exchange Act.
2.13 Order of Business. The order of business at all meetings
of Stockholders shall be as determined by the chairman of the meeting, but
the order of business to be followed at any meeting at which a quorum is
present may be changed by a majority of the votes cast at such meeting by
the holders of shares of capital stock present in person or represented by
proxy and entitled to vote at the meeting.
2.14 Action by Stockholders. Notwithstanding the provisions
of section 228 of the General Corporation Law (or any successor statute),
any action required or permitted by the General Corporation Law to be taken
at any annual or special meeting of Stockholders of the Corporation may be
<PAGE>
15
taken only at such an annual or special meeting of Stockholders and cannot
be taken by written consent without a meeting.
ARTICLE 3
Directors
3.1 General Powers. Except as otherwise provided in the
Certificate of Incorporation, the business and affairs of the Corporation
shall be managed by or under the direction of the Board. The Board may
adopt such rules and regulations, not inconsistent with the Certificate of
Incorporation or these By-laws or applicable laws, as it may deem proper
for the conduct of its meetings and the management of the Corporation. In
addition to the powers expressly conferred by these By-laws, the Board may
exercise all powers and perform all acts that are not required, by these
By-laws or the Certificate of Incorporation or by statute, to be exercised
and performed by the Stockholders.
3.2 Number; Qualification; Term of Office. The Board shall
consist of not less than 3 or more than 15 members. The exact number of
Directors within the minimum and maximum limitations specified in the
preceding sentence shall be fixed from time to time by resolution adopted
by a majority of the entire Board then in office, whether or not present at
a meeting. Directors need not be stockholders. The Directors shall be
divided into three classes, each such class to consist as nearly as
practicable of one-third of the members of the Board, with the term of
office of the first class to expire at the first annual meeting of
Stockholders of the Corporation next following the end of the Corporation's
fiscal year ending December 31, 1996, the term of office of the second
class to expire at the first annual meeting of Stockholders of the
Corporation next following the end of the Corporation's fiscal year ending
<PAGE>
16
December 31, 1997 and the term of office of the third class to expire at
the annual meeting of Stockholders of the Corporation next following the
end of the Corporation's fiscal year ending December 31, 1998. At each
annual meeting of Stockholders following such initial election as specified
above, Directors elected to succeed those Directors whose terms expire
shall be elected for a term of office to expire at the third succeeding
annual meeting of Stockholders after their election. Each director shall
hold office until a successor is elected and qualified or until the
Director's death, resignation or removal.
3.3 Election. Directors shall, except as otherwise required
by statute or by the Certificate of Incorporation, be elected by a
plurality of the votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy at the meeting and
entitled to vote in the election.
3.4 Newly Created Directorships and Vacancies. Unless
otherwise provided in the Certificate of Incorporation, newly created
Directorships resulting from any increase in the authorized number of
Directors and vacancies occurring in the Board for any other reason, may be
filled by the affirmative votes of a majority of the entire Board, although
less than a quorum, or by a sole remaining Director, and Directors so
chosen shall hold office for a term expiring at the annual meeting of
Stockholders at which the term of the class to which they have been elected
expires, or, in each case until their respective successors are duly
elected and qualified, or until the respective Directors' earlier death,
resignation or removal.
3.5 Resignation. Any Director may resign at any time by
written notice to the Corporation. Such resignation shall take effect at
the time therein specified, and, unless otherwise specified in such
<PAGE>
17
resignation, the acceptance of such resignation shall not be necessary to
make it effective.
3.6 Removal. Any one or more or all of the Directors may be
removed, at any time, but only for cause by the Stockholders having at
least a majority in voting power of the then issued and outstanding shares
of capital stock of the Corporation.
3.7 Compensation. Each Director, in consideration of his or
her service as such, shall be entitled to receive from the Corporation such
amount per annum or such fees for attendance at Directors' meetings, or
both, as the Board may from time to time determine, together with
reimbursement for the reasonable out-of-pocket expenses, if any, incurred
by such Director in connection with the performance of his or her duties.
Each Director who shall serve as a member of any committee of Directors in
consideration of serving as such shall be entitled to such additional
amount per annum or such fees for attendance at committee meetings, or
both, as the Board may from time to time determine, together with
reimbursement for the reasonable out-of-pocket expenses, if any, incurred
by such Director in the performance of his or her duties. Nothing
contained in this Section 3.7 shall preclude any Director from serving the
Corporation or its subsidiaries in any other capacity and receiving proper
compensation therefor.
3.8 Times and Places of Meetings. The Board may hold
meetings, both regular and special, either within or without the State of
Delaware. The times and places for holding meetings of the Board may be
fixed from time to time by resolution of the Board or (unless contrary to a
resolution of the Board) in the notice of the meeting.
3.9 Annual Meetings. On the day when and at the place where
the annual meeting of stockholders for the election of Directors is held,
<PAGE>
18
and as soon as practicable thereafter, the Board may hold its annual
meeting, without notice of such meeting, for the purposes of organization,
the election of officers and the transaction of other business. The annual
meeting of the Board may be held at any other time and place specified in a
notice given as provided in Section 3.11 hereof for special meetings of the
Board or in a waiver of notice thereof.
3.10 Regular Meetings. Regular meetings of the Board may be
held without notice at such times and at such places as shall from time to
time be determined by the Board.
3.11 Special Meetings. Special meetings of the Board may be
called by the Chairman, the President or the Secretary or by any two or
more Directors then serving on at least one day's notice to each Director
given by one of the means specified in Section 3.14 hereof other than by
mail, or on at least three days' notice if given by mail. Special meetings
shall be called by the Chairman, President or Secretary in like manner and
on like notice on the written request of any two or more of the Directors
then serving.
3.12 Telephone Meetings. Directors or members of any
committee designated by the Board may participate in a meeting of the Board
or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
this Section 3.12 shall constitute presence in person at such meeting.
3.13 Adjourned Meetings. A majority of the Directors present
at any meeting of the Board, including an adjourned meeting, whether or not
a quorum is present, may adjourn such meeting to another time and place.
At least one day's notice of any adjourned meeting of the Board shall be
given to each Director whether or not present at the time of the adjourn-
<PAGE>
19
ment, if such notice shall be given by one of the means specified in
Section 3.14 hereof other than by mail, or at least three days' notice if
by mail. Any business may be transacted at an adjourned meeting that might
have been transacted at the meeting as originally called.
3.14 Notice Procedure. Subject to Sections 3.11 and 3.15
hereof, whenever, under the provisions of any statute, the Certificate of
Incorporation or these By-laws, notice is required to be given to any
Director, such notice shall be deemed given effectively if given in person
or by telephone, by mail addressed to such Director at such Director's
address as it appears on the records of the Corporation, with postage
thereon prepaid, or by telegram, telex, telecopy or similar means addressed
as aforesaid.
3.15 Waiver of Notice. Whenever the giving of any notice is
required by statute, the Certificate of Incorporation or these By-laws, a
waiver thereof, in writing, signed by the person or persons entitled to
said notice, whether before or after the event as to which such notice is
required, shall be deemed equivalent to notice. Attendance by a person at
a meeting shall constitute a waiver of notice of such meeting except when
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground
that the meeting has not been lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Directors or a committee of Directors need be specified in
any written waiver of notice unless so required by statute, the Certificate
of Incorporation or these By-laws.
3.16 Organization. At each meeting of the Board, the
Chairman, or in the absence of the Chairman the President, or in the
absence of the President a chairman chosen by a majority of the Directors
<PAGE>
20
present, shall preside. The Secretary shall act as secretary at each
meeting of the Board. In case the Secretary shall be absent from any
meeting of the Board, an Assistant Secretary shall perform the duties of
secretary at such meeting; and in the absence from any such meeting of the
Secretary and all Assistant Secretaries, the person presiding at the
meeting may appoint any person to act as secretary of the meeting.
3.17 Quorum of Directors. The presence in person of a
majority of the entire Board shall be necessary and sufficient to
constitute a quorum for the transaction of business at any meeting of the
Board, but a majority of a smaller number may adjourn any such meeting to a
later date. 3.18 Action by Majority Vote. Except as otherwise
expressly required by statute, the Certificate of Incorporation or these
By-laws, the act of a majority of the Directors present at a meeting at
which a quorum is present shall be the act of the Board.
3.19 Action Without Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board or of any committee
thereof may be taken without a meeting if all Directors or members of such
committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee.
ARTICLE 4
COMMITTEES OF THE BOARD
4.1 Executive Committee. The Board may, by resolution passed
by a majority of the Entire Board, designate two or more of their number to
constitute an Executive Committee to hold office at the pleasure of the
Board. The Executive Committee shall have reasonable access during normal
<PAGE>
21
working hours to all significant information (including all books and
records) respecting the Corporation and its assets. Subject to the
provisions of the General Corporation Law, the Executive Committee shall
meet with members of the Corporation s senior management from time to time
between meetings of the Board for the purpose of advice and consultation
only and shall have no power or authority to exercise any powers of the
Board.
The membership of the Executive Committee may be changed at any
time by a resolution of a majority of the Entire Board.
Any person ceasing to be a Director shall ipso facto cease to
be a member of the Executive Committee.
Any vacancy in the Executive Committee occurring from any cause
whatsoever may be filled from among the Directors by a resolution of a
majority of the Entire Board.
4.2 Audit Committee. The Board may, by resolution passed by
a majority of the Entire Board, designate two or more of their number to
constitute an Audit Committee to hold office at the pleasure of the Board.
The function of the Audit Committee shall be (a) to review the professional
services and independence of the Corporation's independent auditors and the
scope of the annual external audit as recommended by the independent
auditors, (b) to ensure that the scope of the annual external audit is
sufficiently comprehensive, (c) to review, in consultation with the
independent auditors and the internal auditors, the plan and results of the
annual external audit, the adequacy of the Corporation's internal control
systems and the results of the Corporation's internal audits, (d) to
review, with management and the independent auditors, the Corporation's
annual financial statements, financial reporting practices and the results
of each external audit and (e) to undertake reasonably related activities
<PAGE>
22
to those set forth in clauses (a) through (d) of this Section 4.2. The
Audit Committee shall also have the authority to consider the qualification
of the Corporation's independent auditors, to make recommendations to the
Board as to their selection and retention and to review and resolve
disputes between such independent auditors and management relating to the
preparation of the annual financial statements.
4.3 Other Committees. In addition to the Executive Committee
and the Audit Committee, the Board may, by resolution passed by a vote of
the Entire Board, designate one or more other committees of the Board, each
committee to consist of one or more of the Directors of the Corporation.
The Board may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of such committee. If a member of a committee shall be absent from any
meeting, or disqualified from voting thereat, the remaining member or
members present and not disqualified from voting (other than the Audit
Committee and the Executive Committee), whether or not such member or
members constitute a quorum, may, by a unanimous vote, appoint another
member of the Board to act at the meeting in the place of any such absent
or disqualified member. Any such committee, to the extent provided in the
resolution of the Board passed as aforesaid, shall have and may exercise
all the powers and authority of the Board in the management of the business
and affairs of the Corporation, and may authorize the seal of the
Corporation to be impressed on all papers that may require it, but no such
committee (except the Executive Committee) shall have the power or
authority of the Board in reference to amending the Certificate of Incor-
poration, adopting an agreement of merger or consolidation under
section 251 or section 252 of the General Corporation Law, recommending to
the stockholders (a) the sale, lease or exchange of all or substantially
<PAGE>
23
all of the Corporation's property and assets, or (b) a dissolution of the
Corporation or a revocation of a dissolution, or amending the By-laws of
the Corporation; and, unless the resolution designating it expressly so
provides, no such committee shall have the power and authority to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation
Law. Unless otherwise specified in the resolution of the Board designating
a committee, at all meetings of such committee a majority of the total
number of members of the committee shall constitute a quorum for the
transaction of business, and the vote of a majority of the members of the
committee present at any meeting at which there is a quorum shall be the
act of the committee. Each committee shall keep regular minutes of its
meetings. Unless the Board otherwise provides, each committee designated
by the Board may make, alter and repeal rules for the conduct of its
business. In the absence of such rules each committee shall conduct its
business in the same manner as the Board conducts its business pursuant to
Article 3 of these By-laws.
4.4 Committee Minutes. The committees shall keep regular
minutes of their proceedings and report the same to the Board.
ARTICLE 5
OFFICERS
5.1 Positions. The officers of the Corporation shall be a
President, a Secretary, a Treasurer or a Chief Financial Officer and such
other officers as the Board may appoint, including a Chairman, one or more
Vice Presidents and one or more Assistant Secretaries and Assistant
Treasurers, who shall exercise such powers and perform such duties as shall
be determined from time to time by the Board. The Board may designate one
<PAGE>
24
or more Vice Presidents as Executive Vice Presidents and may use
descriptive words or phrases to designate the standing, seniority or areas
of special competence of the Vice Presidents elected or appointed by it.
Any number of offices may be held by the same person unless the Certificate
of Incorporation or these By-laws otherwise provide.
5.2 Appointment. The officers of the Corporation shall be
chosen by the Board at its annual meeting or at such other time or times as
the Board shall determine.
5.3 Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board. No officer shall be prevented
from receiving a salary or other compensation by reason of the fact that
the officer is also a Director.
5.4 Term of Office. Each officer of the Corporation shall
hold office for the term for which he or she is elected and until such
officer's successor is chosen and qualifies or until such officer's earlier
death, resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. Such resignation shall take effect at
the date of receipt of such notice or at such later time as is therein
specified, and, unless otherwise specified, the acceptance of such
resignation shall not be necessary to make it effective. The resignation
of an officer shall be without prejudice to the contract rights of the
Corporation, if any. Any officer elected or appointed by the Board may be
removed at any time, with or without cause, by vote of a majority of the
entire Board. Any vacancy occurring in any office of the Corporation shall
be filled by the Board. The removal of an officer without cause shall be
without prejudice to the officer's contract rights, if any. The election
or appointment of an officer shall not of itself create contract rights.
<PAGE>
25
5.5 Fidelity Bonds. The Corporation may secure the fidelity
of any or all of its officers or agents by bond or otherwise.
5.6 Chairman. The Chairman, if one shall have been
appointed, shall preside at all meetings of the Board and shall exercise
such powers and perform such other duties as shall be determined from time
to time by the Board.
5.7 President. The President shall be the Chief Executive
Officer of the Corporation and shall have general supervision over the
business of the Corporation, subject, however, to the control of the Board
and of any duly authorized committee of Directors. The President shall
preside at all meetings of the Stockholders and at all meetings of the
Board at which the Chairman (if there be one) is not present. The
President may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts and other instruments except in cases in which
the signing and execution thereof shall be expressly delegated by the Board
or by these By-laws to some other officer or agent of the Corporation or
shall be required by statute otherwise to be signed or executed and, in
general, the President shall perform all duties incident to the office of
President of a corporation and such other duties as may from time to time
be assigned to the President by the Board.
5.8 Vice Presidents. At the request of the President, or, in
the President's absence, at the request of the Board, the Vice Presidents
shall (in such order as may be designated by the Board or, in the absence
of any such designation, in order of seniority based on age) perform all of
the duties of the President and, in so performing, shall have all the
powers of, and be subject to all restrictions upon, the President. Any
Vice President may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments, except in cases in which
<PAGE>
26
the signing and execution thereof shall be expressly delegated by the Board
or by these By-laws to some other officer or agent of the Corporation, or
shall be required by statute otherwise to be signed or executed, and each
Vice President shall perform such other duties as from time to time may be
assigned to such Vice President by the Board or by the President.
5.9 Secretary. The Secretary shall attend all meetings of
the Board and of the Stockholders and shall record all the proceedings of
the meetings of the Board and of the stockholders in a book to be kept for
that purpose, and shall perform like duties for committees of the Board,
when required. The Secretary shall give, or cause to be given, notice of
all special meetings of the Board and of the stockholders and shall perform
such other duties as may be prescribed by the Board or by the President,
under whose supervision the Secretary shall be. The Secretary shall have
custody of the corporate seal of the Corporation, and the Secretary, or an
Assistant Secretary, shall have authority to impress the same on any
instrument requiring it, and when so impressed the seal may be attested by
the signature of the Secretary or by the signature of such Assistant
Secretary. The Board may give general authority to any other officer to
impress the seal of the Corporation and to attest the same by such
officer's signature. The Secretary or an Assistant Secretary may also
attest all instruments signed by the President or any Vice President. The
Secretary shall have charge of all the books, records and papers of the
Corporation relating to its organization and management, shall see that the
reports, statements and other documents required by statute are properly
kept and filed and, in general, shall perform all duties incident to the
office of Secretary of a corporation and such other duties as may from time
to time be assigned to the Secretary by the Board or by the President.
<PAGE>
27
5.10 Treasurer or Chief Financial Officer. The Treasurer or
Chief Financial Officer shall have charge and custody of, and be
responsible for, all funds, securities and notes of the Corporation;
receive and give receipts for moneys due and payable to the Corporation
from any sources whatsoever; deposit all such moneys and valuable effects
in the name and to the credit of the Corporation in such depositaries as
may be designated by the Board; against proper vouchers, cause such funds
to be disbursed by checks or drafts on the authorized depositaries of the
Corporation signed in such manner as shall be determined by the Board and
be responsible for the accuracy of the amounts of all moneys so disbursed;
regularly enter or cause to be entered in books or other records maintained
for the purpose full and adequate account of all moneys received or paid
for the account of the Corporation; have the right to require from time to
time reports or statements giving such information as the Treasurer or
Chief Financial Officer may desire with respect to any and all financial
transactions of the Corporation from the officers or agents transacting the
same; render to the President or the Board, whenever the President or the
Board shall require the Treasurer or Chief Financial Officer so to do, an
account of the financial condition of the Corporation and of all financial
transactions of the Corporation; exhibit at all reasonable times the
records and books of account to any of the Directors upon application at
the office of the Corporation where such records and books are kept;
disburse the funds of the Corporation as ordered by the Board; and, in
general, perform all duties incident to the office of Treasurer or Chief
Financial Officer of a corporation and such other duties as may from time
to time be assigned to the Treasurer or Chief Financial Officer by the
Board or the President.
<PAGE>
28
5.11 Assistant Secretaries and Assistant Treasurers.
Assistant Secretaries and Assistant Treasurers shall perform such duties as
shall be assigned to them by the Secretary or by the Treasurer or Chief
Financial Officer, respectively, or by the Board or by the President.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 Execution of Contracts. The Board, except as otherwise
provided in these By-laws, may prospectively or retroactively authorize any
officer or officers, employee or employees or agent or agents, in the name
and on behalf of the Corporation, to enter into any contract or execute and
deliver any instrument, and any such authority may be general or confined
to specific instances, or otherwise limited.
6.2 Loans. The Board may prospectively or retroactively
authorize the President or any other officer, employee or agent of the
Corporation to effect loans and advances at any time for the Corporation
from any bank, trust company or other institution, or from any firm,
corporation or individual, and for such loans and advances the person so
authorized may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, and, when
authorized by the Board so to do, may pledge and hypothecate or transfer
any securities or other property of the Corporation as security for any
such loans or advances. Such authority conferred by the Board may be
general or confined to specific instances, or otherwise limited.
6.3 Checks, Drafts, Etc. All checks, drafts and other orders
for the payment of money out of the funds of the Corporation and all
evidences of indebtedness of the Corporation shall be signed on behalf of
<PAGE>
29
the Corporation in such manner as shall from time to time be determined by
resolution of the Board.
6.4 Deposits. The funds of the Corporation not otherwise
employed shall be deposited from time to time to the order of the
Corporation with such banks, trust companies, investment banking firms,
financial institutions or other depositaries as the Board may select or as
may be selected by an officer, employee or agent of the Corporation to whom
such power to select may from time to time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
7.1 Certificates Representing Shares. The shares of capital
stock of the Corporation shall be represented by certificates in such form
(consistent with the provisions of Section 158 of the General Corporation
Law) as shall be approved by the Board. Such certificates shall be signed
by the Chairman, the President or a Vice President and by the Secretary or
an Assistant Secretary or the Treasurer or Chief Financial Officer or an
Assistant Treasurer, and may be impressed with the seal of the Corporation
or a facsimile thereof. The signatures of the officers upon a certificate
may be facsimiles, if the certificate is countersigned by a transfer agent
or registrar other than the Corporation itself or its employee. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon any certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued,
such certificate may, unless otherwise ordered by the Board, be issued by
the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
<PAGE>
30
7.2 Transfer of Shares. Transfers of shares of capital stock
of the Corporation shall be made only on the books of the Corporation by
the holder thereof or by the holder's duly authorized attorney appointed by
a power of attorney duly executed and filed with the Secretary or a
transfer agent of the Corporation, and on surrender of the certificate or
certificates representing such shares of capital stock properly endorsed
for transfer and upon payment of all necessary transfer taxes. Every
certificate exchanged, returned or surrendered to the Corporation shall be
marked "Cancelled," with the date of cancellation, by the Secretary or an
Assistant Secretary or the transfer agent of the Corporation. A person in
whose name shares of capital stock shall stand on the books of the
Corporation shall be deemed the owner thereof to receive dividends, to vote
as such owner and for all other purposes as respects the Corporation. No
transfer of shares of capital stock shall be valid as against the
Corporation, its stockholders and creditors for any purpose, except to
render the transferee liable for the debts of the Corporation to the extent
provided by law, until such transfer shall have been entered on the books
of the Corporation by an entry showing from and to whom transferred.
7.3 Transfer and Registry Agents. The Corporation may from
time to time maintain one or more transfer offices or agents and registry
offices or agents at such place or places as may be determined from time to
time by the Board.
7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The
holder of any shares of capital stock of the Corporation shall immediately
notify the Corporation of any loss, destruction, theft or mutilation of the
certificate representing such shares, and the Corporation may issue a new
certificate to replace the certificate alleged to have been lost,
destroyed, stolen or mutilated. The Board may, in its discretion, as a
<PAGE>
31
condition to the issue of any such new certificate, require the owner of
the lost, destroyed, stolen or mutilated certificate, or his or her legal
representatives, to make proof satisfactory to the Board of such loss,
destruction, theft or mutilation and to advertise such fact in such manner
as the Board may require, and to give the Corporation and its transfer
agents and registrars, or such of them as the Board may require, a bond in
such form, in such sums and with such surety or sureties as the Board may
direct, to indemnify the Corporation and its transfer agents and registrars
against any claim that may be made against any of them on account of the
continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with
such claim.
7.5 Rules and Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these By-laws
or with the Certificate of Incorporation, concerning the issue, transfer
and registration of certificates representing shares of its capital stock.
7.6 Restriction on Transfer of Stock. A written restriction
on the transfer or registration of transfer of capital stock of the
Corporation, if permitted by Section 202 of the General Corporation Law and
noted conspicuously on the certificate representing such capital stock, may
be enforced against the holder of the restricted capital stock or any
successor or transferee of the holder, including an executor,
administrator, trustee, guardian or other fiduciary entrusted with like
responsibility for the person or estate of the holder. Unless noted
conspicuously on the certificate representing such capital stock, a
restriction, even though permitted by Section 202 of the General
Corporation Law, shall be ineffective except against a person with actual
knowledge of the restriction. A restriction on the transfer or
<PAGE>
32
registration of transfer of capital stock of the Corporation may be imposed
either by the Certificate of Incorporation or by an agreement among any
number of stockholders or among such stockholders and the Corporation. No
restriction so imposed shall be binding with respect to capital stock
issued prior to the adoption of the restriction unless the holders of such
capital stock are parties to an agreement or voted in favor of the
restriction.
7.7 Dividends, Surplus, Etc. Subject to the provisions of
the Certificate of Incorporation and of law, the Board:
7.7.1 may declare and pay dividends or make other
distributions on the outstanding shares of capital stock in such
amounts and at such time or times as it, in its discretion, shall
deem advisable giving due consideration to the condition of the
affairs of the Corporation;
7.7.2 may use and apply, in its discretion, any of
the surplus of the Corporation in purchasing or acquiring any shares
of capital stock of the Corporation, or purchase warrants therefor,
in accordance with law, or any of its bonds, debentures, notes, scrip
or other securities or evidences of indebtedness; and
7.7.3 may set aside from time to time out of such
surplus or net profits such sum or sums as, in its discretion, it may
think proper, as a reserve fund to meet contingencies, or for
equalizing dividends or for the purpose of maintaining or increasing
the property or business of the Corporation, or for any purpose it
may think conducive to the best interests of the Corporation.
<PAGE>
33
ARTICLE 8
INDEMNIFICATION
8.1 Indemnity Undertaking. To the extent not prohibited by
law, the Corporation shall indemnify any person who is or was made, or
threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding (a "Proceeding"), whether civil, criminal,
administrative or investigative, including, without limitation, an action
by or in the right of the Corporation to procure a judgment in its favor,
by reason of the fact that such person, or a person of whom such person is
the legal representative, is or was a Director or officer of the
Corporation, or is or was serving as a director, officer, employee or agent
or in any other capacity at the request of the Corporation for any other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise (an "Other Entity") while serving as a Director or officer
of the Corporation, against judgments, fines, penalties, excise taxes,
amounts paid in settlement and costs, charges and expenses (including
attorneys' fees and disbursements) actually and reasonably incurred by such
person in connection with such Proceeding if such person acted in good
faith and in a manner such person believed to be in or not opposed to the
best interests of the Corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. To the extent specified by the Board at any time and to the
extent not prohibited by law, the Corporation may indemnify any person who
is or was made, or threatened to be made, a party to any threatened,
pending or completed Proceeding, whether civil, criminal, administrative or
investigative, including, without limitation, an action by or in the right
of the Corporation to procure a judgment in its favor, by reason of the
fact that such person is or was an employee or agent of the Corporation, or
<PAGE>
34
is or was serving as a director, officer, employee or agent or in any other
capacity at the request of the Corporation for any Other Entity, against
judgments, fines, penalties, excise taxes, amounts paid in settlement and
costs, charges and expenses (including attorneys' fees and disbursements)
actually and reasonably incurred by such person in connection with such
Proceeding if such person acted in good faith and in a manner such person
believed to be in or not opposed to the best interests of the Corporation
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was unlawful.
8.2 Advancement of Expenses. The Corporation shall, from
time to time, reimburse or advance to any Director or officer or other
person entitled to indemnification hereunder the funds necessary for
payment of expenses, including attorneys' fees and disbursements, incurred
in connection with any Proceeding, in advance of the final disposition of
such Proceeding; provided, however, that, if required by the General
Corporation Law, such expenses incurred by or on behalf of any Director or
officer or other person may be paid in advance of the final disposition of
a Proceeding only upon receipt by the Corporation of an undertaking, by or
on behalf of such Director or officer (or other person indemnified
hereunder), to repay any such amount so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
of appeal that such Director, officer or other person is not entitled to be
indemnified for such expenses.
8.3 Rights Not Exclusive. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant
to, this Article 8 shall not be deemed exclusive of any other rights to
which a person seeking indemnification or reimbursement or advancement of
expenses may have or hereafter be entitled under any statute, the
<PAGE>
35
Certificate of Incorporation, these By-laws, any agreement (including any
policy of insurance purchased or provided by the Corporation under which
directors, officers, employees and other agents of the Corporation are
covered), any vote of stockholders or disinterested Directors or otherwise,
both as to action in his or her official capacity and as to action in
another capacity while holding such office.
8.4 Continuation of Benefits. The rights to indemnification
and reimbursement or advancement of expenses provided by, or granted
pursuant to, this Article 8 shall continue as to a person who has ceased to
be a Director or officer (or other person indemnified hereunder) and shall
inure to the benefit of the executors, administrators, legatees and
distributees of such person.
8.5 Insurance. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of an
Other Entity, against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions
of this Article 8, the Certificate of Incorporation or under section 145 of
the General Corporation Law or any other provision of law.
8.6 Binding Effect. The provisions of this Article 8 shall
be a contract between the Corporation, on the one hand, and each Director
and officer who serves in such capacity at any time while this Article 8 is
in effect and any other person entitled to indemnification hereunder, on
the other hand, pursuant to which the Corporation and each such Director,
officer or other person intend to be, and shall be legally bound. No
<PAGE>
36
repeal or modification of this Article 8 shall affect any rights or
obligations with respect to any state of facts then or theretofore existing
or thereafter arising or any proceeding theretofore or thereafter brought
or threatened based in whole or in part upon any such state of facts.
8.7 Procedural Rights. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant
to, this Article 8 shall be enforceable by any person entitled to such
indemnification or reimbursement or advancement of expenses in any court of
competent jurisdiction. Neither the failure of the Corporation (including
its Board, its independent legal counsel and its Stockholders) to have made
a determination prior to the commencement of such action that such
indemnification or reimbursement or advancement of expenses is proper in
the circumstances nor an actual determination by the Corporation (including
its Board, its independent legal counsel and its Stockholders) that such
person is not entitled to such indemnification or reimbursement or
advancement of expenses shall constitute a defense to the action or create
a presumption that such person is not so entitled. Such a person shall
also be indemnified for any expenses incurred in connection with
successfully establishing his or her right to such indemnification or
reimbursement or advancement of expenses, in whole or in part, in any such
proceeding.
8.8 Service Deemed at Corporation's Request. Any Director or
officer of the Corporation serving in any capacity in (a) another
corporation of which a majority of the shares entitled to vote in the
election of its directors is held, directly or indirectly, by the
Corporation or (b) any employee benefit plan of the Corporation or any
corporation referred to in clause (a) shall be deemed to be doing so at the
request of the Corporation.
<PAGE>
37
8.9 Election of Applicable Law. Any person entitled to be
indemnified or to reimbursement or advancement of expenses as a matter of
right pursuant to this Article 8 may elect to have the right to
indemnification or reimbursement or advancement of expenses interpreted on
the basis of the applicable law in effect at the time of the occurrence of
the event or events giving rise to the applicable Proceeding, to the extent
permitted by law, or on the basis of the applicable law in effect at the
time such indemnification or reimbursement or advancement of expenses is
sought. Such election shall be made, by a notice in writing to the
Corporation, at the time indemnification or reimbursement or advancement of
expenses is sought; provided, however, that if no such notice is given, the
right to indemnification or reimbursement or advancement of expenses shall
be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.
ARTICLE 9
BOOKS AND RECORDS
9.1 Books and Records. There shall be kept at the principal
office of the Corporation correct and complete records and books of account
recording the financial transactions of the Corporation and minutes of the
proceedings of the stockholders, the Board and any committee of the Board.
The Corporation shall keep at its principal office, or at the office of the
transfer agent or registrar of the Corporation, a record containing the
names and addresses of all stockholders, the number and class of shares
held by each and the dates when they respectively became the owners of
record thereof.
9.2 Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock
<PAGE>
38
ledger, books of account, and minute books, may be kept on, or be in the
form of, punch cards, magnetic tape, photographs, microphotographs, or any
other information storage device, provided that the records so kept can be
converted into clearly legible written form within a reasonable time. The
Corporation shall so convert any records so kept upon the request of any
person entitled to inspect the same.
9.3 Inspection of Books and Records. Except as otherwise
provided by law, the Board shall determine from time to time whether, and,
if allowed, when and under what conditions and regulations, the accounts,
books, minutes and other records of the Corporation, or any of them, shall
be open to the stockholders for inspection.
ARTICLE 10
SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall end on December 31 in
each year, and may be changed by resolution of the Board.
ARTICLE 12
PROXIES AND CONSENTS
Unless otherwise directed by the Board, the Chairman, the
President, any Vice President, the Secretary or the Treasurer or Chief
Financial Officer, or any one of them, may execute and deliver on behalf of
<PAGE>
39
the Corporation proxies respecting any and all shares or other ownership
interests of any Other Entity owned by the Corporation. Any such officer
may appoint such person or persons as the officer shall deem proper to (a)
represent and vote the shares or other ownership interests so owned by the
Corporation at any and all meetings of holders of shares or other ownership
interests of such Other Entity, whether general or special, and (b) execute
and deliver consents respecting such shares or other ownership interests.
Any such officer may also attend any meeting of the holders of shares or
other ownership interests of such Other Entity and thereat vote or exercise
any or all other powers of the Corporation as the holder of such shares or
other ownership interests.
ARTICLE 13
EMERGENCY BY-LAWS
Unless the Certificate of Incorporation provides otherwise, the
following provisions of this Article 13 shall be effective during an
emergency, which is defined as when a quorum of the Corporation's Directors
cannot be readily assembled because of some catastrophic event. During
such emergency:
13.1 Notice to Board Members. Any one member of the Board or
any one of the following officers: Chairman, President, any Vice
President, Secretary, or Treasurer or Chief Financial Officer, may call a
meeting of the Board. Notice of such meeting need be given only to those
Directors whom it is practicable to reach, and may be given in any
practical manner, including by publication and radio. Such notice shall be
given at least six hours prior to commencement of the meeting.
13.2 Temporary Directors and Quorum. One or more officers of
the Corporation present at the emergency Board meeting, as is necessary to
<PAGE>
40
achieve a quorum, shall be considered to be Directors for the meeting, and
shall so serve in order of rank, and within the same rank, in order of
seniority. In the event that less than a quorum of the Directors are
present (including any officers who are to serve as Directors for the
meeting), those Directors present (including the officers serving as
Directors) shall constitute a quorum.
13.3 Actions Permitted To Be Taken. The Board as constituted
in Section 13.2, and after notice as set forth in Section 13.1 may:
13.3.1 prescribe emergency powers to any officer of the
Corporation;
13.3.2 delegate to any officer or Director, any of the
powers of the Board;
13.3.3 designate lines of succession of officers and
agents, in the event that any of them are unable to discharge their
duties;
13.3.4 relocate the principal place of business, or
designate successive or simultaneous principal places of business;
and
13.3.5 take any other convenient, helpful or necessary
action to carry on the business of the Corporation.
ARTICLE 14
AMENDMENTS
The Board may from time to time adopt, amend or repeal the By-
laws; provided, however, that any By-laws adopted or amended by the Board
may be amended or repealed, and any By-laws may be adopted, by a vote of
the Stockholders having at least a majority in voting power of the then
issued and outstanding shares of capital stock of the Corporation.
<PAGE>
